Labour market reform approved

The Spanish Government has finally issued today the highly expected reform of the labour market. Companies will be able to fire employees after paying 33 days of compensation, from which the State will pay 8.

CNA / Gaspar Pericay

June 17, 2010 01:20 AM

Madrid (CNA).- Companies will have to pay 33 days of penalisation per worked year to fire an employee without an objective cause. The State will pay 8 of these 33 days, making the companies actually pay for 25 days. In the cases of companies going through difficult times, they will only have to pay 12 days, as the State will pay 8 and workers will receive a total of 20 days of compensation per year worked. The executive order approved today will enter into force tomorrow. However, next week on the 22nd of June, the Spanish Parliament will debate it and vote. The project is likely to be modified since the Government has only the support of its own parliamentary group, the Socialist Party (PSOE). If the reform fails, a political earthquake would shake Spain. The international markets are watching.

The measure of paying the equivalent to 33 worked days per year when fired will also be available from now on for male workers between 30 and 44 years. This measure was designed to foster indefinite contracts among young people, female workers and unemployed older than 45 years.

The Spanish Labour Minister, Celestino Corbacho, has defined the reform as “substantial and important” for the future and “one of the most important” in the last years. He has explained that the objectives are to improve productivity, provide employment with more stability, and offer companies more flexibility while it generates more security. The Spanish Deputy Prime Minister, María Teresa Fernández de la Vega, thinks that the new legislation is “ambitious”, “substantial” and “deep”. She hopes it will have the highest level of support among the social agents and political parties.

The reactions from the trade unions have been of disappointment, expressed by the general strike announced two days ago. CEOE, the main business association in Spain, considers the reform to lack depth and believes that it should increase flexibility at a larger scale. However, the social agents have been discussing this reform for more than 2 years without reaching any agreement and leaving the negotiation table . They both agree that a reform is needed; yet they have both failed in negotiating it.

The Catalan Government hopes that the reforms will be adopted in a consensual way. The political parties in the Spanish Parliament have not given support to the Socialist Government. The Conservative People’s Party (PP), the main opposition party in Spain, has judged the document from the Government as too superficial, but has not proposed its own reform. The Centre-Right Catalan Nationalist Party (CiU), which is the third party in the Spanish Parliament and whose votes would allow the Government to pass the reform, has underlined that the reform needs to be as consensual as possible and needs to be further discussed next week in Parliament.

At this moment, it is not clear if the reform pushed unilaterally by Spanish Prime Minister José-Luís Rodríguez Zapatero will survive its run through the Parliament next week. Zapatero does not have an absolute majority and he needs the votes from CiU or coalitions of other parties. Very likely the labour market reform will be modified, but it could even be stopped. If the reform is blocked in Parliament, the incertitude will be at its climax. Zapatero will be in such a delicate position that anticipated elections could be possible. In the meanwhile, international financial markets continue to speculate with Spanish debt, a theory which German investors bolstered from last week on. The fall of Zapatero could benefit some investors as well as some political interests in Spain.