Spain has already passed budget cuts, pension reforms, privatisations and measures to recapitalise its financial system, but markets want more tough action to prove it can avoid a bailout -- unlike Portugal, Ireland or Greece.
Talks between unions and business over the collective bargaining system, which is seen as one cause of poor Spanish competitivity, broke down last week, leaving the government to draft the reform unilaterally.
In Spain 7 million workers -- many of them non-unionized -- have collective bargaining agreements. The vast majority of those agreements are made at the level of a business sector or geographic region rather than a specific company.
Business leaders say the structure makes it difficult for them to change working hours or adjust to economic downturns. Sectoral agreements have more legal weight than company pacts when conflicts arise.
Spain has been criticized by international economic bodies such as the Organisation for Economic Co-operation and Development (OECD) for salaries linked to inflation, but the issue was not directly addressed in collective bargaining reform.
Following are key proposals of the draft reform, which will be debated by parliament after government approval.
Once a contract has expired it will remain valid for eight to 14 months -- depending on whether it had been a two-year contract or longer - while unions and the company try to negotiate a new one. An earlier draft of the reform had a limit of 20 months.
Arbitration by a third party will kick in after that period if companies and unions do not agree to conditions.
Currently, expired contracts are valid indefinitely, until they are replaced by a new one.