CMS Expert Guide to employment termination law and legislation

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

The reasons for regular termination as set out in the Labour Act are as follows:

  • if the need for work ceases to exist for economic, technical or organisational reasons (‘notice due to business reasons’); or
  • the employee is incapable of fulfilling his employment-related duties due to certain personal characteristics or qualifications (‘notice due to personal reasons’); or
  • the employee intentionally breaches a contractual obligation (‘notice due to misconduct’); or
  • if the employee did not satisfy the employer’s requirements during the probationary period.

Broadly speaking, under Spanish employment law dismissals must be based on disciplinary reasons or on objective reasons.

Disciplinary dismissals must be based on gross misconduct, defined as a significant and intentional breach of employment duties. This may include:

  1. Repeated and unjustified absences from work,
  2. Indiscipline and disobedience at work,
  3. Verbal or physical offences against the employer or any person rendering services in the company or their relatives residing with them,
  4. Breach of contractual good faith and abuse of trust at work,
  5. Voluntary and continued lack of normal or agreed work performance,
  6. Regular drunkenness or intoxication if it negatively affects the work performed, and
  7. Harassment due to racial or ethnic origin, religious beliefs or ideology, disability, age or sexual orientation and sexual harassment against the employer or any person rendering services in the company.

The applicable Collective Bargaining Agreement may establish additional lawful reasons for disciplinary dismissal.

Alternatively, an employee may be dismissed on objective grounds such as:

  1. Unexpected incompetence after hiring,
  2. Inability to adapt to technical changes in his / her job position,
  3. Redundancy due to economical, technical, organisational or production- related reasons.

In cases of permanent employment contracts, when the purpose of the employment is to provide services in relation to a public programme and there is a funding shortfall.

1.2 Form

Written form, including reasons for termination. Decision is to be delivered to the employee.

Both disciplinary and objective dismissals require certain formalities.

Disciplinary dismissals require written notification to the employee detailing:

  1. the facts and type of misconduct upon which the dismissal is based, and
  2. the effective date of termination.

The applicable Collective Bargaining Agreement may establish additional formal requirements. Likewise, there may be additional requirements depending on the type of employee affected. For instance, Spanish Law also sets forth the obligation to initiate contradictory proceedings in relation to dismissals affecting the employees’ legal representatives.

Objective dismissals include the following requirements:

  1. Delivering a written notification or dismissal letter to the employee describing in detail the objective reasons upon which the termination is based, as well as the effective date of termination of the employment contract,
  2. Granting 15 calendar days’ notice (which may be substituted by the payment of salaries in lieu),
  3. Paying the legal severance of 20 days’ salary per year of service, capped at 12 months’ salary when communicating the dismissal, and
  4. Delivering a copy of the dismissal letter to the employees’ representatives.

1.3 Notice period

Regular termination: notice period ranges from two weeks to three months, dependent on the employee’s length of service with the same employer.

The three-month period is extended by an additional two weeks / one month for 50 / 55-year-old employees who have 20 or more years’ continuous service with the same employer.

Extraordinary termination (summary dismissal): no notice period. Termination during probationary period: notice period of at least seven days.

Termination by employee: notice period cannot be longer than one month if the employee has a good reason.

If the employment is terminated because the employee  breaches his contractual obligations, notice periods are halved.

Disciplinary dismissal does not require any notice period.

The Law stipulates a 15-calendar-day notice period for dismissals due to objective causes. The employer may substitute this obligation by paying salaries in lieu of notice.

1.4 Involvement of works council

The works council must be informed of the employer’s intention to dismiss. The works council‘s consent is required for dismissal of the following employees:

  • members of the works council; and
  • candidates running for works council positions and members of the election committee for a period of three months following the announcement of the results of the election to the works council; and
  • employee representatives in a body of the employer; and
  • employees with diminished ability to work and employees in immediate danger of physical disability; and
  • employees over 60 years of age.

The Works Council must be informed of every dismissal taking place in the company based on disciplinary grounds or for economical, technical, organisational or production-related reasons.

1.5 Involvement of a union

If there is no works council, consent is given by the union commissioner (the union representative employed with the respective employer). The union‘s consent is required for the dismissal of a union commissioner during their period of office and for six months thereafter.

