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4Termination of employment contracts

4.1 Dismissals

An employment contract may be terminated for a number of reasons which normally do not give rise to any dispute, such as mutual agreement, expiration of the contractual term, death or retirement of the employee or of the employer, and so on.

In the event of termination by the employer, there are three main grounds for dismissal of an employee:

  • Collective layoff.
  • Objective grounds.
  • Disciplinary action.

The following table summarizes the grounds and main features of the various types of dismissal:

Collective layoffGrounds:

Economic, technical, organizational or production-related grounds, whenever these affect, in a 90-day period, at least:

  • The entire payroll, if more than 5 workers are affected and the activity of the company ceases entirely.
  • 10 workers at companies with less than 100 employees.
  • 10% of the employees at companies with between 100 and 300 workers.
  • 30 workers, at companies with 300 or more employees.

According to the interpretation made by the Supreme Court, following the doctrine of the Court of Justice of the Europe Union, the above thresholds refer to the company as a whole and to each work center with more than 20 employees, being the 90-day period a mobile/dynamic timeframe.

Definition of legal grounds:

  • Economic: Where a negative economic situation transpires from the results of the company, in cases such as current or expected losses, or a persistent decline in ordinary revenues or sales. In all cases, the decline will be deemed persistent if for three consecutive quarters the level of ordinary revenues or sales in each quarter is lower than the figure recorded in the same quarter of the preceding year.
  • Technical: Where there are changes in the methods or instruments of production, among others.
  • Organizational: Where there are changes in the personnel working methods and systems or in the manner of organizing production, among others.
  • Production-related: Where there are changes in the demand for the products or services that the company intends to place on the market, among others.
  • Collective layoffs must follow the legal procedure established under article 51 of the Workers’ Statute. This procedure involves a period of negotiation with the workers’ representatives of no more than 30 calendar days, or 15 days at companies with less than fifty employees, and the outcome and final decision must be notified to the labor authorities.
  • The employer must give 7 or 15 days’ prior notice of its intention to start a collective layoff procedure, depending if the communication is issued to the workers’ representatives or the own employees (in case there are no workers’ representatives).
  • After notifying the decision to the workers' representatives, the employer would be entitled to individually notify the workers concerned of the layoffs. At least 30 days must elapse between the date on which the commencement of the consultation period is notified to the authorities and the effective date of dismissal.
  • If the collective layoff affects more than 50 workers (except at companies subject to insolvency proceedings), the company must offer the workers concerned an outplacement plan through an authorized outplacement company, of at least six months’ duration, which must include professional guidance and training measures, personalized assistance and an active job search.
  • The statutory severance consists of 20 days’ salary per year worked, up to a maximum of 12 months’ salary, or more if so agreed, the same notification requirements for individual objective dismissals must be complied with.
  • In general (except at companies subject to insolvency proceedings), when workers aged 55 or over are affected, special agreements must be signed with the social security authorities.
  • In some cases, if workers affected in the collective layoff are aged 50 or over, an economic contribution must be made to the Public Treasury.
Objective grounds
  • Ineptitude of the worker coming to light or not foreseen until after being hired by the company.
  • Inability of the worker to adapt to changes made to his job. Before dismissing the worker, employers must offer the worker a training course to facilitate adaptation to such changes. Workers cannot be dismissed until a minimum period of two months has elapsed since the changes were made or the training was completed.
  • In case of economic, technical, organizational or production-related reasons (see definition of the reasons under collective layoff).
  • In indefinite-term contracts arranged directly by not-for-profit entities to implement determined public plans and programs, without stable economic endowment and financed by the Public Administrations through annual budgetary or extra-budgetary appropriations as a result of external income of a final nature, for the insufficiency of the appropriate allocation of funds to enable the contracts to continue.
  • The employer must serve at least 15 days’ advance notice in writing on the worker (or pay the corresponding salary).
  • Severance (20 days’ salary per year worked, up to a maximum of 12 months’ salary) must be made available to the worker at the same time the written notice of dismissal is served.
Disciplinary actionSerious and culpable breach by the worker:

  • Repeated and unjustified absenteeism.
  • Insubordination or disobedience.
  • Physical or verbal abuse towards the employer.
  • Breach of contractual good faith or abuse of trust.
  • Willful reduction in job performance.
  • Habitual drug or alcohol abuse which adversely affects job performance.
  • Harassment by reason of race or ethnic origin, religion or beliefs, disability, age or sexual orientation, and sexual or gender harassment towards the employer or persons working at the company.
  • The employer must serve written notice of disciplinary dismissal, stating the grounds and the effective date of dismissal.
  • If a workers’ representative or labor union delegate is dismissed, a disciplinary procedure in which all parties are heard (expediente contradictorio) must be followed. If the worker is a labor union member, the union delegates should be granted a hearing. These safeguards may be increased by collective agreement.
  • If these formalities are not met, a further dismissal may be made in a period of twenty days by paying the employee the salary accrued in the meantime, with effect as of the date of the new notice.