What you need to know before hiring in Spain: A guide to terminations

When you decide to hire an employee in Spain, chances are you’re focused on creating a great onboarding experience. Still, the reality is that each employee’s lifecycle has a start and end date. This means that it’s important to know how you can compliantly part ways, should such a need arise, even before you sign a work contract.

Spanish employment law is very strict when it comes to employee dismissals. All of them need to be based on objective grounds, with most cases covered by notice periods and severance pay. So, to avoid unlawful dismissals, it’s important to understand your obligations and rights as an employer.

Read on to find out how employee terminations work in Spain, and cooperating with an Employer of Record can help you stay compliant with Spanish labor law.

Five essential things to know before hiring in Spain

• Probation period varies. Its length depends on the employee’s seniority level. The less qualified workers can be subject to a two-month probation period. While the more technical employees can expect probation of six months. During this time, the employer can terminate the employment contract without any notice period if they’re unhappy with the employee's performance.
• Employers must provide written notice. If a company wants to end the employment relationship outside of the probation period, they must do it in a written format. The notice can be sent electronically or via standard mail, and it must include a confirmation receipt. The employer also has to pay the remuneration that the employee is entitled to after receiving the notice.
• Employers have to offer an outplacement plan. If you’re planning to layoff over 50 employees then you’re required by the employment law to provide an outplacement plan. It should last at least six months, during which you should offer guidance on finding a new job. You also have to sign a special agreement with the Spanish social security authorities if the employees are 55 years old or older.
• You need to offer severance pay to most employees. For each year of service, your employee must receive severance equivalent to 20 calendar days of their work. The cap for severance payments is set at an amount equal to 12 months’ pay. You must be ready to pay out the day you hand in the written notice. The only exception is disciplinary dismissals, which don’t observe severance.
• Employees can go to court if they believe they’ve been let go unlawfully. If a Spanish court declares that your employee was dismissed unfairly, you will either need to offer compensation or reinstate the worker. It’s up to the employee to choose which option fits them best. Reinstatements due to unfair dismissals come into effect immediately after the court ruling.
• Severance pay for unfair dismissals is higher than that for contracts terminated on objective grounds. In the case of the former, the worker is eligible for a severance payment equal to 33 days of work per year of service. The maximum severance pay limit is 24 months (i.e., twice as high as the cap for objective dismissals).

Termination rules in Spain: What are acceptable grounds for firing an employee?

At-will termination practices don’t apply to Spain. If you hire an employee under an employment contract dismissing them will be hard, unless there are acceptable grounds, including:

• Two-party consent: If both parties terminate the employment relationship by mutual agreement, then the employer is free from paying any severance pay and unemployment benefits. All that is needed is a simple agreement that ends the contract.
• Individual objective dismissals: To terminate an employee on objective grounds, the hiring party needs to point to an “objective” reason. These can either relate to the worker’s performance or the company’s financial condition or organizational reasons. These include:
  • The worker’s lack of skill or incompetence
  • Inability to adjust to a new scope of responsibilities—provided that the change in work was reasonable and the employee received relevant training
  • Lack of funding—for instance, the employee’s salary came from a non-profit grant, which has come to an end
• Objective collective dismissals: Collective dismissals are seen as objective if employees are terminated due to technical, organizational, productivity, and/or economic reasons. Spanish employment law recognizes termination as “collective”, if:
  • You hire fewer than 100 employees and let go of at least 10 workers
  • Let go 10% or more of your staff—for teams of 100-299 employees
  • Terminate contracts for at least 30 workers—for companies employing 300 or more individuals

The company doesn’t have to prove that the business would collapse without letting staff go. It’s sufficient to show evidence of a drop in sales and/or income. Alternatively, the employer will need to prove that collective layoffs will help restructure the business and help restore previous performance.

• Disciplinary dismissal: There are a few reasons that give the employer the right to dismiss an employee instantly, including:
  • Constant absences, which aren’t justified
  • Insubordination or lack of discipline
  • Abusing co-workers—including the employer—verbally or physically
  • Employment contract breaches
  • Not putting enough effort to perform the job well
  • Drug and alcohol abuse which results in poor job performance
  • Harassing behavior towards the employer or employees based on sexual orientation, religious or disability grounds.

What are the mandatory notice periods and termination pay for Spain employees?

To end an employment contract in Spain, the employer has to provide written notice to both the affected workers and their representatives, including HR and the union.

If the employment is terminated by the employer due to disciplinary issues then they don't need to offer a notice period or severance pay. The same rules apply to employees who are on probationary periods. In the case of economic redundancies, the company needs to give 15 days’ notice. Bear in mind that the termination of senior executives is beyond the scope of standard employment laws. They have a special employment relationship governed by Royal Decree 1382 / 1985 of 1 August. Unless otherwise stated in collective bargaining agreements, senior management has the right to anywhere between three and six months of notice.

Employees can voluntarily resign from work or choose not to extend their fixed-term contracts. Neither of these instances are complex from a legal standpoint. However, in the case of the former, the hiring company needs to offer termination payment (equivalent to 12 days of work, for each year served).

The easiest way to comply with Spanish termination requirements

If you’re a global employer, then wrapping your head around termination of employment requirements for all your employees can be hard. Not only do you have to be aware of the circumstances that allow you to rightfully terminate an employee. You must also learn about notice periods and severance pay lay laws which differ on a per-country basis.

If you feel it’s too much to handle, then you can consider hiring through an EOR, which will ensure compliance with local employment laws.

Frequently asked questions about terminating employees in Spain

Do you need a reason to terminate an employee in Spain?

According to Spanish employment law, the dismissal can be based on disciplinary reasons (which we covered in detail earlier) or on objective grounds. In short, you need a very good reason to terminate the employment relationship.

What is always required when an employer terminates an employee in Spain?

To dismiss an employee on disciplinary or objective grounds, you need to fulfill specific formalities.

For objective dismissals, you must:

• Notify the employee of their termination in writing. Most often, it comes in the form of a dismissal letter. The notification needs to specify the date of termination and an objective cause for ending the employment relationship.
• Deliver a dismissal letter directly to the worker or the employee’s representatives.
• Give 15 days’ notice. You can relieve the worker of their duties earlier, but you must add a financial equivalent of their notice period to their salary.
• Offer severance payment. For each year of service, the employee is entitled to a payment equal to 20 days’ salary. However, there’s a cap set at an equivalent of 12 months’ worth of work.

Disciplinary dismissals follow a different route. The most important formal requirement is a written notification that specifies:

• The exact misconduct the employee has been found guilty of, along with an explanation of the circumstances
• When the termination comes into force

There might be additional requirements that relate to your employee’s role, legal status, and any co-existing collective bargaining agreements.

What qualifies as wrongful dismissal in Spain?

A dismissal is deemed unlawful if the employer is unable to prove that the employee is in breach of the employment contract or when it’s not in line with the law requirements. If it happens, the employee can get their job back under the same conditions as previously. If they don’t want to be reinstated, they can choose to receive compensation (equivalent to 33 days’ salary for each year of service).

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If you’re a foreign company hiring employees and contractors overseas, then Rippling will help you manage your entire employee lifecycle—from onboarding to offboarding your workers. See Rippling today.

Rippling and its affiliates do not provide tax, accounting or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.