The union has a right to be heard prior to the dismissal of an employee belonging to the union.

1.6 Approval of state authorities necessary

If the works council or union commissioner do not consent, consent can be substituted by a judicial or an arbitral decision.

Neither disciplinary dismissal nor individual objective dismissal require any approval from the state authorities.

1.7 Collective redundancies

Employer who expects to terminate at least 20 employees, five of which due to business related reasons, all within a 90-days’ period, is obliged  to duly consult the works council / union commissioner in order to possibly reach an agreement to save the employees and / or limit the number of terminations. The employer is obliged to provide the works council / union commissioner with written information concerning the reasons for termination, total number of employees, number, professions and positions of employees who are supposed to be terminated, election criteria for such employees, amounts and way of calculating their severance payments and measures undertaken to prevent such terminations. Employer is obligated to consider and explain all possibilities and suggestions that may lead to avoidance of terminations. Also, the Croatian Employment Agency needs to be informed about the previously mentioned points and consultations with the works council / union commissioner.

‘Collective Redundancies’ are dismissals executed by an employer for economical, technical, organisational or production-related reasons where, over a period of 90 days, the number of redundancies is:

  • At least ten in establishments (provided they employ more than 20 employees) or companies employing up to 100 workers; or
  • At least 10 % of the workforce in establishments or companies employing at least 100 but fewer than 300 workers; or
  • At least 30 in establishments or companies employing 300 workers or more.

Although under Spanish labour regulations only the company as a whole is considered in order to verify the number of redundancies implemented for the collective redundancies procedure to apply, according to some judicial precedents from the Court of Justice of the European Union the thresholds above are considered in both the company as a whole and the relevant establishment or workplace in which more than 20 employees are employed.

Spanish employment law states that a collective redundancy may also refer to the dismissal of every member of staff when the company employs more than five workers and ceases its operations due to financial, technical, organisational or production-related reasons.

The collective redundancy procedure starts with a consultation period with the employees’ representatives which may not last any longer than one month (15 days in companies with fewer than 50 employees). Although the parties are bound to negotiate in good faith, this does not entail the obligation to reach an agreement to implement the dismissals.

The Employment Authorities must also be notified about the start and result of the collective redundancy procedure.

If the parties do not reach an agreement during the consultation period, the employer may implement the dismissals. If this happens, employees are entitled to receive compensation of 20 days’ salary per year of service up to a maximum of 12 months. However, the employees have the right to challenge the dismissal before the Labour Courts.

1.8 Summary dismissals

Summary termination (summary dismissal) is defined as termination without notice, and is only lawful where there has been: 

  1. a serious breach of employment obligations, or
  2. the employment relationship between the parties is no longer possible for another important reason (there are, therefore, two possible reasons: (i) breach of employment obligations; or (ii) another important fact; in either case, the employment relationship must not be possible any longer).

The employee is to be dismissed within 15 days of the day of becoming aware of the fact / reason for dismissal.

Not applicable. Disciplinary dismissals with immediate effects are similar.

1.9 Consequences if requirements are not met

If it is decided the dismissal is illegal, the employee is to be reinstated. Reinstatement is possible even before the end of the court procedure to determine the legality of the dismissal if the employee so requests. If the parties do not wish to continue with their employment relationship, the court shall at the employee‘s request determine:

  1. the date of termination of the employment contract; and
  2. compensation for damages, which ranges from three to eight times the employee’s average monthly salary over the previous three months (depending on the employee’s age, length of contract and obligations in relation to supporting family members or other dependants as defined by family law).

Disciplinary dismissals and objective dismissals may be declared unfair if the legal requirements are not met and / or the termination is not grounded on fair reasons.

Unfair dismissal entitles the employee to receive compensation or to be reinstated to his / her previous position with the retrospective payment of salaries.

