Legal Grounds for Employee Dismissal
According to Spain’s Workers’ Statute (Estatuto de los Trabajadores), an employer must have valid objective reasons to dismiss an employee; otherwise, the dismissal may be deemed void. The law lists several objective reasons, including economic factors (like a sustained decline in revenue), production or organizational needs (such as workforce restructuring), and poor job performance by the employee. A company’s decision to shut down its business is also considered a legitimate objective reason for dismissal.
Compensation Liability for Business Closure
Spanish law clearly states that unless the dismissal is due to the employee’s serious misconduct (disciplinary reasons such as repeated unexcused lateness or absence, working under the influence of alcohol, theft, or a serious breach of work duties), the employer must pay compensation in all other dismissal cases. Therefore, even if a company closes due to financial hardship, it is still obligated to compensate its employees.
If the employer is genuinely unable to pay this compensation, they can legally file for bankruptcy. In such cases, employees have an additional layer of protection. They can file a claim with Spain’s Wage Guarantee Fund (Fondo de Garantía Salarial, FOGASA), a government-backed mechanism designed to cover employees’ unpaid wages and statutory severance pay when an employer becomes insolvent or unable to pay.
Specific Calculation Standards for Compensation
For objective dismissals based on economic, technical, organizational, or production reasons (including business closure), the compensation standard is as follows:
- Calculation Basis: Employees are entitled to compensation equivalent to 20 days’ salary for each full year of service.
- Prorated for Partial Years: Service periods of less than a year are calculated on a pro-rata basis.
- Compensation Cap: The total severance pay cannot exceed a maximum of 12 months’ salary, regardless of the employee’s length of service.
This compensation standard applies to all types of employment contracts, including both temporary and permanent ones.
Statutory Notice Period Before Dismissal
In addition to paying compensation, the Workers’ Statute also mandates a prior notice obligation for the employer. When deciding to dismiss employees due to a business closure, the employer must provide at least 15 days’ written notice. This requirement is intended to give employees the necessary time to look for new work and manage their affairs. An employer cannot demand an employee’s immediate departure without providing this advance notice.
