Newsletter December 2019

Mass redundancies vs. alternative measures for business reorganization and flexibility.

Course of action when a client files bankruptcy.

Salary record obligation: an anti gender-based discrimination measure.

Mass redundancies vs. alternative measures for business reorganization and flexibility.

According to data from the Ministry of Labour, Migration and Social Security regarding employment regulation statistics for the period between January and September 2019, the number of employees affected by mass redundancies, contract suspensions or reductions in working hours has increased by 32.1% with respect to the same period the previous year, with a total of 54,201 employees affected by the previous measures.

Specifically, the number of employees affected by collective dismissal procedures has increased significantly over this year, with percentage variations of 40.4%, and reaching up to 20,403 affected employees.

For all these reasons, in view of the described scenario of increases in mass redundancies, it is important to highlight the main measures of reorganization and labour flexibility that the labour law provides and that companies can apply in order to adapt their internal structure and organization in the face of a change in their economic or productive situation:

Functional mobility (article 39 ET): provides for the temporary assignment to employees of functions higher or lower than those of their professional group, which must be justified on technical or organizational grounds.

Geographical mobility (article 40 ET): provides for the transfer of employees to a different place of work within the same company, which requires a change of residence, the existence of economic, technical, organizational or production reasons having to be justified.

Substantial change in working conditions (article 41 ET): provides for the possibility of the company unilaterally modifying working conditions on the basis of economic, technical, organizational or production causes. By way of illustration, and without limitation, substantial modifications are considered to be those affecting (1) the working day, (2) the hours and distribution of working time, (3) the shift work regime, (4) the system of remuneration and salary amount, (5) the system of work and performance and (6) functions, when they exceed the limits foreseen for functional mobility.

Irregular distribution of working time (article 34 ET): first, it analyzes the possibility that the mechanisms of irregular distribution of the working day throughout the year can be regulated by means of a Collective Bargaining Agreement. In the absence of regulation by Collective Agreement, irregular distribution could be established by agreement between the company and the Workers' Legal Representatives. Finally, in the absence of an agreement, the company can unilaterally distribute in an irregular manner 10% of the working day throughout the year.

Suspension of contract or reduction of working hours (article 47 ET): the same procedure is established for both cases (very similar to that which must be followed in the event of mass redundancies), and this measure must be justified on economic, technical, organizational or production grounds.

Priority application of a company Collective Bargaining Agreement as opposed to a sectoral Collective Bargaining Agreement (article 84 ET): provides for priority application of the company's Collective Bargaining Agreement over the sectoral Collective Bargaining Agreement, which is an exception to the prior in tempore principle and the most favourable rule principle. However, the higher-level Collective Bargaining Agreement may be applied with respect to those matters not reserved to the company-level Collective Bargaining Agreement

Non-application by the company of the working conditions foreseen by the applicable Collective Agreement or “opt out” procedure (article 82 ET): provides, in the event of economic, technical, organizational or production causes, the circumstance that the company and the Workers’ Legal Representatives may agree to the non-application in the company of working conditions provided for in the Collective Bargaining Agreement, whether sectoral or company (statutory).

Course of action when a client files bankruptcy.

A bankruptcy proceeding is one of the main options for companies in financial difficulties. It is a mechanism regulated in our legal system for those cases in which a company cannot take over outstanding payments with its creditors.

Therefore, once a debtor company has started a bankruptcy proceeding and it has been approved, the administrator shall contact all the creditors to notify the proceeding by letter or e-mail, provide the proceeding information and require them to notify the claim within one month.

Furthermore, a creditor can gain knowledge of the bankruptcy situation directly from the Boletín Oficial del Estado [Official State Bulletin], by for example making an enquiry regarding the solvency of the client owing a credit.

Thus, upon receipt of notification of a customer's declaration of bankruptcy, creditors must communicate their claims in order to ensure that the entire amount is properly recognized.

The communication of a claim to the Insolvency Administrator can be made by replying the e-mail or letter within a period of one month after receipt of notification as mentioned above.

In those cases when no notification has been received and knowledge of the bankruptcy proceeding was gained by public information, that is, through the Boletín Oficial del Estado, the claim shall be communicated as soon as possible given that the deadline for reporting it is a month from the day after the publication of the bankruptcy proceeding in the Boletín Oficial del Estado.
In the first place, the claim communication shall include the creditor’s contact information: phone number, e-mail and address, so that the Insolvency Administrator can keep them informed on the proceeding evolution.

Next, the creditor shall detail the amounts owed, explain what is owed for, its due date and attach the invoice, contract or document attesting the amount owed.

Finally, the due credit should be rated, though in those case when we have no knowledge in this regard, the Insolvency Administrator will proceed to rate it.

Once the credit has been informed, the proceeding should be followed up given that it goes through different stages. During the initial stage, the Insolvency Administrator shall submit a report of the assets and liabilities of the bankruptcy proceeding. This report will include the rating of the recognized credits, which can be contested if the rating is incorrect. Thus, the creditor can have a general idea of the actual debtor’s situation and of the likeability of collecting their credit.

Then, the bankruptcy proceeding will continue in one of these two ways: Prior Agreement or pay-off. Both the debtor and the creditors and the Insolvency Administrator can propose an agreement or request a pay-off.

  1. Prior Agreement

Once the previous stages have been completed, sometimes the bankrupt company presents a payment plan which usually includes a removal or discount over the total debt and a deferral for the payment of the resulting amount.

