The extinction of the Management Contract in Spain

The employment contract for executive managers is regulated in Spain by the provisions established in Royal Regulation 1382/85 of 1st August, regulating the special employment relationship of executive managers.

Considered as executive managers are those, who are qualified by the following characteristics:

  • The exercise of powers which are inherent to the legal entitlement of the business
  • The scope of these powers is related to the general objectives of the business
  • They act autonomously and with full responsibility, only limited by criteria and direct instructions given by a person or superior government or administration organs of the entity that holds the respective entitlement.

The special employment relationship of the executive personnel is based on the mutual trust of the parties, which adapt the exercise of their rights and duties to the demands of the principal of bona fide.

From the specific legal regime of the employment relationship of executive managers or as the case may be from the scope of application of the Employment Statute are excluded:

  • Actions which are absolutely and simply limited to the mere carrying out of the office as an advisor or member of the administration organs in the businesses which review the legal form of the company, always when the activity in the business only partitions the realisation of assignments inherent to this office
  • The executive personnel of the common regime

The conflicts which emerge between the executive personnel and the businesses as a consequence of the application of the employment norms are the competence of the judges and justices of the social order of the court.

Extinction of the Contract

Concerning the extinction of the said type of contracts, apart from the power to extinct them for the reasons and through the procedures foreseen by the Employment Statute (ES), one has to pay attention to the specific cases which will be commented on in the following.

The special employment contract shall have the duration agreed upon by the parties. In default of written agreement is the contract presumed to be concluded for an indefinite time.

Termination by the Will of the Executive Manage

Article 10 of Royal Regulation 1382/01985 provides that the special employment contract will be extinguished by the will of the executive manager, who procured a previous notification with a minimum of three months up to six months if like this it has been established in writing in the concluded contracts for indefinite time or with a duration superior to 5 years. It will not be essential to respect the previous notification in cases of grave non-compliance with the contract by the employer.

In cases of total or partial non-compliance with the obligation to previous notification has the employer a right to claim damages equivalent to the salaries which correspond to the duration of the period of non-compliance.

The executive manager can extinguish the special employment contract, having a right to the damages agreed upon or in their default to those which have been set out in this norm, for the case of extinction by the rescission of the employer, founded in the following grounds:

  • The substantial modifications in the terms of employment notoriously lead to prejudices in the professional formation, interfering with his dignity or having been decided with a grave violation of bona fide on the part of the employer.
  • Failure in payment or frequent delay in the payment of the agreed wages.
  • Any other grave non-compliance with the contractual obligations by the employer, except for cases of force majeure, in which the payment of the damages referred to, does not proceed.
  • The succession of the business or important changes in the ownership of the same one, affect the reformation of the headmaster organs or the content and development of the principal activity, provided that the extinction is performed within the three months following the generation of those changes.

In those cases, and even though the edition of article 10(3) of Royal Regulation 1382/1985 could lead to contemplate something else, the jurisprudential position is that the causal resolution of the employment contract by the executive manager is not out of court but judicial in the same terms as established for the common employee in Article 50 of the ES (Decision by the Supreme Tribunal of 30th May 1991).

Termination by the Will of the Employer

Unlike the common employment relationship, the employment contract of the executive manager can be extinguished for rescission by the employer, needlessly of the allegation of grounds.

In compliance with Article 11 of Royal Regulation 1382/1985, the employment contract can be extinguished by rescission of the employer, if it is communicated in writing and the stipulated previous notification has been procured. In these cases, the executive manager has a right to the contractually agreed damages. In case of default, the damages shall be equivalent to seven days of salary in cash for every year of service with a limit of six monthly salaries.

In cases of total or partial non-compliance with the previous notification, the executive manager has a right to damages equivalent to the salaries corresponding to the duration of the period of non-compliance.

The contract can be extinguished by the decision of the employer through dismissal for grave and culpable non-compliance by the executive manager, in the form and with the effects established in the ES (Article 55). In the case where the dismissal has been declared invalid, exists the peculiarity as regards the damages that the quantity agreed upon in the contract is applied and in default the salary of 20 days in cash and for the years in service up to a maximum of twelve monthly salaries.

Besides, when the dismissal has been declared invalid or null, the employer and the executive manager shall determine whether they want to perform readmission or the payment of the economic damages. In case of disagreement, the payment of the economic income will be applied.

The Supreme Tribunal, in decisions 8-11-99 and 12-03-93, signalled that in cases where the dismissals of the executive managers are invalid and null, the payment of the salaries of handling.

For additional information regarding the extinction of management contracts in Spain,

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

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