These are the main situations by which employees may be terminated:
- disciplinary dismissal
- termination by the employee (including constructive dismissal), and
- individual redundancies/economic dismissals.
The period of notice which the employee must give will generally be determined by the employment contract, or alternatively, by the applicable collective bargaining agreement (CBA), usually 15 days.
As a general rule, an employer can terminate an employee’s employment during the trial period without it being necessary to serve either statutory notice or to make any severance payment.
Indefinite term contracts
The general rule is that once the trial period has ended, an employer cannot terminate an indefinite term contract without a statutory reason, unless the employer pays the employee a statutory termination payment, in consideration of the fact that the termination is unjustified/unfair. If the employer can produce evidence to show that there are disciplinary reasons/gross misconduct for terminating the employee’s employment, no statutory payments apply and no period of notice is to be served.
Fixed term contracts
When a fixed term contract is terminated by expiry of its term, a termination payment equivalent to 12 days’ pay per year of service is payable.
Disciplinary dismissal or redundancy determined as unjustified/unfair
Reinstatement or statutory unfair severance (combination of 45 days’ salary for each year of service up to and including 11 February 2012 plus 33 days’ salary for each year of service completed from 12 February 2012, until the termination date). Severance compensations are tax free, capped at €180,000, provided that the parties ratify the settlement agreement before an official body (so-called Conciliation Chambers).
There are no categories of employee who cannot be dismissed. There are, however, certain situations or circumstances where enhanced employment protection applies, such as reasons connected with discrimination, pregnancy, maternity and after childbirth (during the nine months following the childbirth), paternity, union membership or staff working reduced hours to care for young children. In such cases, specific rules may apply so that, for example, in certain cases the dismissal is likely to be held null and void. In practice, this means that employees in these protected categories can only be dismissed by following a very onerous procedure which usually means in practice that it is necessary to offer termination payments above the statutory amounts.
Different rules apply to the termination of senior executive employment relationships (as defined by Royal Decree 1382/1985). Senior executives can be terminated:
- by unilateral decision of the employer without specific cause (ie contractual withdrawal by employer), in which case he/she is entitled to an indemnity of seven days’ pay for each year of service, up to a maximum of six months’ pay, or such other indemnity as may have been agreed, or
- for a disciplinary reason – if the disciplinary dismissal is found to be unfair, he/she will be entitled to receive a severance payment of 20 days’ pay for each year of service subject to a maximum of 12 months’ pay .
Any agreement between the senior executive and the employer which sets termination indemnities at a lower level than those defined by statute will be valid.
In addition to the general reasons for voluntary termination by the employee set out in the legislation, a senior executive will be entitled to voluntarily terminate the employment relationship and to receive an indemnity in other circumstances, such as substantial changes in the shareholding of the company.
An employer and employee can agree to terminate an employment agreement by mutual consent, without generally having to comply with any specific formalities. In comparison to an unfair dismissal situation, termination by mutual agreement raises the issue that any agreed termination payments will be taxable in the hands of the employee, whilst statutory termination payments for wrongful dismissal or redundancy (objective dismissal) are exempted from personal taxation. However, where instead of a private mutual agreement the parties reach a settlement before a conciliation office, as a result of a previous dismissal effected by the employer and contested by the employee, the termination payment will still be free of taxation.
No special rules apply in order for a settlement agreement to be valid, unless it is an official settlement reached before a conciliation chamber, in which case some further formalities may apply (eg the individual acting on behalf of the employer will need to evidence his/her authority and faculties to enter into the relevant settlement).
Private settlement agreements may be held to be invalid in certain circumstances for example if they refer to basic rights which cannot be waived, or if they fail to set out clearly in a manner which can be easily identified by the employee all of the rights and entitlements which the employee is waiving.
Further information on termination in Spain is available from our International Employment Issues microsite here.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.