Fixed-term employment contracts are in the cross hairs

Written on 29 Jun 2021

Spanish government proposes reform of fixed-term contracts, with significant consequences for the Spanish labour market

Spain’s Labour Ministry has presented a draft proposal to unions and business associations, which – among other measures – proposes the elimination of fixed-term employment contracts for the performance of a specific work or service. The adoption of this measure, by which the Spanish government intends to tackle the precariousness of the country's job market, would represent a substantial change in the current employment law landscape.

The news has generated a multitude of queries from outsourcing companies, wondering whether they will be able to use fixed-term employment contracts to provide the services to the commissioning company.

In the meantime, the Spanish Supreme Court handed down a judgment on 29 December 2020 on the subject. In the case in question (Judgment No. 4383/2020), the outsourcing company carried out the normal and permanent activities of the main company and, for this purpose, hired its employees under fixed-term contracts for work or services. Specifically, one of these temporary employees had been contracted for successive fixed-term employment contracts associated with the outsourced activity for 15 years. In its judgment, the Supreme Court ruled that where an unusually long contractual term is observed (as in this case) the relationship becomes fraudulent, thereby justifying the recognition of the indefinite nature of the employment relationship.

It seems that the Ministry of Labour shares the philosophy of the Supreme Court that fixed-term contracts should not be used to attend to the normal and permanent activities of companies, and extends this logic to contracts, subcontracts and administrative concessions. If this legislative reform is approved, neither the main companies nor the outsourcing companies will be able to use fixed-term employment contracts for work or services to hire employees assigned to activities related to the normal and permanent activity of the main company.

Benefits of fixed-term contracts in outsourcing arrangements

The outsourcing of works or services where a company commissions another contractor to carry out a part of its production, or certain services in accordance with certain instructions or guidelines, is often done through the use of outsourcing companies. This has many advantages for both companies, particularly the fact that the outsourcing company can hire the employees assigned to provide the services to the commissioning company through fixed-term employment contracts.

The use of fixed-term employment contracts to provide outsourcing services is extensive, in the main so that the termination of the outsourcing contract means the fixed-term employment contracts associated to the activity will also terminate.

Fixed-term employment contracts for the performance of outsourced work or services are designed to hire employees who will be rendering services with autonomy within the activity of the company. The contracts, albeit limited in time, are in principle of uncertain length , because their duration depends on the execution of the work or service commissioned. A fixed-term employment contract's duration must not exceed three years (but, in some cases, it can be extended for another year). At the end of the contract (and here we find its main advantage for the employee), the employee is entitled to compensation of 12 days' pay for each year of services.

Osborne Clarke comment

Taking into account the latest news regarding the proposed governmental labour reform, and the judgment of the Supreme Court, everything seems to indicate that although fixed-term employment contracts for works and services associated with the company's main activities may be used at the moment, this will be one of the next bones of contention in the field of labour law.