Employment termination processes in Spain

Spanish employment law distinguishes suspension of the employment contract from termination of the employment contract.  Suspension of the employment contract is only a temporary interruption to the employer-employee relationship.  Such a situation arises when, for example, an employee suspends his or her employment contract temporarily to spend time with a new member of the family.  Termination, however, refers to the permanent end of the employer-employee relationship and usually involves some type of notice and compensation.  Likewise, the termination processes for management personnel, regular employees, and agents are all similar even though each situation is regulated by a different law.

This section focuses on the termination processes for all three types of situations, and it also discusses the suspension causes and process for regular employees.  It is useful for a foreign national beginning a new company in Spain to know of both the suspension and the termination processes for regular employees to highlight the differences between the two.  The Workers’ Statute is most helpful for showing this difference and detailing the legitimate reasons why a regular employee may request time off.

Termination Process for Management Personnel Employment

If the foreign national who is starting up a new business in Spain decides to hire management personnel, it is wise to understand the process for terminating such personnel if any circumstances arise requiring such action.  The term management personnel refers to all of those upper-level employees with managerial responsibilities.  Examples of such persons include a chief executive officer, a director on a board, a president or supervisor, etc.

The Law Regulating Management Personnel is silent on whether an employer needs a reason to terminate the employment contract.  In other words, the Law does not require the employer to have a reason for terminating an employment contract with management personnel as long as the notification and severance payment requirements are met.  The Law discusses other situations, however, where the employer could terminate the employment contract if one of its management personnel commits a serious breach of the employment contract (in such a case, the requirements of Article 55 of the Workers’ Statute must be met).  The Law Regulating Management Personnel also refers to the Workers’ Statute’s Article 49 for other causes for termination of such employment contracts (death, mutual agreement by the parties, retirement, incapacity, etc.).

More specifically, the termination process initiated by the employer begins with the employer notifying the principal (a person included in the group term management personnel), in writing, that the employment contract is going to be terminated within three months of the notice of termination (Articles 10-11 of the Law Regulating Management Personnel).  Such notification triggers the right to severance pay, which is most likely an amount indicated in the employment contract.  It is highly recommended that the foreign national’s new company deal with such issues of indemnity upfront in the employment contracts to avoid litigation in such termination cases, especially when dealing with management personnel and large sums of money.  If the foreign national at the new company chooses to hire management personnel, it is suggested that employment contracts be drafted to favour the new company in the case of termination.  To make such employment contracts favourable to the foreign-national employer, it is recommended that specific causes for termination and specific severance payment amounts be included in employment contracts for management personnel.  If the employment contract does not indicate what the severance pay will be in the case that the foreign-national employer terminates a principal’s contract, the Law Regulating Management Personnel dictates that the severance pay must be equivalent to seven days of salary, in cash, for every year that such person has worked with a maximum of six months’ pay.  Depending on the circumstances, this default position may be one that a foreign-national employer wishes to avoid.  Therefore, drafting provisions about severance pay ahead of time can save legal battles over money later. 

The foreign national beginning business in Spain should keep in mind that a judge may declare a termination unjustified or null.  Such cases may warrant additional severance pay or reinstatement of employment.

Suspension and Termination Process for Ordinary Employees’ Employment

Article 45 of the Workers’ Statute lists the causes for suspending an employment contract involving regular employees.  The causes for suspension with which the entrepreneurial foreign national should be familiar include:

• By mutual agreement by both employer and employee
• For reasons stated in the contract
• Because of the temporary incapacity of the employee
• For maternity, paternity, other risks associated with childbirth, and legal adoption
• For engaging in military service
• Because of election to public office
• When the employee is temporarily incarcerated, but no penal sentence against him or her exists
• For disciplinary reasons
• For a personal (temporary) emergency outside of the employee’s control
• For economic, technical, organizational, or production reasons
• For the employee’s having to take a forced leave of absence to fulfill a public duty
• For the employee’s exercising his or her right to strike
• For the legal closing of the company
• For an employee’s decision to suspend the employment contract because she feels obligated to abandon the position because of gender violence or sexual harassment (this reason is gender-specific as stated in the Statute)

On the issue of collective redundancy, the Workers’ Statute is very number-based, complex, and specific on the requirements for termination (Article 51).  For these reasons, it is recommended that a new business enterprise seek further legal advice concerning collective redundancy inquiries.  Issues of collective redundancy are beyond the scope of this article because it is unexpected that a new company will not have to deal with a potential collective redundancy situation.  This is because as a new company is just beginning its operations, its owner does not usually contemplate terminating several employment contracts at the inception of the company.

