Spain: Constitutional challenge to Royal Decree Law 3/2012 of urgent measures to reform the employment market

On 16 April 2012, the Judge of Labour Court 30 of Madrid made a referral to the Constitutional Court to declare whether certain provisions of Royal Decree-Law 3/2012 of Urgent Measures to Reform the Employment Market, which came into force on 12 February 2012 (see our e-bulletin published on 20 February 2012), are unconstitutional.

The referral was made to enable the Judge to rule on an employee's claim (to which the new law applied) for unfair dismissal and for the payment of statutory severance and interim wages[1].  Only the Constitutional Court has the power to declare laws incompatible with the Spanish Constitution.

The Judge considered that the Royal Decree Law could be unconstitutional on the following grounds:

1. The Government exceeded its authority in using an extraordinary legislative measure (the Royal Decree-Law) to make changes to regulations governing dismissal for misconduct. Under Spanish law, the Government is entitled to exercise its legislative authority in the event of an "extraordinary and urgent need", requiring a quick legislative response. Here there was an urgency for labour reform based on the ailing Spanish economy and the critical situation faced by its labour market (primarily due to its high and escalating rate of unemployment).  However, this could only justify changes to the law on dismissals for economic, organisational, technical or productive reasons. Dismissals for misconduct have no connection to the critical economic situation faced by Spain.  Therefore he considered that changing regulations applicable to misconduct dismissals was ultra vires, ie beyond that permitted by  the Spanish Constitution.
2. Prior to the new regulation, employees who had been unfairly dismissed were entitled to interim wages from the day after dismissal to the date of the court ruling of unfairness.  This has been changed by the new regulation so that such employees will only receive (less generous) unemployment benefits for this period.  The Judge considered that this forces the employee to choose between settling his/her case for reduced compensation or only receiving the lower unemployment benefit amount for the length of the legal proceedings, whatever this may be, and that this breaches the employee's fundamental right to effective legal protection.
3. The Judge also questioned whether the cost saving enjoyed by the employer as a result of the removal of the right to interim wages could trigger a breach of the constitutional right to work. The removal of interim wages reduces the employer's inclination to opt for the reinstatement of the employee once the court has acknowledged the unfairness of the dismissal, given that the employer is no longer having to pay for the period between dismissal and court ruling and therefore can more easily bear the cost of compensation being awarded as the alternative to reinstatement. The reform could therefore contribute to an increase in unemployment and would be contrary to article 35 of the Spanish Constitution.
4. Finally, the Judge considered that the measure could constitute a breach of the constitutional principle of equal treatment between self-employed workers/professionals and employees regarding compensation for breach of contract. Under Spanish civil laws, self-employed workers and professionals have the right to claim compensation for lost profits and damages due to breach of contract, whereas under the new regulation employees can only claim severance compensation (equivalent to damages incurred) and not interim wages (equivalent to lost profits).