Redundancies in Spain in times of crisis: economic and productive reasons

The Spanish Code of Labour Law (Estatuto de los Trabajadores) sets out a particular type of redundancy known as redundancy based on objective reasons. There are several reasons for which a company could carry out this type of redundancy. We are going to focus on the most common reasons, which usually take place during times of financial difficulty: economic and productive reasons.

Before discussing the aforementioned reasons, we will have a look at the basic traits of this type of redundancy, and analyse the profits of this type of redundancy in comparison with other types:

  • Employees are entitled to a compensation of 20 paid working days for every year they have been working for the company. However in cases of unfair redundancies (with no justified reason) employees are entitled to 45 paid working days for every year they have worked. Therefore, redundancy based on objective reasons is much cheaper for the company.
  • The company must deliver to the employee a redundancy letter at least 30 days before the dismissal takes place. This means that the employee will have to work one more month before leaving the company and of course, get paid for it. Additionally, the company must allow the employee to leave work at least 6 hours a week to have time to look for a new job. However, the company may prefer the employee to leave at the very moment of the delivery of the redundancy letter. In this case, the company must however still place the income corresponding to the 30-day term at the employee’s disposal. At the same time, the company must place the 20-day compensation at his disposal as well. The 20 days compensation has a limit of 12 months salary.

Next, we will briefly describe the economic and productive reasons that must occur within the company to carry out a redundancy based on objective reasons:

Economic Reasons

There must be an actual and current negative economic situation affecting the company in its entirety. Such an economic situation has to be reflected as losses in the annual account. A profit decrease compared with previous years is not enough to prove a negative economic situation. The losses must be real.

Productive Reasons

A customer orders decrease is an objective reason to dismiss employees under this type of redundancy. This decrease must arise from external factors that are beyond the company’s control. This is why the reasons given are normally linked to a negative economic situation. Nevertheless, this reason does not require financial losses to be proven.

If the company decides to dismiss an employee based on any of these reasons, the redundancy letter must be as detailed as possible. What does this mean? Apart from the general rules for fulfilling a redundancy letter (such as specific and detailed motivating facts or the mention of the applicable articles), the company is compelled to provide numerical data proving the claimed situations: an annual account stating losses or a summary of client orders during the last years, in cases of production decrease.

The redundancy letter must fulfil all these requirements. Otherwise, the redundancy would be declared void. Consequently, the employee would have to be reemployed and the company would be compelled to pay the corresponding earnings to the employee he/she would have earned during the processing time, which would be from the date of redundancy until the date of re-employment.

Moreover, the letter of redundancy must be accompanied by a check including the corresponding legal compensation and the 30-day salary in case the company decides to dismiss the employee once he/she receives the letter of redundancy, if not then the 30-day notice is required.

If the employee refuses to accept the check and in case of an eventual action before the Court, the company will have to prove that they have offered the corresponding compensation. To prove this offer, at least two witnesses would be required, employees of the company if possible.

The foreseen payment of compensation for unfair redundancies through escrow deposit to the court is also becoming a popular judicial device for companies dealing with cases of redundancy based on objective reasons. Thus, the company avoids the risk of employees claiming processing time payments for not having been handed their compensations.

This kind of redundancy is usually the most economical and helpful, especially given the current financial crisis, of course where and when the aforementioned requirements are met.

For additional information regarding redundancies in Spain,

Please note that this article is not intended to provide legal advice.

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