There are two forms for termination of regular employees according to the Workers’ Statute.  One requires that the employer have an objective reason for terminating a regular employee, and the other requires that the employer have a disciplinary reason for terminating a regular employee.  This section of the article outlines both ways to terminate.

In the case that the foreign national’s new company hires regular employees and later decides to terminate, the following are the objective causes for termination, which the foreign national should keep in mind (Article 52):

• Termination for the employee’s incompetence or ineptitude after having been hired into the company
• Termination for the employee’s failure to adapt to the technical modifications in his or her position when changes are reasonable and have occurred within two months of any modifications within the employee’s position
• Termination when the necessity exists objectively to amortize positions for causes listed in Article 51.1 (collective redundancy)
• Termination for missing work even when justified and intermittent, if the missed number of days reaches certain number requirements; BUT, termination for absences for striking shall be not counted, nor shall other absences be counted when used for seeking legal representation within the company, accidents at work, maternity, risk during pregnancy, illnesses caused by pregnancy, licenses and vacations, illnesses or non-work related accidents when the missed work period has been justified by a medical centre, or days missed for gender violence.

The procedure for termination of the employment contract for objective causes requires the employer to comply with the following steps to ensure that the termination is not unjust or improper.  First, the employer must provide written communication to the employee expressing the cause of termination.  The employer must then pay an indemnity to the employee of 20 days of his or her salary per year worked, prorated for those months during which the period worked is less than one year with a maximum of 12 months.  The process requires 30 days’ notice to the employee of the termination; this time begins on the date of communication of the termination.  When the employer does not comply with these requirements to carry out the termination, or if the employer engages in an unfair dismissal based on discriminatory reasons, the termination will be considered null by a judicial body.

The Workers’ Statute also specifically identifies the reasons why an employer can terminate an employee’s contract for disciplinary reasons, rather than objective ones.  The foreign national beginning a new company should note that, as an employer, he or she can terminate an employee’s contract where the employee commits any of the following acts provoking disciplinary action (Article 54):

• Repeated and unjustified absences or tardiness
• Lack of discipline or disobedience at the workplace
• Verbal or physical offenses directed toward the company or its employees or their families
• Abusing the good faith contractual relationship that the employee has with the employer
• Participating in the continued, voluntary reduction in the employee’s regular work
• Habitual drunkenness or drug use if either negatively affects the employee’s work
• Harassment for racial, ethnic, age, religious, sexual orientation, or disability reasons.

The procedure for termination of the employment contract for disciplinary reasons also calls for the employer to comply with certain requirements to ensure that the termination is not unjust or improper.  Because termination for disciplinary reasons is a more delicate and subjective area than termination for objective causes, the foreign national beginning business operations in Spain should ensure that he or she follows the guidelines for termination for disciplinary reasons especially carefully.  Most importantly, a proper (not null) termination for disciplinary reasons must describe the facts and effective date of termination, and be written and directed to the employee.  The section of the Workers’ Statute that regulates terminations for disciplinary reasons does not state a required notification period, rather it only requires that the notification of termination explain to the employee the inappropriate act provoking termination and the date that the employer will consider the termination effective (Article 55).  It is suggested, however, to give the employee a fair amount of time, such as 30 days as described in the previous section, to avoid potential legal challenges from the employee.

To avoid a judicial body declaring a termination as null, the foreign national’s new company should avoid terminating for reasons motivated by discrimination or fundamental violations of employees’ rights (to be further explained in an upcoming article).  A termination for disciplinary reasons is also considered null in the following cases:  when the employment contract is suspended for reasons of maternity, pregnancy risks, illnesses related to pregnancy, adoption, paternity, etc.  Where a termination is considered null, the employer is required to readmit the employee, and the employer must pay the employee his or her corresponding salary for the time missed.  A proper termination, of course, causes the termination of the employment contract, legitimately stripping the employee of the right to severance or salary payments (Article 55.7).

