In order to guarantee the payment of wages and compensation owing to workers made redundant by enterprises in a state of crisis or considered to be insolvent, the Spanish labour administration has introduced legislation and a specific mechanism through which a Wage Guarantee Fund consists of the contributions made by all public and private enterprises employing workers. This Fund pays the amounts owing directly to the workers concerned and subrogates to their rights in relation to the defaulting enterprises.

The Fund is administered by an independent body under the supervision of the Ministry of Labour, Social Security and Social Affairs. This body is governed by a Secretary-General and a tripartite Administrative Council. The General Secretariat, which comprises a central headquarters and a peripheral administrative unit in each province, manages a large amount of financial capital, which it uses to fund its own operations, and employs modern administrative practices.

According to the general principle of Spanish law relating to bankruptcies, creditors have equal status. This means that when a debtor's assets are insufficient, all creditors may claim their debts on an equal footing, with the effect that the debts must be distributed proportionally so that all parties may partially recover the money owing to them. The recognition of "privileges" in cases of bankruptcy, established by the civil law in the 1930s, was not sufficient to take into account the natural differences between workers and other creditors. The Labour Contract Law of 1942 required the application of these privileges to workers. However, in most cases bankruptcy procedures led to the closure of enterprises and to job losses. During the 1970s, the State decided to intervene to provide a wage guarantee for workers in the case of enterprises in crisis. In that regard, it proved necessary to extend the period of special protection provided for wages in the face of other creditors, and to establish an institutional guarantee in the form of the Wage Guarantee Fund⁽¹⁾, which covers, for workers' debts, minimum levels recognized by the social partners as being socially acceptable.

The mechanisms common to various national labour legislations and in accordance with international labour standards have been complemented in Spain by a new mechanism that formed part of a strategy for avoiding arbitrary decisions likely to preserve individual interests rather than safeguarding the collective interest represented by keeping workers in their jobs. This strategy was designed to validate the decisions resulting from negotiations between enterprises and workers' representatives, and, in case of disagreement, to monitor, verify and decide on the measure to be implemented in enterprises whose difficulties would have a collective effect on overall employment.

The new mechanism consists in using the Wage Guarantee Fund in order to intervene in a situation of partial crisis affecting an enterprise. The Fund acts as a guarantor for the payment of wages and compensation to workers made redundant by enterprises owing to insolvency, suspension of payments, bankruptcy and competition between creditors. In such cases, the Fund acts as the "subsidiary" enterprise chief, in other words the amounts owing are paid from the Fund in accordance with the law, when an enterprise finds itself in one of the above situations. In that connection, the amounts owed to workers are paid out of the Fund, which subrogates to their rights in relation to enterprises in order to recover for itself the debts owing. It defers and pays in instalments the debts of the enterprise concerned so that the enterprise may continue to operate with the workers who have not been made redundant. Thus, this mechanism avoids the liquidation of assets and the closure of the insolvent enterprise, as well as safeguarding a portion of the jobs at risk.

The Wage Guarantee Fund is administered by an independent public body under the supervision of the Ministry of Labour, Social Security and Social Affairs, which has legal capacity and the capacity to act, and is funded by the contributions - the rate of which is set annually by the government - paid on a monthly basis by enterprises at the same time as social security contributions⁽²⁾. This body is governed by a tripartite Administrative Council and the tasks entrusted to it are carried out by a General Secretariat. The Administrative Council comprises representatives of workers' organizations, employers' organizations and the State. This body⁽³⁾ is responsible for devising the criteria on which the Fund's activity is based, monitoring the Fund's economic development and making proposals to the government, under the supervision of the Ministry of Labour, with a view to applying the measures necessary for the accomplishment of the Fund's duties, approving the preliminary draft of the annual budget and monitoring retrospectively budgetary expenditure, and approving the annual activity report of the body administering the Fund.

This mechanism is accompanied by provincial committees which monitor the Fund and are headed by the provincial labour director of the Ministry of Labour and Social Security These tripartite committees comprise three representatives of the public administration, three representatives of workers' organizations and three representatives of employers' organizations. The committees, which are scheduled to meet once a quarter, are responsible for receiving and taking into account the information, guidelines and criteria for action established by the Administrative Council, monitoring the Fund's economic development in the province concerned and its effects in the Fund's field of activity, and for evaluating the activities and operations of the Fund in each individual province.

The General Secretariat of the Fund has a central headquarters and 52 peripheral administrative units (UAPs) responsible for instituting legal proceedings and carrying out subrogatory actions. The structure of the General Secretariat is fixed by the Royal Decree of 14 August 1979, amended in 1986 to establish the list of posts, then in 1988 to fix staff remuneration, and in 1989 to establish the list of posts of the UAPs. The General Secretariat's main tasks are as follows:

collecting and managing the contributions paid by public and private enterprises;
paying the wages and compensation owing to workers;
recovering wages and compensation payments from enterprises in crisis (as part of competition proceedings, executory proceedings, civil proceedings, criminal proceedings, etc.);
signing delegation agreements with enterprises;
co-operating with judicial authorities.

Close co-operation exists between the Fund's administration, the Labour Inspectorate, the Social Security Treasury and the National Employment Institute.

The General Secretariat has 489 staff members. These officials are subject to the General Statutes on Public Servants for the purposes of appointment, career development and annual performance evaluation. Job descriptions are drawn up in accordance with the regulations in force at the Ministry of Labour. The job profiles necessary to fulfil the tasks and responsibilities of the officials working in the peripheral administrative units require legal and secretarial qualifications. Unit heads must be qualified lawyers since they appear before the courts of the Social and Civil Order. At headquarters level, the profiles are more varied and require qualifications in law (social, commercial, civil and fiscal), public and private finance, management, liquidation proceedings and general administration.

