ERTE to suspend all work contracts

Applying Spain's ERTE regulations to the coronavirus

The existing labour laws include temporary measures, named ERTE, that companies can adopt under certain extraordinary conditions. One of the conditions is causas temporales de fuerza mayor, that is, a temporary situation caused by an “act of God”, such as a fire or flood. This condition is understood to include the government's measures in response to the coronavirus.

ERTE would allow the employer to temporarily suspend the work contracts of their employees, or temporarily reduce the hours of the employees. Not just any business may do this: the employer must show that this suspension or reduction of hours is caused directly by reduced business activity as a result of the coronavirus or Spain’s measures related to the coronavirus: namely, the cancelation of events, the forced closure of stores, restrictions in public transport and in the transport of goods, lack of supplies that impairs business activity, or coronavirus infection by one of an employee that results in a quarantine of employees decreed by the health authorities.

If an employer wants to apply for ERTE, an application must be made to the Ministry of Empleo's website. According to the law, the reply from the social security office will be within 5 business days of the application. (It has been reported that in some regions of Spain, the offices are receiving a high number of ERTE applications, so even though the fuerza mayor condition is clear, approval may not be immediate.) Once a positive reply is received, the employer can suspend the contracts for all or part of the staff. This is a temporary suspension, similar to a temporary baja for medical reasons -- it is not the same as firing an employee then rehiring them. During this time, though, the employee is considered to be legally unemployed. There are normally rules about how long you must have worked before the government will grant unemployment benefits. In the current situation, SEPE may authorize that during this time of unemployment, these rules do not apply: SEPE may authorize that all employees can receive unemployment benefits regardless of how long the employee has paid into the social security system.

If the employer chooses a temporary reduction of work hours instead of a total suspension, this reduction can be a daily reduction of hours, or it can be a reduction of days during the week. There cannot be any overtime hours worked. Under a reduction of hours, the employees are also considered to be legally unemployed for the purposes of unemployment benefits.

For the use of ERTE as applied to the coronavirus, the government has stated that in businesses of fewer than 50 employees (as of February 29), the government will pay 100% of what the employer normally pays to social security. For businesses with more than 50 employees, the government will pay 75% of social security. This will be the case ONLY if the business continues to employ the person for six months after the return to normality. In other words, if an employer fires someone one month after employees resume work, then the employer is liable for payment of social security of that person during the time that the ERTE was applied.

The situation regarding the use of ERTE may change at any time. We will update this report if the situation changes. With the government lockdown, this is a good opportunity to inform you about the Spanish government's ICO program - loans to businesses that qualify -- to help cushion the coming economic effects.

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