The Workers’ Statute heavily discusses improper termination, which involves the general scenario of an employer terminating the employee’s contract without a justified cause (Article 56).  When an employer improperly terminates an employee, the employer has a timeframe of five days from the notification of the judicial decision, which declares the termination unjustified or improper, to readmit the employee with some severance pay based on one of two formulas outlined in the Workers’ Statute.  The most common formula used in the Spanish employment law field is a severance payment to the employee of 45 days of his or her salary per each year that the employee has worked, prorated by those months worked for periods less than a year.  This severance payment scheme has a cap of 42 months.  The severance payment is based on the worker’s salary, which is a broad concept that includes the base salary, bonuses, extra payments, unused vacation days, etc.

In summary, the most economical and least litigious way to terminate regular employees is to do so for objective reasons, following the termination procedure outlined in the Workers’ Statute.  In the case that the foreign national’s new company ever terminates regular employees for disciplinary reasons, the foreign national should seek additional legal assistance in preparing such detailed notifications to employees of their inappropriate acts to deter possible litigation initiated by a terminated employee.

Termination Process for Employment of Agents

The termination process for agents is much simpler than the termination process for regular employees.  In just a few articles (Articles 23-31), the Spanish Agency Contract Law explains how to end the agency relationship.  Where an agency contract specifically states its duration of validity, the contract language controls, and the contract terminates upon the date that marks the end of the contract.  In the case of an agency contract that is for an indefinite period, however, either of the parties can terminate the contract by way of written notice to the opposite party.  The written notice of termination must be given one month in advance of the date of termination for each year the agency contract was valid (i.e. one month’s notice for each year the agency contract was valid).  Regardless of whether the agency contract is for a definite or indefinite period, no written notice needs to be given where one of the parties has partially or completely failed to comply with the agency contract or any other legal obligations.

The financial consequences of the foreign national’s new company’s terminating an agency contract would only involve payment to the agent of his or her salary for the months during the required notice period.  This financial situation is much preferable because immediately terminating an agency contract may be especially costly to a company.  Such a termination would result in a breach of contract where a company fails to comply with the termination procedure outlined in the Spanish Agency Contract Law.  This means that the agent could potentially bring legal action against a company, requesting that the obligations of the contract be fulfilled, or that damages be paid.  Litigation and other expenses associated with the agent’s suing a company for a breach of contract for immediately terminating the contract without a prior notice period could produce very negative financial consequences for a company, especially a recently developed one.

Therefore, in the case that the foreign national’s new company hires agents instead of employees, it is recommended that the new company draft the agency contracts for an indefinite period so that the new company retains the possibility of terminating the contract by only having to give notice.  Drafting the employment contract in this way will allow the new company to avoid the situation of having to wait out the termination of an agency contract for a definite time, or breaching an agency contract for a definite period by ending the contract without following the legal rules for termination. 

Conclusion

In summary, the above information details the various procedures for suspension of an employment contract in the case of an employee or termination of employment contracts in the cases of management personnel, employees, and agents.  A foreign national who is beginning business operations in Spain should first decide what type or combination of worker/s he or she wishes to hire.  Next, such foreign nationals should consult legal counsel for assistance in drafting the specific types of employment contracts based on the category of worker the foreign national decides to hire.  Legal assistance can help the foreign national to be sure that such employment contracts are drafted as favourably as possible for the foreign national’s position as an employer while still complying with local Spanish laws.  Finally, to reiterate, suspension and termination procedures are generally strict and complex as outlined in the applicable Spanish laws. Thus, it is recommended that a foreign national who intends to begin and maintain employment relationships review the above procedures articles, laws, and notification periods carefully and seek legal advice if necessary before making any decisions about the suspension and/or termination of workers.

Melanie Glover 

For additional information regarding employment termination in Spain,