On the other hand, disciplinary / objective dismissals may be declared null and void if:

  1. The dismissal breaches constitutional rights of the employee or is discriminatory; or
  2. The dismissal is not grounded on fair grounds and / or the formal requirements were not met if the dismissal affects an employee under a situation of special protection against dismissal:
    1. the dismissal takes place during pregnancy, maternity or paternity leave and child adoption, foster care, guardianship for adoption purposes, risk during pregnancy or breastfeeding, sick leaves caused by pregnancy, birth or breastfeeding, time off for breastfeeding or hospitalization of the child after birth, or an extended leave of absence to take care of a child;
    2. the dismissal affects an employee whose working time has been reduced to take care of children;
    3. the dismissal affects an employee suffering gender-based violence whose working time has been reduced or reorganised given this condition; or
    4. the dismissal affects the employees after the suspension of the employment contract due to maternity, paternity, adoption, fostering or guardianship within the nine months following the child’s birth, adoption, foster care or guardianship.

Collective redundancies are also void if the legal procedure is not followed.

The consequence of a void dismissal is the reinstatement of the employee in the company and the retrospective payment of salaries.

1.10 Severance pay

An employee with an open-ended contract who has two years’ continuous service with the same employer (and is not being dismissed due to an intentional breach of contractual obligation) is entitled to a severance payment. The statutory minimum severance payment is calculated by multiplying one-third of the average monthly salary in the preceding three months by the number of years’ continuous service with that employer. The severance payment is capped at six times the average monthly salary, unless otherwise provided for by law, by-law, collective agreement or work contract

In cases of justified and fair objective dismissals or collective redundancies the minimum severance pay is 20 days’ salary per year of service capped at 12 months. In addition, employees are entitled to 15 days’ notice, which can be substituted by payment of salaries in lieu.

An unfair dismissal results in a severance pay of 45 days’ salary per year of service until 12 February 2012 and 33 days’ salary per year of service from 12 February 2012 capped at 24 months’ salary or at the severance accrued as of 12 February 2012, if higher, with a cap of 42 months’ salary.

1.11 Non-competition clauses

Post-contractual non-competition clauses must last no longer than two years from the date of termination of the contract. The employer is obliged to pay compensation (at least one-half of the average monthly salary paid in the last three months of employment). The covenant will not be valid if the employee is a minor or if the employee‘s salary amounts to less than the average national salary.

The non-competition clause does not apply if: (i) the employee terminates the contract without notice period (extraordinary termination) and does not state that he does agree that the clause applies; or (ii) if the employee is dismissed without a justified reason, unless the employer undertakes to pay the prescribed remuneration for the duration of the clause.

During the employment it is forbidden for an employee to compete with his / her employer. Additionally, both parties may agree full dedication in exchange for monetary compensation.

A post-contractual non-compete clause may also be included in the contract. The following limitations and requirements apply:

  • The obligation may not last longer than two years for most qualified employees and six months for other workers after the termination of the employment contract.
  • The employer must have an effective industrial or commercial interest in such non-compete obligation, and
  • The employee must receive adequate economic compensation.

1.12 Miscellaneous

Not applicable.

Not applicable.

2. Dismissal of managing directors

It should be noted that the title ‘managing director’ is not recognised under the Croatian Companies Act or other relevant applicable legislation. The Croatian Companies Act recognises only a ‘director’, who is authorised to represent the company and obliged to be registered as a member of the management board with the respective commercial court.

A managing director need not to have an employment agreement with the company, or any other type of agreement, in order to be able to represent the company.

Where a managing director has a  managing / service agreement  which falls under the regulation of Croatian obligatory law, only the provisions of the managing / service agreement apply. If aspects of the relationship are not dealt with in the managing / service agreement, the relevant provisions of the Croatian Obligations Act will apply.

Where a managing director does not have any employment or managing / service agreement with the company, he shall be treated as a member of the management board only.

The table below sets out the position under Croatian law with respect to the managing directors of a limited liability company, with and without service agreements.

Under Spanish law, managing directors and other members of the board of directors have a commercial relationship with the company and, therefore, are beyond the scope of employment law. The table below deals with ‘senior executives’, who have a special employment relationship governed by Royal Decree 1382 / 1985 of 1 August. It should be noted that senior managers are exclusively those who exercise powers inherent to the ownership of the company, with independent authority (reporting directly to the board of directors) and full responsibility for the company’s general objectives.

