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Employment Law in Spain: Redundancy for “Economic Reasons”

Due to the economic situation that Spain has gone through in the last few years, and the pressure that the Government has come under to liberalise employment laws, a number of important changes to Employment law in Spain were made in 2012 and 2013, which made the dismissal of employees for economic reasons relatively easier for businesses.

In particular, redundancies and temporary lay-offs have risen substantially as a result of the Coronavirus pandemic – please see the article Unemployment Benefits in Spain during the Coronavirus Outbreak for more information.

We have had several cases of employees facing this situation, and we are going to give some key pieces of advice for them to be prepared:

  1. If you receive a letter of employment termination and the reason given is the poor financial situation of the company, the first thing that you need to know is that you have 20 working days to challenge that in Court. Notice that before Court proceedings become necessary, you must first apply to the CMAC, an administrative body, where employer and employee can reach an agreement without the need to go to Court.
  2. With that termination of contract, the company has to pay you a compensation of 20 days per year worked up to a maximum of one year’s salary and inform you about the dismissal with 15 days notice, and if they fail to do so, paying you an extra compensation of 15 day’s salary.
  3. If a Court determines that the dismissal was unfair, the company will have the option of reinstatement (paying the salary from the dismissal to the date of reinstatement) or a compensation of 45 days per year worked until the 12 of February 2012, and then 33 days per year worked until the day of the dismissal, with a maximum of 24 months of salary (in February 2012 there was an amendment in employment law).
  4. The economic reasons alleged by the company may be three (included in the amendment of law in 2013):
    • The company is making losses, i.e. is in the red.
    • Persistent decline of incomes (there is no need to be in the red as yet).
    • Forecast of losses, a forecast that the company is going to go into the red.

It is very important to understand that even Employment Law in Spain has somehow helped companies downsizing their human resources, there are several reasons and chances to succeed when challenging a dismissal that has been based on ‘economic reasons’, even though the company is in a poor financial situation.

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