A guide to employment termination in Spain

January 4, 2022

spanish employment law termination

Firing an employee is an inevitable and oftentimes messy aspect of running a business. You must cautiously walk the line between employment law and due cause. A breach in the wrong direction could result in serious legal issues, financial headaches and reputational harm.

If you are operating within or plan on hiring in Spain, it’s important to be aware that local workers have significant employment protections that you must abide by. Failure to comply with Spanish law could significantly impact the success—or lack thereof—of your business venture.

Here’s an overview of Spanish employment law and what to be aware of if you’re considering termination.

Spain labor laws

Spain affords both domestic and foreign workers with comprehensive and significant legal protections. The majority of employment legislation is detailed in the Estatuto de los Trabajadores, or the “Workers Statute,” as well as the Spanish Civil Code. These regulate:

  • Spanish legal and regulatory provisions
  • Collective bargaining agreements
  • Local and professional customs and practices
  • Intentions of both parties in an employment contract 

Employment protections apply to adults and minors across various industries and forbid any type of discrimination based upon race, religion, ideology, sexual orientation or any other class. Recent legislative addendums focus on data protection, workplace safety, remote work, employee benefits and gender equality.

Spain employment contracts

An employment contract in Spain can be verbal or in writing. However, there are several types of employment contracts that are expected to be done in writing, such as short-term contracts. Besides that, if you are outsourcing employees from Spain, having a written work contract affords greater protections for the business since it ensures and establishes the expectations and work relationship between both parties.

For employers, the Spanish employment contract must clearly stipulate the following:

  • Both parties involved in the contract
  • The expected employment duration
  • Relevant collective bargaining agreements
  • Location of work
  • Type of work
  • Total working hours
  • Base salary
  • Additional compensation and benefits
  • Notice periods

If you hire an employee and then have them perform duties that are significantly above or below their pay grade, they must be eligible for pay, promotion and a contract adjustment. Failure to do so could then give the employee the right to terminate the employment contract with compensation. 

Grounds for termination in Spanish Law

Spain does not follow at-will termination practices. Once hired and under contract, an employer doesn’t have the right to fire for any reason. Instead, there needs to be established grounds for termination, such as:

  • Two-party consent
  • Established contract grounds
  • Employee resignation, retirement, illness or death
  • Contract expiration
  • Objective collective dismissal
  • Objective dismissal
  • Disciplinary dismissal   

Of these various grounds, let’s expand on the final three.

Collective dismissals

This occurs when a company is forced to lay off groups of workers or entire departments. Often, collective dismissal is due to economic and organizational reasons. It’s legally considered this when:

  • 10 workers are affected in companies with fewer than 100 workers
  • At least 10% of the employees are affected within 90 days in companies that have 100 to 300 workers, or 30 workers in companies with 300 or more workers

Similarly, if the entire workforce is dismissed, this also would fall under the auspices of collective dismissal. For a widespread or collective layoff to be valid, an employer must demonstrate one of the following:

Economic reasons: The company is experiencing noted economic losses or decline, including: 

  • Persistent income or sales loss for three consecutive quarters
  • Sales in each quarter is lower than the figure recorded a year before

Technical reasons: When there are alterations to the instruments or methods of production.

Organizational: When there are alterations to personnel methodologies or internal systems.

Production-related: When there are changes in demand for the goods or services, causing the company to pivot.

Legal procedure for collective dismissal

Even after a company has established grounds for collective action, there are still proper steps that a business must follow according to Article 51 of the Workers’ Statue. These include:

  1. The employer must spend a negotiation period with workers’ representatives, and the outcome then is reported to labor authorities.
    • For larger companies, this period can be no more than 30 calendar days
    • For companies with 50 or fewer employees, this period can be no more than 15 calendar days
  2. The employer must provide 7- to 15-day prior notice of layoff to employee representatives.
  3. Upon notification, the employer must individually notify and meet with workers who are distressed by the news.
  4. If layoffs apply to more than 50 employees, the company is expected to offer workers an outplacement plan that lasts at least 180 days and which provides guidance, training and assistance with their new job search.
  5. Severance payment is 20 days salary for every year worked, with a maximum of 12 months’ salary.
  6. If an employee is older than 55, they must complete a special agreement with the social security authorities. 

Individual dismissal on objective grounds

For individual layoffs, an employer has some extended scope of authority based upon the employees' work abilities. Common reasons for individual dismissal include:

  • Employee incompetence or ineptitude
  • An employee’s inability to adapt to a change in the job (they must first be provided training and a two-month grace period)
  • Economic, technical, production-related or organizational reasons

Employers must provide at least 15 days of advance written notice or pay the salary for those days. Severance pay follows the same structure of 20 days salary for every year worked, with a maximum of 12 months’ salary, and it must be made available at the same time as written notice.

That said, this could then be adjudicated in the courts with the decision reversed. And given the fact that Spanish labor courts generally favor the employee, individual dismissal on objective grounds rarely occurs.

Disciplinary dismissal

The final reason an employee may be legally terminated—and the one in which the employer has the most leeway—is for disciplinary reasons or employee conduct issues. There are several reasons that can give the employer due cause for dismissal, including:

  • Repeated absenteeism, especially without a valid excuse
  • Employee insubordination or lack of discipline
  • Verbal or physical abuse to the employer or other employees
  • Violation of the employment contract
  • Purposeful diminishment of job performance and effort
  • Regular drug and alcohol abuse then impacts job performance
  • Harassment toward the employer or employee based on religious, sexual or disability status

For this to be valid grounds for disciplinary dismissal, an employer must provide a written notice that clearly stipulates the underlying reasons and the effective date of termination. If the terminated employee is a member of a labor union or a workers’ rep, they’re required to be given an expedient disciplinary procedure and hearing.

If the employer fails to follow these actions, they may then provide an informal dismissal within 20 days by paying the terminated employee their salary up until the termination date.

Severance and employee termination

So, if an employee is let go for any of the reasons discussed above, are they entitled to severance pay?

For disciplinary dismissals, the answer is no. So long as the dismissal is given in writing and clearly communicates the employee behavior, such employees have no legal standing to ask for severance or other benefits.

However, a court could deem it as unfair dismissal or wrongful termination and then require severance pay to be provided after the fact. In that case, the employee would be due severance for 33 days’ salary per year of service, with a cap of 24 months’ pay. That would be notably higher than the standard 20 days’ salary per year of service, with a 12-month cap for objective dismissal.

Finally, there are also separation agreements where both parties mutually consent to termination of contract. In this instance, severance depends upon the agreement, but it’s typically still subject to taxes and social security contributions.

Expert guidance for Spanish employment law

No matter the industry, terminating an employee, even on fair grounds, can be tricky, particularly if you’re unfamiliar with the nuances of Spanish labor laws.

If you’re considering expanding to Spain and hiring local workers, an employment partner like a global employer of record can provide expert in-country HR guidance to help you remain compliant with all Spanish labor laws. Learn more about a Spain employer of record today.

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