In the second of our international monthly series of articles by guest lawyers, Sonia Cortés García of Abdón Pedrajas & Molero, looks at Spain’s labour reforms.
International Series #2 – Spain: Termination of Employment
The labour reform implemented in Spain during 2012 considerably eased the rules regarding termination of employment. Employers can now terminate employees by paying a lower severance and with no back pay. It is still important though to avoid discrimination or infringement of fundamental rights.
1. Dismissal on Business Grounds
Where the employer has economic, productive, organizational or technical grounds justifying termination, it can follow the business grounds termination procedure, which has been considerably simplified. The justifying grounds are now much less strict than they used to be. Grounds include regular revenue decline for three consecutive quarters of the financial year as compared to the same terms of the previous year, loss of relevant clients, need to reorganize the workforce to improve operations, technical improvements, etc. This termination procedure entitles employees to severance of 20 days’ salary per year of service, capped at 12 months’ salary.
Termination requires 15-day prior written notice to the employee with very detailed description of the business grounds. Employee representatives need to be informed. Despite the legal softening of the justifying grounds, courts still apply this restrictively. Should the grounds be deemed not to be sufficient to justify termination, the court decision will entitle the employee to the higher severance for termination without cause (see below). There is however no risk of reinstatement, unless termination is deemed to be discriminatory or against fundamental rights.
This procedure was seldom used in the past given the old procedural difficulties and the risk of interim salaries in the event the case was lost. However the 2012 Labor Reform has removed both the procedural rigidities and the risk of interim salaries, besides providing the employer a better leverage to negotiate a settlement. Therefore, this has now become the usual termination common procedure.
However, if the number of terminated employees exceeds the thresholds, a collective procedure should be followed, which requires consultation with employee representatives. The thresholds for a collective procedure are termination of the following number of employees:
- 10 in businesses with less than 100 employees
- 10% in businesses between 100 and 300 employees
- 30 in businesses of more than 300 employees.
2. Dismissal for Cause
Termination for cause requires strong evidence of very serious and wilful breach of contract. Employees will usually challenge termination. Courts are very restrictive in accepting dismissal for cause. They do not have the authority to moderate the severance but rather to decide whether the employee was duly terminated, in which case no severance will be due, or to declare that termination was unfair. In the latter case, the employee is entitled to severance in the amount of 33 days’ salary per year of service (capped at 24 months’ salary). For employees who were employed before February 12th 2012, severance amounts to 45 days’ salary per year of service until such date and to 33 days’ salary per year of service thereon, capped at 42 months’ salary.
3. Discrimination or Infringement of Fundamental Rights
If courts find that termination is discriminatory or that it infringes fundamental rights (please refer to point 1 above), termination will be declared null and void, in which case the employee is entitled to reinstatement. Where employees produce prima facie evidence of discrimination, the burden of proof shifts to the employer, who will need to prove that the decision to terminate was only based on business issues or breach of contract. The risk of discrimination particularly arises when terminating protected employees, which include employees on maternity leave or parental leave or on reduced working hours for child care, disabled employees, union affiliated employees and employee representatives.
The new labour law is now more favourable to employers as regards termination of employment, both in terms of reducing severance and easing the procedure. Besides, due to the increase in the number of termination and redundancy proceedings and other litigious cases, court proceedings are now taking much longer, thus employees need to wait much longer for a much lower chance of obtaining a favourable court decision. Due to all these reasons, in practice, employers have obtained further leverage in settlement negotiations and thus there is now a much higher chance of settling cases on conciliation for a lower severance.