The use of information technologies for administering the Fund is well established. All officials have available and use the necessary computer equipment. The headquarters of the Fund's General Secretariat and the 52 peripheral administrative units are connected by a network and with the network of the Ministry of Labour, the Social Security Treasury and the National Employment Institute. By means of this system of networks, information is provided instantaneously. Thus, when collective redundancies are made by an enterprise, the employer files his decision with the Labour Directorate of the autonomous community concerned, which conveys this information to the Wage Guarantee Fund and to all the institutions concerned. Information is also simultaneously available regarding payments to the Fund of enterprises' assessed contributions, said payments being made at the same time as social security contributions. Thus, the Fund's administration is aware at all times of which enterprises are late with their payments and which have postponed the payment of their contributions.

The operations of the General Secretariat administering the Fund are financed by money taken from the capital built up through the contributions paid by enterprises (0.4 per cent of workers' wages) and the interest earned from the investment of this capital. The Fund manages total capital of 82,270 million pesetas, of which 97.3 per cent represents the amount of benefits paid. The operating budget stands at a little under 4 billion pesetas, of which about 49 per cent represents staff costs. Financial management is conducted on an annual basis and is the subject of a report submitted to the Fund's Administrative Council after its accounts have been audited.

The activities conducted and the results obtained by the Fund's administration are evaluated by means of statistical instruments and qualitative studies. The statistical data, which are immediately collated using the computer system, are processed and analysed by the General Secretariat and are contained in a comprehensive report submitted to the Fund's Administrative Council. As regards the UAPs, the provincial monitoring committees evaluate the activities and results obtained in each province and submit a report to the General Secretariat, which consolidates all the information in its report to the Administrative Council.

In 1997, a total of 79 823 million pesetas was paid to 155 495 workers from 31 788 enterprises in the industrial, property, commercial, motor vehicle repair, construction, community social services, transport and communication sectors. In addition, 92 655 posts have been preserved in the past six years by means of the Wage Guarantee Fund. The amounts subject to agreements on reimbursement by enterprises declared insolvent (cases in which enterprises have been able to continue their activities with part of their staff by means of "compensation" agreements⁽⁴⁾) stood at 56 894 million pesetas and represented an average of 15.9 per cent of the total amount of benefits paid by the Wage Guarantee Fund.

The cases of non-observance of reimbursement agreements represent around 15 per cent a year and do not always constitute complete non-observance followed by the closure of an enterprise. In many cases, payments are not made and the Wage Guarantee Fund does not receive the agreed amounts in any one year, but does not demand that the agreement should be respected so as not to compromise the number of posts retained.

To sum up, the Spanish labour administration's activities are original in that the Wage Guarantee Fund has expanded the conditions and methods of payment for wage benefits or redundancy compensation in cases of enterprise insolvency, together with the recovery of enterprise debts. In that regard, this activity is exemplary insofar as the mechanism established provides the possibility of keeping an enterprise running without the need to liquidate its assets, or terminate all work contracts, by means of the judicial procedure of execution separate from workers' debts in relation to other creditors. By means of regulations devised by the labour administration in close consultation and co-operation with the social partners, thereby enabling an agreement to be signed between enterprises in difficulty and the Wage Guarantee Fund, it is possible to defer an enterprise's debts and to pay them in instalments, as well as granting reasonable periods of reimbursement⁽⁵⁾. The entry into force of the agreement leads to the suspension of the activities undertaken by the Wage Guarantee Fund before the judicial authority to which the agreement is sent for prior archiving of the proceedings, insofar as they pertain to the Wage Guarantee Fund.

This system offers the advantage that it safeguards a large part of the posts filled in enterprises in difficulty. In addition, it has indirect positive effects: firstly, the declared insolvency of an enterprise does not have a negative influence on its market position, since its assets are no longer seized and the enterprise is granted access to external funds or credits; secondly, owing to the transparency of the regulations, the process may be subject to an agreement with the workers themselves as soon as a crisis begins; thus, by means of partial collective redundancies, for which compensation is paid by the Wage Guarantee Fund subrogating to the workers' rights, it is possible to save the remaining posts and to avoid a situation whereby the crisis in the enterprise leads to its disappearance.

1. The establishment of the Wage Guarantee Fund was approved in 1977 by the Law on Labour Relations. In addition to article 51 of the Workers' Charter, which provides for a negotiating procedure with workers' representatives in the case of collective redundancies for economic, technical, organizational or production reasons, the main legal standards governing the Wage Guarantee Fund are: i) article 33 of the Workers' Charter (WC), the first legal version of which dates from 10 March 1980 and which has the force of law in the redrafted text approved by the Royal Legislative Decree of 24 March 1995; ii) the Royal Decree of 5 March 1985, which contains the general regulations governing the Fund; iii) the Ministerial Decree of 20 August 1985 on the Reimbursement Agreements for Sums Paid; and iv) the Royal Legislative Decree approving the Law on Labour Procedure of 7 April 1985 (articles 235 and 303).

2. The Fund is financed by the contributions paid by public and private enterprises into a separate account, at a rate of 0.4% of the wages paid to workers. This institution can be defined as an enterprise solidarity fund, containing the contributions made by all enterprises employing workers.

3. Defined by article 5 of Royal Decree N° 505/1985.

4. "Saneamiento" in Spanish.

5. Deferral of the total amount without payment in instalments, over a maximum reimbursement period of two years, or deferral with payment in instalments of the total amount, with a maximum reimbursement period of eight years, and a moratorium of a maximum of six months.