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Spain Implements RED Mechanism for Employment Flexibility and Stabilization

By: Nathan North | 20 Jul 2023
Spain has recently implemented a new labor reform to provide employment flexibility and stabilization. The critical aspect of this reform is the introduction of the RED Mechanism (Reducción de Empleo por Despidos) for Employment Flexibility and Stabilization. The Royal Decree 608/2023, published on 11 July 2023, establishes the framework for the RED Mechanism and brings significant changes to the regulations governing collective layoff procedures.

Modalities of the RED Mechanism
The RED Mechanism may be activated in either cyclical or sectoral modalities. The cyclical modality occurs due to a general macroeconomic environment that warrants additional stabilization instruments. In contrast, the sectoral modality occurs when permanent changes are observed in specific sectors that necessitate worker retraining and career transition processes. The activation of the RED mechanism requires a resolution by the Council of Ministers after informing the most representative labor union and employers' organisations at the national level. This legislation came into force on 13 July 2023, the day after its publication in the Official State Gazette (Bolétin Oficial del Estado).

Applicable Measures
Once the RED Mechanism has been activated, employers can voluntarily request measures to reduce working hours or suspend employment contracts. Suspension of employment contracts applies when the termination of the worker's activity affects entire days, consecutively or alternatively, for at least one ordinary working day. Reduction of working hours involves a temporary reduction in employment activity, calculated on a daily, weekly, monthly, or annual basis. Measures for reduction of working hours are prioritized over suspensions, whenever feasible.

The procedure for implementing the RED Mechanism includes several essential aspects. The company management must duly notify workers or their representatives about the intention to commence the procedure, leading to the formation of a representative committee. The negotiating committee's establishment and operation are governed by the provisions of the Workers' Statute, with specific provisions outlined in the Royal Decree. The consultation period, during which negotiations take place, has a maximum duration of fifteen days but can be shortened to seven days for companies with less than fifty employees.

Employee Protection
Workers affected by the RED Mechanism can collectively request benefits provided for in the General Social Security Law. They are considered a priority group for accessing training initiatives to enhance their occupational skills and employability.

Benefits in Relation to Social Security Contributions
Employers implementing measures under the RED Mechanism benefit from exemptions from Social Security contributions, subject to certain conditions and requirements. These exemptions are contingent upon maintaining the employment of the affected workers for six months after the authorized period of the RED Mechanism.

Training Activities Linked to Extraordinary Benefits for Employers
During reductions of working hours or suspensions of employment contracts, employers must conduct training activities for the affected workers to enhance their occupational skills and employability. Certain exemptions are linked to the performance of training activities.

Limits Relating to Overtime, Recruitment, and Outsourcing
During the actual application of the RED Mechanism, overtime work is prohibited, and new outsourcing or recruitment arrangements are only allowed if the affected employees have the necessary qualifications or can perform the newly assigned tasks. Training contracts can still be entered into if they do not involve the functions or tasks usually performed by the affected workers.

Regulations Governing Procedures for Collective Layoff and Suspension of Contracts
The regulations governing procedures for collective layoffs and temporary employment regulation procedures have been amended. Employers intending to close work centres must provide at least six months' notice to the labor authority and the Ministry for Labor and Social Economy. The labor authority will ensure access to the administrative file and share the report from the Labor Inspectorate.

Entry into Force
The new legislation came into force on 13 July 2023 and applies to procedures initiated after that date. Any ongoing collective layoffs or temporary employment regulation procedures initiated before 13 July 2023 are governed by the regulations in force when they were initiated.

Spain's implementation of the RED Mechanism for Employment Flexibility and Stabilization represents an effort to address labor market needs and provide mechanisms for employers and workers to navigate economic challenges. The reforms aim to balance employment flexibility and worker protection, facilitating adaptations in changing economic circumstances.

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Nathan North is Director of Strategic Initiatives for PayrollOrg.