Empowering the Freelance Economy

Days of Fixed-term contracts in Spain are numbered

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Contractors dreaming to land freelance or fixed-term contracts in Spain might have to re-think their plans. Labour reforms are set to stifle temporary and fixed-term contracts, which is also bad news for staffing agencies, freelance job platforms and the Spanish startup community.

The Spanish government claims that newly proposed labour reforms will reduce the country’s high number of temporary contracts and ultimately avoid layoffs, Staffing Industry Analysts (SIA) has reported.

“The reform amends previous labour reform regulations introduced in 2012 that relaxed restrictions around the hiring of temporary staff and is, potentially, the most negative legislative development for the staffing industry in Europe since the European Union agreed on the Temporary Agency Workers Directive in 2008,” stated the report.

Spanish startups to face talent troubles

The reform, however, could aldo backfire on the country’s startup community if young companies are forced to make costly permanent hires rather than hire freelance talent on a fixed-term basis when certain skills are required to reach short-term milestones. The news comes at a time when Spanish startups are celebrating a record year of investment and growth.

In the first half of 2021, Spanish startups hauled in €1.9bn in VC investment, according to data from Dealroom. According to the FT’s Sifted newsletter, that’s “nearly four times more than the first half of 2020, when €500m was raised, and a real indicator that Spain’s tech sector is bouncing back stronger than ever from the depths of the pandemic.”

Spanish temporary work platforms such as  Jobandtalent which raised a $500m Series E at a $2.35bn valuation, could have its business model tested should the reforms be approved by parliament early this year.

Companies will have three months to adapt to the new framework once approved.

What’s happening to contracting in Spain?

Osborne Clarke‘s Eva Otaegui and Berta Ferro have said that the most likely and relevant changes will be the amendments that regulate fixed-term employment contracts.

According to SIA, Article 4 of the Directive sets clear limits to prohibitions and restrictions that EU member governments may impose on the use of temporary agency work. These can only be justified on grounds related to the protection of temporary agency workers, to ensure that the labour market functions properly and that abuses are prevented.

“The reform establishes that the employment contract is ‘assumed to be concluded for an indefinite period’. The proposal is to limit the permitted reasons to enter into a temporary or fixed-term contract and reduce the maximum duration of such contracts,” said SIA.

Although it is not possible to know the exact terms of the final agreement, Osborne Clarke‘s Eva Otaegui and Berta Ferro have said that the most likely and relevant changes will be the amendments that regulate fixed-term employment contracts. These are contracts whose purpose is to establish a relationship between employer and employee for a specific period of time.

In Spain, temporary contracts are of a “causal nature”, according to the two legal experts, which means that in order to enter into temporary contracts, certain objective conditions must be met to justify the temporary nature of the contract, namely the following:

  • the performance of a specific work or service, with its own autonomy and substantive nature within the company’s activity. This circumstance justifies the conclusion of a temporary contract for work or service.
  • an increase in production activity, provided that this situation is not habitual or permanent. This circumstance justifies the conclusion of a temporary contract due to production circumstances.
  • to cover the absence of an employee whose position is reserved, or to cover a vacant position while a selection procedure is being carried out. This circumstance justifies the conclusion of a temporary interim contract.

According to the reform proposed by the government, fixed-term contracts can only be concluded for productive and organisational reasons. Thus, on the one hand, temporary contracts may be concluded for productive reasons, when there is an occasional and unforeseeable increase in business activity that cannot be covered by the company’s regular workforce, as is the case with temporary contracts due to production circumstances.

On the other hand, temporary contracts will be concluded for organisational reasons to cover the absence of a worker (in this sense, it seems that temporary contracts cannot be used to replace the holidays of permanent staff). This contract will be similar to the current interim contract. Therefore, it seems that this change will mean the elimination of the temporary contract for a specific job or service.

Osborne Clarke

Another key point of this reform according to the Osborne Clark report published in a guest report on Lexology, is related to the fixed-discontinuous contract set out in Article 16 of the WS:

This is an open-ended contract with the particularity that the work is carried out intermittently over time, i.e., it is concluded to perform work that is fixed but discontinuous over time, for example during the sales or Christmas periods. The CEOE has put on the negotiating table the possibility of channeling this type of contract through temporary employment agencies (hereinafter “TEA”), so that the hiring of a worker in the permanent-discontinuous format through a TEA is pending the new regulation.

According to SIA’s latest Europe Legal Update Q4 2021, the reform also establishes that temporary or fixed-term contracts can only be allowed for two reasons: 

1) for reasons related to production, to face peaks in demand. The temporary worker must not be used for work related to the normal and permanent activity of the company, or to carry out “work or tasks within the framework of contracts, subcontracts or administrative assignments”

2) for organisational reasons, to replace workers who have the right to return to their job or to cover a vacancy. This means it will no longer be possible to use temporary labour for projects lasting up to three years.

How long can temporary contracts last?

The reform also reduces the duration of temporary contracts related to production to a maximum six months, which may be extended up to one year, exceptionally, by collective bargaining at the sectoral level, said SIA.

If a duration less than the legal maximum has been initially agreed upon, it may be extended once, without exceeding that twelve-month limit.

SIA reported that to approve the reform the government will have to win the support of several smaller leftist and regional parties.

That said, critics believe that the 2012 reform reduced job security with defenders arguing it helped bring down Spain’s unemployment rate from nearly 27% in 2013 to around 16% this year.

For more information on Spain’s labour reform, read SIA’s Contingent Workforce Regulatory Environment in Spain and Europe Legal Update Q4 2021.

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