The RED Employment Flexibility and Stabilization Mechanism

On 12 July, the Royal Decree developing the RED Mechanism for Employment Flexibility and Stabilisation was published in the BOE (Official State Gazette). This is a regulation related to the Royal Decree-Law of the labour reform that added article 47 bis to the Workers’ Statute and created a new type of ERTE that aims to protect employment. In this post we are going to analyse this mechanism and how it is requested by companies.

What is the RED Employment Flexibility and Stabilisation Mechanism?

The RED Employment Flexibility and Stabilisation Mechanism is an instrument that allows companies, under certain circumstances, to request measures to reduce working hours or suspend employment contracts.
The mechanism has two modalities:

  • Cyclical mode. This is applied when there is a general macroeconomic situation that makes the adoption of additional stabilisation instruments advisable, with a maximum duration of one year. Under this modality, companies may benefit from a 60% exemption on Social Security contributions during the first four months; 30% between the fifth and eighth month; and 20% from the ninth month onwards.
  • Sectoral modality. This is applied when in a certain sector or sectors of activity there are permanent changes that generate the need for retraining and professional transition processes for workers, with an initial maximum duration of one year and the possibility of two extensions of six months each. In this case, the exemption from contributions will be 40% and will be conditional on the training to be received by the employees.

The exemptions regulated for each modality are subject to the requirement that the employment of the workers is maintained for six months after the RED Mechanism comes into force.

How do I apply for the RED Mechanism?

When the RED Mechanism is active, companies may request the suspension of employment contracts or the reduction of working hours. The procedure is as follows:

  • Application to the labour authority and simultaneous communication to the workers and their legal representatives. In the case of a sectoral modality, the application must be accompanied by a retraining plan for the persons concerned.
  • The labour authority forwards the application to the Labour Inspectorate, which draws up a report analysing whether the legal requirements are met.
  • The labour authority will then issue a decision within 7 days of the end of the consultation period. If the period elapses without a resolution, it is understood that the measure is authorised.
  • If the consultation period ends with an agreement, the labour authority will authorise the application of the mechanism and the company may reduce working hours or suspend contracts. If the consultations end without agreement, the labour authority will decide whether or not to authorise the measure.

Both the TGSS and the SEPE will be able to access all company and employee data to verify that the established legal requirements are met.
If you want to know more about the RED Mechanism or need advice for companies or freelancers, please contact us and we will help you with all the procedures.