The Supreme Court opens the door to annulling the ERTE of companies that are unviable

It confirms the opinion of the National Court, which considered that in an extremely serious situation a Temporary Employment Regulation File is not useful to solve the problem

In a recent ruling, the Supreme Court has confirmed that a company with structural problems, which made it economically unviable, committed "fraud of law and abuse of rights" by resorting to a Temporary Employment Regulation File (ERTE).

The High Court has thus ratified a previous ruling issued by the National Court, which ordered a company to return to the State Public Employment Service (SEPE) the unemployment benefits that employees were receiving during the ERTE and to pay them instead the salaries that they should have been receiving.

The ruling 746/2020 of the Social Chamber, although it refers to an ERTE that was applied in 2017, opens the door for other ERTEs that are now being used widely to be considered null and void if the structural unviability of the company is demonstrated, according to the labor law experts consulted by Vozpópuli, although they specify that these should be "flagrant" cases of unviability.

The Supreme Court has now ruled after the National Court's ruling, issued on 18 September of that year and which ruled in favour of the workers' representatives, was appealed by the company.

Structural problem, not a temporary one

The National Court had already argued that "the ERTE was carried out in fraud of law and abuse of rights, even though the economic and productive situation of the company is particularly serious. What is happening, it explains, is that there is not a temporary situation, but a structural problem, which cannot be resolved by excessive sacrifices of a workforce that has already been affected by three ERTEs," recalls the Supreme Court.

"The contested measure will also not be effective in a bankrupt company, which will not be able to bid in public tenders, as it does not have a certificate of being up to date with its Social Security payments and will lose most of its portfolio. In this scenario, it is thought that the measure will not contribute to resolving the current situation," he continued.
The controversial ERTE consisted of the suspension of 318 contracts and the reduction of working hours - from 10% to 17% - for another 151 workers.

"The company is experiencing serious losses, caused by long-standing difficulties, which have worsened after administrative proceedings initiated by the General Treasury of Social Security, which seized its accounts," they concluded, but its situation is too serious to be resolved with an ERTE.

Assigning salary costs to the SEPE

When the National Court issued this ruling, there was already a similar precedent, from 2016, to which this media has had access and in which this court ruled that "the suspension of contracts has the purpose of contributing to overcoming a temporary situation of the company", which was not the case in this case because the company had "such a calamitous situation that it is necessarily headed for liquidation".

They also complained that the company had not put "on the table reasonable and plausible alternatives that would allow us to conclude that the suspensions would serve any purpose other than to pass on salary costs to the SEPE and await the future termination of the contracts in the bankruptcy proceedings, and that it was therefore a measure taken in fraud of the law."