2.1 Reasons for dismissal

No special reasons required (unless otherwise specified within the statute of the company or the contract itself).

Where the managing director has a service agreement, the provisions of that service agreement (and consequently the Croatian Obligations Act) will apply.

If the managing director is a member of the management board according to the statute of the company (and not only appointed by resolution of the shareholders), the company statute may set out that revocation is only possible for special reasons.

Disciplinary dismissals must be based on gross misconduct, defined as a significant and intentional breach of employment duties.

On the other hand, the employment contract of senior executives may be terminated by withdrawal, where no reason is required (lack of confidence).

Likewise, the contract may be terminated based on legal grounds and following the legal procedures set out in the Spanish Workers’ Statute for common employees (e.g. objective dismissal based on economical, technical, organisational and production-related grounds).

2.2 Form

Valid shareholders’ resolution on revocation of appointment as member  of the management board. Registration of this revocation with the court registry. Termination of the service agreement in the same form in which the agreement has been signed (Obligations Act provisions shall apply).

Notwithstanding the type of termination, it is necessary to notify the senior executive of the employer’s decision in writing. In the event of dismissal, the employer must explain the reasons for termination and state the date on which it will take effect.

2.3 Notice period

According to the Croatian Companies Act, the appointment of a director of the company can be revoked at any time without notice (for no special reason). Some restrictions (not strictly defined) can be set out within the statute of the company.

If the director has a service agreement, the notice period will be as set out in the service agreement.

No notice period is required in case of disciplinary dismissal.

In case of withdrawal, by contrast, senior executives are entitled to three months’ notice unless otherwise agreed up to six months. The employer may substitute this obligation with the payment of salary in lieu.

2.4 Involvement of works council

No involvement.

No involvement.

2.5 Involvement of a union

No involvement.

No involvement.

2.6 Approval of state authorities necessary

Respective commercial court brings a resolution on registration of the resolution in the court registry. The court’s resolution and registration are declaratory.

Not applicable.

2.7 Collective redundancies

Not applicable.

Common regulations shall apply.

2.8 Summary dismissals

Not applicable.

Not applicable.

2.9 Consequences if requirements are not met

If there is no valid shareholder resolution, the revocation will be invalid and the court will refuse to register it in the court registry. Where the managing director has a service agreement, he could claim:

  1. compensation for damages; or
  2. fulfilment of contractual obligations in accordance with the provisions of the Croatian Obligations Act.

In the event of a disciplinary dismissal or withdrawal, failure to comply with the formal requirements above may lead to the dismissal being declared unfair.

2.10 Severance pay

Severance pay may be specified in the managing director’s service agreement (this is usually a large sum).

Disciplinary dismissal: if the dismissal is declared or acknowledged as unfair or wrongful, the senior executive is entitled to severance pay of 20 days’ salary in cash per year of service, with a maximum of 12 monthly payments, unless otherwise agreed in the employment contract.

Withdrawal: severance of seven days’ salary in cash per year of service, with a maximum of six monthly payments, unless otherwise agreed in the employment contract.

2.11 Non-competition clauses

The managing director, as a member of the management board, is prohibited from doing the following without the approval of the supervisory board (or the shareholders, if the company does not have a supervisory board):

  1. being a member of the supervisory board or management board of another company with the same business activities; or
  2. performing business activities equal to those of the company for his or somebody else’s account; or
  3. using the company’s premises for performing business for his own or somebody else’s profit. The company is entitled to compensation for any damage caused.
  1. Non-compete clause during the term of the employment contract: Senior executives cannot enter into employment contracts with other companies unless they receive prior authorisation from their employer or by way of written agreement.
  2. Non-compete clause after termination of the employment contract: it can be agreed at any time of the relationship, or even upon termination.

A non-compete clause after termination of the employment contract can be agreed at any time of the relationship, or even upon termination.

The following limitations and requirements apply:

  • the obligation may not last longer than two years; and
  • the employer must have an effective industrial or commercial interest in such a non-compete obligation; and
  • the employee must receive adequate economic compensation in exchange for the non-compete obligation.

2.12 Miscellaneous

Not applicable.

Not applicable.