Temporary contracts after the labor reform: new contractual modalities

Royal Decree 32/2021, of December 28, on urgent measures for the labor reform, the guarantee of employment stability and the transformation of the labor market (the "Labor Reform"), reduces the causes legally provided that allow companies to enter into fixed-term contracts and, therefore, to avoid the application of the general rule of indefinite-term contracts that governs labor hiring in Spain. Specifically, after the Labor Reform, temporary contracts are reduced to 2 modalities:

1. Contracts due to circumstances of production

The new wording of article 15.2 of the Workers' Statute ("WS") distinguishes between "unforeseeable" and "foreseeable" situations:

• Fixed-term contracts due to unforeseeable production circumstances: these contracts are entered into when there is an unexpected increase in production or when there are fluctuations which, even though they are normal company activity, generate a temporary mismatch in the workforce . The regulation clarifies that such fluctuations include those derived from annual vacations. These contracts will have a maximum duration of 6 months, which may be extended to 12 months by sectoral collective bargaining agreement. If they are concluded for a shorter duration, they may be extended up to the limit of their maximum duration. If they are concluded for a shorter duration, they may be extended up to the limit of their maximum duration.
• Fixed-term contracts due to foreseeable production circumstances: these contracts are entered into to hire employees who are necessary to meet an occasional, foreseeable situation of limited and delimited duration. The regulation clarifies that this does not include work linked to a contract, except to cover fluctuations or increases in activity that may occur within the contract. Companies may only use this contract for a maximum of 90 non-continuous days in the calendar year. In addition, the regulation obliges to communicate to the legal representation of the employees, in the last quarter of each year, an annual forecast of the celebration of these contracts.

2. Contracts for substitution of the worker with reservation of the job, provided that the name of the substituted person and the reason for the substitution are specified in the contract

The new wording of article 15 of the WS establishes that the provision of services may be initiated prior to the absence of the substituted person for the essential time, with a maximum of 15 days, to guarantee the adequate performance of the job.

• The fixed-term contract for substitution may be entered into for the coverage of the working day left by the employee with reduced working hours. Likewise, the regulation provides for the execution of this type of contract for the temporary coverage of a job position during the selection or promotion process for the same, provided that the duration does not exceed 3 months, or the shorter term set forth in the collective bargaining agreement, nor is a new contract entered into for the same purpose once such maximum duration has been exceeded.

The consequence of non-compliance with the regulations regarding temporary hiring will imply that those hired will acquire the status of permanent employees in the company.

In addition, the sanctioning regime applicable to irregular temporary hiring is reinforced, increasing the sanctions between 1,000 and 10,000 euros and considering each irregular contract as an independent sanction.

The publication of the Labor Reform has generated numerous interpretative doubts due to the legislator's use of numerous indeterminate legal concepts to define the causes of temporary employment. Consequently, it will be necessary to pay attention to the interpretation of these concepts by the courts and the Labor Inspectorate.