When an ERTE becomes an ERE in Spain

Since the onset of the SARS-CoV-2 pandemic, most of us have learnt some new words and concepts that only a few were familiar with up until now: surgical masks, FFP2 masks, coronavirus, PPE, PCR, telework, etc… The pandemic has changed (and had an effect on) everything: the field of health, economics and, of course, employment.
The temporary layoffs known in Spain as ERTEs have been headline news, forming part of the “new normal” over these last few months. And while the Minister of Labour and Social Economy, Yolanda Díaz, calls for calm as she announces a new agreement with trade unions and employers’ organisations to extend the ERTEs until 31 May, many companies are wondering what will happen if, regrettably, the ERTE applied to them has to turn into an ERE.

 

The difference between an ERTE and an ERE (collective dismissal)

The main difference between an ERTE and an ERE lies in the temporary or permanent nature of these procedures. This is reflected by the acronyms in Spanish. An ERTE implies a temporary suspension of the employment contract, whereas in the case of an ERE, the contract is not suspended, but terminated, and so the employment relationship comes to an end.

Another important difference is that an ERTE does not have to be applied to a set number of workers, whereas an ERE does. Companies with less than 100 workers must follow a collective dismissal procedure if at least 10 workers are affected by the contract terminations planned; in the case of companies with between 100 and 300 employees, if a minimum of 10% of the workforce are affected; and when a company has more than 300 staff, if at least 30 workers are affected. It should be borne in mind that if the numbers dismissed exceed the threshold prescribed and a company does not follow a collective dismissal procedure, the redundancies will be declared void, and the company will be obliged to reinstate the employees and pay them the salaries accrued.

Finally, it is worth underlining that in an ERE the workers or their representatives negotiate compensation. However, in certain ERTEs negotiation is limited to the duration of the layoff (suspension of contracts or reduction of working hours) and to ways of alleviating its effects, while there is no negotiation of possible compensation. 

 

Types of ERTE

There are two types of temporary layoff (ERTE):

ERTE due to force majeure: This can be applied by companies that are forced to suspend a contract or reduce working hours due to an external factor over which they have no control, e.g. fires, extreme weather conditions such as floods, orders to close issued by government authorities…).

Therefore and on account of the pandemic, for the purpose of implementing an ERTE of these characteristics, the government included under the heading of force majeure all those prohibitions on opening contained in the State of Emergency Royal Decree and, as at today, those declared by the various regional governments (ERTE due to Force Majeure as a result of Impediment of Activity and ERTE due to Force Majeure as a result of Limitation of Activity).

ERTE on financial, technical, organisational or production-related grounds (ETOP): Applies to companies that are forced to suspend a contract or reduce working hours on grounds strictly related with the business of the company. In other words, when the effect on its activity is not directly due to orders not to open from the competent government authorities, this is the form of ERTE to be applied, not the ERTE due to force majeure (independently of whether the pandemic has a certain indirect effect on its activity).

 

Limitations on the termination of employment contracts

Thus, in the present context, it is essential to bear in mind what restrictions there are on the possible termination of employment contracts and to be aware that both types of ERTE must basically fulfil two clauses.

1. Companies that have applied an ERTE (either due to force majeure or on ETOP grounds) and benefited during the process from exemption from paying social security contributions, must safeguard their workers’ jobs for a period of 6 months after recommencing operations unless they are at risk of going into receivership. If they do not comply with this condition, they will have to return all the exemptions applied plus a 20% surcharge and interest.

2. Article 2 of RDL 9/2020 establishes that “force majeure and the financial, technical, organisational and production-related grounds for applying the measures of suspending contracts and reducing working hours stipulated in articles 22 and 23 of Royal Decree-Law 8/2020 (…) may not be taken to justify the termination of employment contracts or dismissals.” That is to say, grounds linked with the pandemic may not be used to justify dismissals. Today, most legal doctrine considers that the consequence of failure to comply with this prohibition is that the dismissal will be declared unfair. This prohibition has been extended until 30 May 2021.

 

The process of turning an ERTE into an ERE

Thus, through Royal Decree-Law 8/2020, ERTEs were made more flexible in order to avoid the large-scale redundancies caused by EREs. Nevertheless, nearly one year after the pandemic began, many SMEs see themselves forced to evaluate the possibility of applying an ERE. So, can an ERTE and an ERE overlap? The answer is yes. In this respect, jurisprudence has demanded that this collective dismissal is based on:

• New and different grounds from those on which the ERTE was based
• A substantial, sudden and unforeseen worsening of the grounds on which the ERTE was established.

 

ERE after an ERTE linked with COVID

It is important to bear in mind that, even in these situations, companies are bound by and subject to the aforementioned restrictions:

1. Protection of employment, so they will have to return the social security contributions they have been exempted from paying, together with 20% and the corresponding interest, if contracts are terminated (even within the framework of a collective dismissal) without complying with the aforementioned term of 6 months after recommencing operations.

2. Moreover, according to the predominant legal doctrine to date, it is understood that dismissals on grounds related with SARS-CoV-2 as referred to in articles 22 and 23 of Royal Decree-Law 8/2020, although they may be completely genuine and they can be accredited, are in fact unfair dismissals. And this despite the fact that they may be processed as a collective dismissal and existence of the grounds in question is confirmed.

 

Closure of operations: need to process an ERE

Unfortunately, many contracts may be terminated due to the closure of a company. In these situations, processing a collective dismissal (ERE) is necessary whenever the measure affects all the employees if there are more than 5. In this case, the workers should receive redundancy compensation. In the event that these processes are not followed, the redundancies will be declared void, the workers will be reinstated and the salaries accrued will be paid.

Another situation that may arise due to the pandemic and the crisis is that the financial difficulties of a company lead it to file for bankruptcy proceedings, within the context of which a collective dismissal procedure could be agreed. However, in this situation the employees would receive the corresponding compensation from the Salary Guarantee Fund (FOGASA) in the event that the company was unable to pay the sums required.

 

Advisory services for companies

Carrying out all these procedures is no simple matter. It is important to be clear about which option is the best for each company by studying all the possible scenarios. “It should not be forgotten that carrying out a collective dismissal procedure is not simple. This process has a considerable effect on both parties, the business owner and the workers, and a failure to follow the legal procedures correctly can have extremely negative consequences,” Germán Díez, head of Rosclar’s Labour Law department, warns. “We look at all the possibilities and alternatives with a meticulous and realistic eye, in order to assist companies throughout this situation,” Díez concludes.