international employment law firm alliance L&E Global

6. Cost-Reduction Strategies

To what extent can employers implement the following cost-reduction strategies as a result of COVID, and what are the primary limitations on each? 

  • Furloughs
    • Employer and employee must agree to specific vacation/holiday dates. Generally employers must prepare the company calendar at the start of the New Year, including employee holiday days. However, due to COVID19, an exceptional measure was adopted in the Royal Decree 10/2020, establishing that companies must grant, from March 30, 2020 and until April 9, 2020 (both days included), a recoverable paid leave to those employees working on non-essential activities. This paid leave is recoverable, which means that employees must recover those hours enjoyed as paid leave once the state of alarm finishes.
    • Companies that have applied an ERTE to their employees due to force majeure related to COVID-19 will be able to benefit from up to the 100% social security contributions if on February 29, 2020 the employer has less than 50 workers, and the 75% of the contributions in the case that the employer had more than 50 employees.
  • Salary reductions.
    • Employers can implement salary reductions as a cost-reduction strategy due to COVID19. However, this strategy is understood as a permanent measure and not as temporary and it must be implemented by way of an employment agreement or following the substantial change of labour conditions procedure.
  • Redundancy.
    • The Government has ruled that the use of ERTE due to COVID-19 will not allow companies to make business dismissals on this basis. In addition, it foresees special conditions regarding the unemployment benefits for employees affected by ERTE and exemptions for companies that have made an ERTE, as we have explained above. However, these extraordinary measures shall be subject to the company's commitment to maintain employment levels for a period of 6 months following the re-activation of the company’s normal activity. This commitment isn’t violated where an employment contract is terminated on the basis of disciplinary dismissal, resignation, retirement or total permanent disability of the worker, and in the case of temporary contracts where the contract is terminated on the basis of the scheduled end date of the project, or the performance/work/service has been completed. Companies that fail to fulfil this commitment will be forced to reimburse the total amount of the contributions provided by the Government, as well as surcharge and the corresponding delayed interest.
    • As stated above, it is not possible to terminate any labour contract due to force majeure or objective reasons related to COVID-19, including economic, productive, technical and organisational causes until June 30, 2020. Such a terminated will be considered unfair dismissal.
  • Facility closure.
    • Employers can proceed with a facility closure. However, if dismissals are not implicit, employees will either need to be put on ERTE or salaries paid during the closure.
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