COVID-19: ERTE temporary layoff procedures due to force majeure can be extended until June 30, 2020
Spain Labor Alert
Royal Decree-Law 18/2020 allows ERTE layoff procedures due to force majeure to be extended until June 30, 2020 and also specifies, among others, an extension of the term for relief from social security contributions and for the job retention clauses, in addition to placing certain restrictions on dividend distributions at companies that have implemented an ERTE temporary layoff procedure. The provision not allowing dismissals on grounds related to COVID-19 to be held justified is also extended until June 30, 2020.
We summarize below the main new items of legislation in the royal decree-law that enters into force on May 13, 2020:
- The complete force majeure situation arising from COVID-19 will continue for any companies that have an ERTE temporary layoff procedure based on article 22 of Royal Decree-Law 8/2020, and are affected by any causes preventing a return to operations, for as long as they continue to exist and under no circumstance beyond June 30, 2020.
- Force majeure arising from COVID-19 will be partial from when the causes allow partial recovery of their operations, until June 30 2020, at the latest. The workers included in these temporary layoffs will return to work to the extent necessary to keep companies operating, and adjustments involving reduced hours must be given priority.
- Companies intending to abandon their authorized temporary layoff procedures completely will have to notify the labor authorities within 15 days from the effective date.
- Any ERTE temporary layoff procedures on economic, technical, organization or production-related grounds that are commenced after the entry into force of the royal decree-law will remain subject to the exceptional measures specified in article 23 of Royal Decree-Law 8/2020 and may be applied for while an ERTE temporary layoff procedure due to force majeure is in effect. In these cases, where an ERTE temporary layoff procedure on objective grounds is commenced after the end of an ERTE temporary layoff procedure due to force majeure, it will be backdated to start on the end date of the force majeure ERTE.
- Also extended until June 30, 2020 are the extraordinary measures relating to unemployment protection defined in Royal Decree-Law 8/2020, except for those relating to workers with permanent contracts for intermittent work, or carrying out specific and periodical work that repeatedly needs to be performed on certain dates, which will apply until December 31, 2020.
- Extraordinary measures are specified in relation to contributions regarding the employer's share of social security contributions and items jointly collected with social security contributions applicable to ERTE layoff procedures due to force majeure defined in the royal decree-law:
- Complete force majeure: relief from contributions, otherwise payable in May and June 2020, will be 100% for any companies which as of February 29, 2020 had fewer than 50 workers or individuals treated as if they were employees who are registered for social security purposes, and 75% for any that had 50 or more.
- Partial force majeure: relief from contributions will be governed by the following rules:
a) For any workers returning to work, the exemption will be 85% of the employer’s share payable for May 2020 and 70% of the amount payable for June 2020, for any companies which as of February 29, 2020 had fewer than 50 workers or individuals treated as if they were employees, and 60% and 45% for any that had 50 or more; all of the above with respect to the periods and percentages of hours worked since they returned to work.
b) For any workers continuing to have their work suspended, the exemption will be 60% of the employer’s share payable for May 2020 and 45% of the employer’s share payable for June 2020, for any companies which as of February 29, 2020 had fewer than 50 workers or individuals treated as if they were employees, and 45% and 30% for any that had 50 or more; all of the above with respect to the periods and percentages of hours affected by the suspension.
- It lays down the following limits concerning dividend distributions and fiscal transparency:
- Any companies and entities having their tax domicile in countries or territories classed as tax havens cannot implement the ERTE temporary layoff measures defined in this royal decree-law.
- Any commercial companies or other legal entities electing to implement the ERTE temporary layoff procedures specified in this legislation and which use the public funds allocated to them cannot distribute dividends for the fiscal year when these procedures were implemented, unless they first pay over an amount equal to the relief from social security contributions that they claimed. This restriction will not apply for any entities which, as of February 29, 2020, had fewer than 50 workers or individuals treated as if they were employees.
The fiscal year in which the company does not distribute dividends will not count for the purposes of exercising the right to withdrawal of shareholders defined in paragraph 1 of article 348.bis in the revised Capital Companies Law.
- The obligation to retain jobs for six months is clarified as follows:
- It is only associated with ERTE temporary layoff procedures due to force majeure.
- The six months will start to run from date of the actual return to work of individuals included in the procedure, even if the return to work is partial or only relates to part of the workforce.
- It will be held breached if any of the individuals included in those procedures are dismissed or have their contracts terminated. It will not be held breached where the employment contract is terminated on disciplinary grounds and the termination is held justified, or terminated by reason of resignation, death, retirement or total or absolute permanent incapacity, or severe disability of the worker, or terminated on reaching the end of the work periods of workers under permanent contracts for intermittent work, or where a temporary contract is terminated at the end of the covenanted term or due to the completion of the project or service forming its subject-matter, or where the contracted work cannot be performed immediately.
- The obligation to retain jobs will be assessed by reference to the specific characteristics of the various sectors.
- It will not apply at companies where the risk of an insolvency proceeding exists as defined in article 5.2 of Insolvency Law 22/2003, of July 9, 2003.
- Any companies that fail to comply with that obligation will have to refund the whole amount of all relief claimed in respect of contributions, with the relevant surcharge and late-payment interest
- Also remaining in effect until June 30, 2020 is the absence of justification for any dismissal made on grounds related to COVID-19 and the interruption of the term of temporary contracts affected by a ERTE temporary layoff procedure.