Second opportunity for partial retirement in manufacturing industry

The step towards early retirement without economic penalties, particularly since the reform of Act 35/2002, has been offered in the form of partial retirement. This is an ideal solution enabling persons aged 61 years that contributed to Social Security for 30 years and have six years of seniority in the same company to opt for 85% of their retirement pension (partial), while only working for 15% of the working day. This could be accumulated in the first year (without providing services after, but continuing to be registered in the company and for contribution purposes); the only burden for the company is to hire full time and indefinitely a relief worker, whose contribution base is, at least, 65% of that corresponding to the partially retired person when he or she worked full time.

Based on this formula, many companies planned the gradual replacement of their workers close to retirement, implementing partial retirement agreements entered into with the worker representation. In this way, during the early years of this millennium, partial retirement accounted for about 13% of all retirement options in Spain, also leading to an average final pension amount higher than the average of other options for accessing a pension (€1,575 compared to €1,250).

However, as a result of the reforms introduced under Act 27/2011 and Royal Decree Law 5/2013, this formula is no longer so attractive because the minimum age for accessing this type of retirement has progressively changed to 63 or to 65 years, depending on the contribution period; a minimum contribution period of 33 years is required, and conditions are established that involve less reduction of the working day for partially retired persons and greater costs for the company.

These restrictions could have serious repercussions for the competitiveness of many sectors, because they make the generational changeover difficult; therefore, the lawmaker considered it necessary to establish a transition period for companies and workers to implement these measures.

Royal Decree Law 5/2013 permitted, until January 1, 2019, companies from any production sector with collective bargaining agreements regarding partial retirement plans communicated to the Social Security before April 2013 to continue with the more favorable partial retirement regime established before Act 27/2011. This gave all companies the option to continue offering partial retirement to workers of a certain age in line with the former regime, thus maintaining the trends of previous years.

However, aware for months that this grace period would soon end, and given the difficulties still existing in some companies to assume the new restrictions, the lawmaker implemented a second transition period under Royal Decree-Law 20/2018, of December 7, on urgent measures for driving economic competitiveness in the industry and commerce sectors in Spain. However, this time, this possibility is limited to companies classified as industrial manufacturer, which can continue to apply the previous regime on partial retirement (although with some changes) for four more years (until December 31, 2022), while the other sectors must adapt to the new regime for accessing partial retirement.

This extension of the regime prior to Act 27/2011 for companies in the manufacturing industry was implemented by introducing new requirements in relation to the subjective scope of application of this extension which, particularly in the first months of the course of its regulation, could lead to questions and risks that must be considered. In fact, the Directorate General for Social Security Organization (“DGOSS”) has just issued its Interpretation Criteria 1/2019 in relation to article 1 of the mentioned royal decree-law, introducing new developments in this area.

The first requirement applies to businesses, stating that only companies whose codes correspond to group C of the Spanish National Classification of Economic Activities (“CNAE”) are eligible. This requirement seems straightforward; however, neither the regulation nor the mentioned criteria explains how to act in the case of companies with more than one CNAE where the main CNAE is not that of industrial manufacturer.

The regulation also requires that when the partially retired person changes to a part-time contract (time of triggering event), the company must have 70% of its workforce with open-ended contracts. According to the DGOSS criteria, under no circumstances are the contracts reached with the workers moving to partial retirement to be included in that calculation.

In relation to the workers, the regulation adds the requirement that they must have a position that involves «directly carrying out duties requiring “physical effort or a high level of concentration” in manufacturing, preparation or transformation tasks, as well as the tasks of assembly, operation, maintenance and repair specializing in industrial machinery and equipment».

The DGOSS criteria establishes the following two conditions for considering this requirement met:

• First, that the duty requiring “physical effort or a high level of concentration” must be the worker’s “usual profession,” meaning that the company must “prove that the worker has been carrying out the mentioned duties during, at least, the 12 months before the triggering event of the partial retirement.”

• Second, the application for partial retirement must be accompanied by a company certificate, endorsed by the corresponding service for preventing occupational hazards,proving these circumstances.

Apart from the new requirements regarding the amount of time spent working and specialized certification, the truth is that the identification of what is understood to be “physical effort or a high level of concentration” continues to be vague, susceptible to subjective assessment, which leads to serious legal certainty problems. The risk is that later there could be action taken by the labor inspection, on its own initiative or at the initiative of the Spanish Institute of Social Security (“INSS”), which could reject time after the concurrence of this requirement. This would be obviously damaging for all parties: (i) the INSS would have to revoke the partial retirement granted and make the company liable, and (ii) the labor situation of the partially retired person (with a novated contract) and of the relief person (related to the existence of a partial retirement) would be in a crossroads situation with little solution.

In any case, given that this extension is a new development, we will have to observe how the INSS acts and take note of the criteria it applies in relation to this partial retirement mode in the industrial manufacturing sector.