Which redundancies are affected by the prohibition on dismissal on Covid-related grounds?


The so-called “prohibition on dismissal” will be in force until May 31, 2021, unless a further extension is granted

Which redundancies are affected by the prohibition on dismissal on Covid-related grounds?
April 9, 2021

The so-called “prohibition on dismissal” will be in force until May 31, 2021, unless a further extension is granted. The lack of regulatory clarity and uniformity in the case law has sparked a heated debate on the scope of this limitation, established in art. 2 of Royal Decree-Law (RDL) 9/2020—which does not contribute to the legal certainty required for critical decisions such as redundancy measures.

The issue is still open. We are awaiting the publication of a recent judgment of the High Court of Justice (TSJ) of Catalonia (in response to an appeal against a judgment by Labor Court No. 26 of Barcelona). According to this decision, pandemic-related dismissals are unfair, but not null and void. The interpretation of this prohibition will continue to be controversial until the Supreme Court rules on the subject, as illustrated by this judgment (with a dissenting opinion by nine judges).

Besides the classification of dismissals as unfair or null and void, the first issue is to determine which redundancies are affected by this prohibition (i.e., falling within its objective scope of application). Otherwise, ordinary regulation will apply. Therefore, it is essential to define a sound general criterion to answer this preliminary question.

So far, judicial decisions have focused on two aspects in determining the applicability of this prohibition:

  • A first line of interpretation gives priority to a direct causal link to the effects of COVID-19. In this regard, art. 2 RDL 9/2020 would only prohibit termination of employment for loss of activity as a “direct” or “immediate” consequence of the pandemic, taking into account its own reference to art. 22 RDL 8/2020.

    However, this criterion has led to contradictory conclusions in cases that were substantially identical, due to the ambiguity of the concept of “direct” or “immediate relationship.” In particular, there are conflicting judgments regarding collective redundancies (EREs) arising from the loss of commercial contracts as a consequence of COVID-19. In its judgment of December 11, 2020 (Rec. 50/2020), the TSJ of Catalonia did not apply art. 2 RDL 9/2020. According to its reasoning, even if COVID-19 is the ultimate and mediate cause for the dismissals, the direct and immediate cause is the termination of the commercial contract for the provision of services. On the other hand, other rulings in similar cases such as the judgment of the TSJ of Madrid of November 25, 2020 (Rec. 590/2020) have found art. 2 RDL 9/2020 to be applicable, considering that “there is an absolutely direct causality” between the collective redundancy following the loss of the contract and COVID-19.
  • Other courts have resorted to an alternative criterion according to which the applicability of art. 2 RDL 9/2020 depends on the temporary or structural nature of the grounds for dismissal. Under this general approach, only dismissals for structural business reasons would be outside the scope of the prohibition. According to this interpretation, art. 2 RDL 9/2020 would merely “remind” companies facing temporary or cyclical difficulties that they are only entitled to implement internal flexibility mechanisms such as temporary redundancy plans (ERTEs)—which were facilitated during the pandemic.

    In favor of this position, the judgment of the TSJ of Catalonia of November 24, 2020 (Rec. 56/2020) declared lawful the contractor’s collective redundancy following the decision of the main company (Museo Picasso de Barcelona) to permanently reduce its customer service contract as a result of the pandemic.

    The court argues that art. 2 RDL 9/2020 only prohibits dismissals on essentially temporary grounds (stemming from the pandemic), but not on permanent grounds: “this is not a cyclical situation determining the applicability of articles 22 and 23 of Royal Decree-Law 8/2020, of March 17, so it makes no sense whatsoever to apply the rule provided for in article 2 of Royal Decree-Law 9/2020, of March 27.” The relevant factor in this case was the contracting company’s decision to permanently reduce the contract.

    This is also the position expressed in the dissenting opinion to the TSJ of Catalonia’s judgment of December 11, 2020. It stresses that any assessment of the collective redundancy in question should have assumed that on that date (April 10) the health crisis was expected to be “temporary,” which called for employment restraint measures.

In our opinion, this second criterion is more in line with the freedom of enterprise and the autonomous and distinct nature of internal and external flexibility mechanisms, as well as with the Supreme Court’s case law. Already in its judgment of July 17, 2014 (Rec. 32/2014), following a systematic, rational interpretation of arts. 51 and 47(1) of the Workers Statute, the Supreme Court concluded that, in principle, collective redundancies (EREs) must be rooted in structural causes while temporary redundancy plans (ERTEs) must be rooted in cyclical ones. The Supreme Court ratified this in its more recent judgment of September 9, 2020 (Rec. 13/2018), precluding ERTEs in the face of structural problems.

In view of this second position, and with all due caution because the Supreme Court has not yet ruled on the matter, we are inclined to conclude that art. 2 RDL 9/2020 would not prevent dismissals, even COVID-related, when there are structural reasons. In other words, the prohibition only applies to dismissals based on cyclical grounds.

The next question would be to determine whether the reasons are cyclical or structural in nature. In particular, whether any circumstance directly linked to the effects of COVID-19 must be considered cyclical per se.

In this regard, the persistence of companies’ difficulties and imbalances along with the pandemic somewhat blurs their original cyclical nature. As stressed by the dissenting opinion to the judgment of the TSJ of the Basque Country of February 23, 2021 (Rec. 57/2021), the extraordinary anti-COVID-19 regulations stemmed from the need to address a temporary cyclical situation. However, the scenario has changed: almost a year has passed since their adoption and there is still great global uncertainty as to when the pandemic will end.

Furthermore, as already explained, there are judicial decisions that endorse the permanent nature of the grounds for dismissal even if it is due to the effects of the pandemic.

In sum, and in view of those decisions, the fact that the alleged reasons have their origin in COVID-19 should not automatically exclude their consideration as structural grounds or the inapplicability of art. 2 RDL 9/2020. Instead, a case-by-case analysis will be necessary to determine, among others, the following points:

  • The timing of the dismissal. If it takes place in the first months of the pandemic, it will be more difficult to defend its structural nature—unless the difficulties were clearly prior to the onset of the health crisis.
  • Whether the decrease in activity is the result of a third-party decision. If this is the case, it should be assessed whether, in principle, this decision is permanent or temporary.
  • The magnitude of the causes, the evolution of the company in recent months, the consistency of other actions undertaken, the credibility of the business project in the current context, etc.

In addition to the specific circumstances of each case, the persistence of the difficulties for more than 12 months could also point to a structural cause. In this case, the temporary employment regulation that establishes a maximum duration could be applied by analogy—if agreed in the collective bargaining agreement.

April 9, 2021