Spain: more stable employment contracts

The Supreme Court has modified its jurisprudence on subcontracting, limiting the scope for abuse of temporary contracts.

On December 29th 2020, the Social Chamber of the Spanish Supreme Court delivered a belated Christmas gift for less abusive labour practices in 2021 and beyond. In its judgment, the chamber unanimously reversed the earlier case law of the Supreme Court, ending the possibility of temporary contracts being deployed via subcontracting for work or service of indefinite duration.

Since the end of the 1990s, the Supreme Court had allowed that the duration of an employment contract for a specific work or service, concluded by a company to provide that service to a client, could be limited to the duration of the contract itself. This allowed subcontracted companies to hire employees for that period, even when the activity was permanent in nature.

Approach abandoned

The recent ruling fundamentally changes this criterion, abandoning the previous approach. In particular, the Supreme Court ruled that when the contractor’s activity consisted ‘precisely in carrying out services for third parties’ the requirement that the work or service be ‘independent and substantial’ in relation to the company’s employment activity—justifying the temporary nature of the employment contract—did not suffice.

If an assignment were not intrinsically singular, it would not justify a contract for work or service. So, for example, if a company arranged for the maintenance of its installations (with regard to, say, cleaning or information technology) with a third party, the third party would not be allowed to hire temporary employees for this purpose because the need would be structural, not specific.

The court ruling denied the legality of companies essentially subcontracting to avail themselves of such temporary contracts. The Social Chamber argued that it was unreasonable to maintain that the bulk of such activities were ‘exceptional’, as required by contracts for work or services. In other words, it could no longer be sustained that an undertaking could rely on a workforce subject to the rules of indeterminate employment for what was the essence of its activity.

The judges held, in addition, that the rendering automatic of such temporary contracts could lead to conflicts with European Union law, specifically with the fixed-term directive 99/70, which aims to establish a framework to preclude abuse by the use of consecutive, fixed-term employment contracts or relationships.

Essentially, this judgment puts an end to an abusive practice by obliging contracting companies to recognise workers who carry out their activity continuously as employed indefinitely. Any workers eventually made redundant as a consequence of a reduction in the activity for which they and their company had been hired would then be entitled to compensation. This is not the case with temporary contracts and, as such, many workers are left unprotected in case of dismissal.

Unsurprising reaction

The reaction of the social partners has been far from surprising. On the one hand, trade unions have celebrated the ruling as a final recognition of their historic demands to end abusive and widespread transience of employment through subcontracting. One of the two main confederations, the UGT, specifically applauded the judgment’s applicability to contracts dating before 2010, since that year’s reform limited contracts to at least three years for a specific work or service but did not apply to contracts signed before its entry into force.

The ruling however did not sit well on the side of the employers. They argued that it would have a major impact on the production model, as many companies would see their viability jeopardised, which according to them would hinder thousands of jobs.

This judgment has extremely important ramifications in Spain, where the rate of temporary employment is above 24 per cent, nearly twice the European average (14.2). In absolute terms, roughly 3.8 million people have a temporary contract, as opposed to 12.2 million who enjoy a permanent one.

Excessive precarity

This brings Spain one step closer to the goal of reducing excessive transience and precarity in the labour market, which is key to the Recovery, Transformation and Resilience Plan put forward last October by the coalition government of the Spanish Socialist Workers’ Party (PSOE) and Unidas Podemos.

With regards to the labour market, the government has designed a set of measures to simplify the contractual framework, reducing it to three forms: in the first place, and as a general rule for an employment relationship, the indefinite contract; second, and only when duly justified by a temporary need which prevents the activity from being carried out indefinitely, a temporary contract; and, last, training contracts, which aim at facilitating market integration for people lacking relevant work experience.

This commitment and the renewed emphasis on indefinite contracts go hand in hand with the plans to strengthen and modernise collective bargaining in Spain, alongside the progressive elevation (since 2019) of the statutory minimum income.