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Termination of an Employment Contract in Spain

A contract may be legally terminated in the following circumstances:

Fuerza Mayor

This contemplates floods or fire that destroys the work premises for example. The termination of employment contracts in such circumstances should be authorised by the relevant body upon a preliminary investigation which is decided within 5 days of starting. The indemnity for each worker is 20 days per year worked.

Disciplinary Dismissal

A number of different circumstance can give rise to this reason for terminating the contract.

  • Repeated lateness or failure to attend work.
  • Indiscipline.
  • Habitual drunkenness and drug taking where it impacts negatively on work.
  • Abuse of good faith and confidence. (Relates to non-fulfilment of duty of fidelity, diligence and loyalty).
  • Continual and intended drop in productiveness of the employee.
  • Verbal and physical attacks on employer, other employees or family members.

The employer has 60 days from the date of having knowledge of any acts by the employee that constitute a serious disciplinary offence within which to terminate his employment (and 6 months from the date the employee committed the acts).

Employee Resignation

The employee must give notice to the employer as envisaged in the contract or in the Convenio.

Mutual Accord

Where both employer and employee agree mutually to end the employment contract. In this case the employee is not entitled to any indemnity.

End of Term/completion of Contract

If the contract was temporary dependant on reaching a date or completion of work or service then it will terminate upon satisfaction of the condition laid out in the contract.

Death/Perm. Disability of employee

If the employer is responsible for the death or permanent disability of the employee, the former will then be liable to indemnify either the employee or the spouse or family.

Retirement of employee

The employee need not retire although he/she has reached retirement age. This depends on the Convenio. There is no right to indemnity upon retirement unless expressly catered for in the Convenio.

Indemnities

An indemnityor termination payment is a payment made to an employee upon leaving the company except for where the employee leaves the company voluntarily. They are exempt from taxation up to the limits set out in the Workers' Statute (Estatuto de los Trabajadores). After that point any further money received is taxable. The limits are as follows: 1) Unjust Dismissal (Despido Improcedente): 45 days' pay per year worked up to a maximum of 42 months 2) Dismissal on Objective Grounds (Despido Objetivo): 20 days' pay per year worked up to a maximum of 12 months 3) Termination by Common Agreement, Just Dismissal (Despido Procedente) or Resignation: the law provides for no legal right to termination payment, therefore any money paid out will be taxable. However it will be considered an irregular payment and as such it will be subject to a reduction of 30% of its taxable base as is the norm with these types of payments.

Further to the above, it is important to note that these exemptions will only apply when it is considered that there has been a real severance of the labour relationship (desvinculacion) between the parties. Specifically it is considered that this has not occurred when the same worker returns to work with the same company or one closely connected to it, in a period of less than 3 years.