Grounds for challenging a dismissal due to an Employer’s Financial Problems

  • Francisco
    With over 10 years experience providing expert legal advice and representation to English-speaking clients Francisco is a seasoned professional whose primary focus is to ensure his clients' interests are protected. The following legal services are offered: Real Estate Conveyances, Contract law, Inheritance , Family Law, Tax & Fiscal Advice to Businesses.
In last month’s article we discussed dismissal from employment based on financial grounds i.e. where a business is suffering an economic downturn and the employer claims they must lay-off staff for the business to remain commercially viable.
We revealed that there is a reasonably good possibility of challenging such a dismissal, with a successful challenge meaning that the dismissal is declared to be ‘unfair’ and  a higher amount of compensation is achieved – 33 day’s pay per year worked instead of the 20 days per year worked that is standard where the dismissal is considered to be objectively fair.

The fact that a company is suffering a period of financial difficulty is not sufficient of itself to render a dismissal as legitimate and fair. In order to demonstrate that a dismissal was justified, in the face of a challenge by the employee, the employer must overcome a number of hurdles:

  1. Prove that the company is undergoing an adverse economic situation. Nowadays, this is the easiest hurdle for the business to overcome, since there are many companies suffering financial difficulties.
  2. Demonstrate that this financial difficulty has sufficient magnitude to affect the volume of employment, making necessary the reduction in the number of employees. So while it may well be that the economic position of the business is poor, it may no be so grave as to justify the reduction in employee headcount. Here it is important to note that if a person is employed by a company, while having also carried-out work for another business which forms part of the same group of companies, then it is possible to include both in the claim for the dismissal to be declared unfair, and the economic difficulty must affect both businesses for the dismissal to remain fair. Therefore if the other business is functioning with no financial problems, the dismissal would be declared to be ‘unfair’, triggering the higher compensation.
  3. Demonstrate that the dismissal was an appropriate measure to respond to the financial difficulties that the business was suffering. This means that, although the business may well have financial problems, there may be other – less drastic – measures, than dismissal, that can be taken in order to remedy the situation. For example, if the business, before going ahead with the dismissal of the worker, has been taking on other employees for similar positions in the company, that would be a sufficient reason for the dismissal to be considered ‘unfair’.
  4. The ‘carta de despido’ is a very important document and is where many court actions against unfair dismissal are won. This document must specify very clearly the reasons for the dismissal, explaining the account of the company and specifying figures, in such a way that the employee has sufficient information to defend their rights. In addition, at the time of the dismissal, the company must provide the worker with the appropriate amount of compensation.

Taken together, the hurdles that the employer has to overcome can be significant and may well ensure that the worker achieves a higher level of compensation than initially offered.

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