In this case, the Insolvency Administrator shall submit it to the vote of all creditors to rule on their conformity, taking into account that each creditor is proportional to the debt ratio that they represent in the bankruptcy proceeding.

At the time of voting, the creditor will assess whether it is more convenient to accept the proposal (therefore, vote in favour) or to venture into the liquidation process (not to accept the proposal and to vote against).

As a general rule, the proposal will be accepted if at least 50% of the liabilities vote in favour at the Creditors' Meeting.

Once the agreement has been approved, its contents shall be binding on the debtor and all creditors even if, for any reason, they were not recognized as such prior to the declaration of bankruptcy, except for privileged creditors.

  1. Pay-off

This stage will be initiated when:

  • The Prior Agreement is not approved.
  • The Prior Agreement is approved but it is not complied with.
  • The creditor does not deem the continuity of the company viable and together with the request for Insolvency requests that the pay-off phase is opened directly.

The object of the pay-off is the sale of the bankrupt company’s assets with the purpose of paying the amounts due to creditors on a pro rata basis, that is, in proportion to the percentage of debt they hold.

It is worth noting that claims against a bankrupt company are classified in three groups. This differentiation or order of precedence is essential to an orderly distribution of any payment:

  • Privileged claims are those that have a priority over the rest, so in the event of liquidation the company will be the first to be paid. In this rating there is a subclassification: general and special privileged credits. The former are the most relevant as they directly affect the company, such as salaries owed to workers, and credits in favour of the Administration such as taxes or Social Security contributions, among others. The latter would be, for example, mortgages owed to banks, or anti-crisis pledges.

  • Ordinary claims: the most common are those claims that have an intermediate preference, that is, they cannot be qualified as privileged because they do not fit into the previous category nor as subordinated. These credits always begin to be liquidated once the creditors with privileged claims have seen their debts satisfied in their totality. Therefore, it may be the case sometimes that no amount is distributed to these credits.

  • Subordinated claims are the least important and those which are paid last. These claims are those communicated after the deadline or which have not been communicated and have been accepted by the Insolvency Administrator, such as claims for fines or other sanctions, among others.

In addition to the above, there are also claims against the estate, which start after bankruptcy has been declared, for example, the Insolvency Administrator’s fees. These claims are preferential.

Finally, a bankruptcy proceeding will conclude when a judge declares it after the agreement has been fulfilled:

  • When the creditors' claims have been paid in full.
  • When the payment schedule foreseen in the approved Prior Agreement has been met.
  • At the end of the liquidation phase, that is, when all the assets of the insolvent company have been sold and the amounts arising from the sale have been distributed to its creditors in order of priority.

Salary record obligation: an anti gender-based discrimination measure.

Although in recent months much has been heard of the obligation to keep a record of working hours through Real Decreto-Ley 8/2019, 8 March, on Urgent Measures for Social Protection and Combating Job Insecurity at Work, another new obligation has gone surprisingly unnoticed: salary record, arising from the approval of Real Decreto-Ley 6/2019, 1 March, on Measures for Equality in Employment, leading to the amendment of Article 28 of the Workers' Statute.

In particular, the previous wording of Article 28 of the Workers' Statute provided only for the obligation to remunerate work performance without gender-based discrimination. However, Real Decreto-Ley 6/2019 goes further by establishing in the new article 28 of the Workers' Statute that a job will have the same value when:

“The nature of the functions or tasks effectively mandated, the educational, professional or training conditions required for their execution, the factors strictly related to performance and the working conditions in which these activities are carried out are actually equivalent.”

Thus, the new Real Decreto-Ley 6/2019 establishes the obligation for companies with more than 50 employees on the payroll to keep a salary record of each of their employees, including the average salary value, salary supplements and extra-salary supplements.

Furthermore, the right of employees to access their company's salary records must be guaranteed, and in addition to this, when a company employs at least 50 employees and the average compensation of employees of one gender is 25% higher than the other gender or more, a justification for this difference which does not respond to gender-based reasons must be included.

In this regard, the information shall be divided according to the professional groups of the company's employees, categories, or equivalent jobs. However, the main characteristic of this record is that it includes distinction by gender in order to ascertain the existence of wage gaps, that is, whether or not there is an actual difference between the salary received by men and women for carrying out the same work.

It is worth noting that companies have the following deadlines to adapt to this new salary record obligation:

  • Companies with 150 - 250 employees have a deadline of one year.
  • Companies with 100 -150 employees have a deadline of two years.
  • Companies with 50 - 100 employees have a deadline of three years.

In the event that companies do not comply with the obligation relating to salary records, they shall commit a serious infringement which can involve the imposition of a fine between Euro 626.00 and 5,250.00, in accordance with the Ley de Infracciones y Sanciones del Orden Social (LISOS) [Law on Violations and Sanctions of the Social Order].

Moreover, employees will be entitled to claims for accrued wage differences if they consider that the right to equality and non-gender-based discrimination has been violated. This claim for an ordinary amount (for salary differences) could be accompanied by a potential claim for damages for gender-based discrimination, discrimination which would violate the fundamental rights of employees.

It is worth highlighting that salary records shall be updated at all times, so that when there are changes in this respect in terms of remuneration, recruitment or leaving, the company shall change the records accordingly.

Finally, the aforementioned record will only include employees covered by the Workers' Statute, Senior Management staff being excluded from the scope of this obligation ( same as in the case record of working hours).