As we enthusiastically conquer new markets and expand our businesses, the termination of employment contracts often takes a backseat in our planning. However, it is an inevitable aspect of the hiring life cycle that every employer will encounter. Having a solid understanding of this process before entering a new market can save you from potential challenges down the road.
Terminating an employment contract in Spain is a significant event governed by detailed labor laws designed to protect both employees and employers. Whether you are an employer considering ending an employee’s contract or an employee facing termination, it is important to grasp the legal framework and procedures involved. This blog will guide you through the key aspects of terminating an employment contract in Spain.
Types of Termination of Employment Contract
In Spain, employment contracts can be terminated through several means, each with its own legal implications:
- Mutual Agreement: Both the employer and the employee agree to end the contract. This is often formalized in writing to avoid future disputes.
- Employee Resignation: An employee may resign from their position voluntarily. In such cases, they are typically required to give notice, the duration of which depends on the collective bargaining agreement or contract terms.
- Employer-Initiated Termination (Dismissal): Employers can terminate an employee’s contract, but this must be justified and follow strict legal procedures. Dismissals can be classified into three categories:
- Disciplinary Dismissal: For serious misconduct or breach of contract by the employee.
- Objective Dismissal: Due to economic, technical, organizational, or production-related reasons.
- Collective Dismissal: When a significant number of employees are dismissed for objective reasons, typically requiring a redundancy plan (ERE – Expediente de Regulación de Empleo).
- Expiration of Contract: For temporary contracts, termination occurs naturally when the contract period ends, provided the employee has been informed at least 15 days in advance.
- Unilateral Termination by the Employer: This includes cases of unfair dismissal, which may lead to compensation or reinstatement, depending on the court’s ruling.
Legal Procedure for Termination of employment contract
When terminating an employment contract in Spain, specific procedures must be followed to ensure compliance with labor laws:
- Notice Period:
- For most dismissals, a notice period is required, usually ranging from 15 days to a month, depending on the type of contract and the reason for termination.
- Failure to provide notice may result in the employer being liable to pay the employee the salary corresponding to the notice period.
- Written Notification:
- Employers must provide a written notice of termination, clearly stating the reasons for dismissal and the effective date.
- In cases of disciplinary dismissal, the reasons must be specific and supported by evidence.
- Severance Pay:
- For objective dismissals, employees are entitled to 20 days’ salary per year of service, up to a maximum of 12 months’ salary.
- For unfair dismissals, the compensation is 33 days’ salary per year of service, up to a maximum of 24 months’ salary.
- No severance is required for disciplinary dismissals, unless deemed unfair by a court.
- Settlement Agreement (Finiquito):
- Upon termination, the employee should receive a “finiquito,” a document detailing the final settlement, including any outstanding wages, proportional parts of extra payments, unused vacation days, and severance pay.
- Both parties typically sign the finiquito to acknowledge the termination and the settlement of all outstanding amounts.
- Right to Challenge Dismissal:
- Employees have the right to challenge the termination in court within 20 working days from the date of dismissal.
- The court may rule the dismissal as fair, unfair, or null (e.g., if based on discriminatory reasons), each with different outcomes for compensation or reinstatement.
Special Considerations
- Protected Employees: Some employees, such as pregnant women, employees on parental leave, and union representatives, enjoy special protection against dismissal. Terminating such employees without just cause can result in severe penalties, including automatic nullification of the dismissal.
- Collective Redundancies: For collective dismissals, employers must follow a specific procedure involving consultation with employee representatives and notification to labor authorities. A failure to comply can lead to significant legal challenges.
- Judicial Review: Disputes over termination often end up in labor courts. It is not uncommon for an employer-initiated termination to be contested, leading to a judicial review to determine whether the dismissal was fair, unfair, or null.
To learn more about termination of employment contract in Spain visit the Spanish Ministry of Labor.
Conclusion
Navigating the complexities of terminating an employment contract in Spain is not exactly the most glamorous part of expanding your business, but it is just as essential as closing that next big deal. While the thrill of new markets can make us overlook the less exciting aspects, having a game plan for contract terminations can save you from headaches—and legal battles—down the road.
In Spain, it is not just about crossing your T’s and dotting your I’s; it is about carefully following the script to avoid costly missteps. Employers, make sure your reasons for dismissal are rock-solid and your procedures are by the book. Employees, know your rights—if you feel your exit was less than fair, there are avenues to explore.
With the right knowledge in your toolkit, you can smoothly handle this inevitable part of the hiring journey, keeping your focus on what you do best—growing your business.
To learn more about employment in Spain, see our earlier blogs about the cost of employing in Spain, the Spanish pension system, and registering as a foreign employer in Spain
Interested in learning more? Please visit Internago or our Payroll Portal. For further inquiries, contact us at info@internago.com