Dismissal Reform and Changes to Severance Pay

The Ministry of Labour is analysing possible changes to the rules on compensation for unfair dismissal in Spain. This process has been initiated due to the observations of the European Committee of Social Rights, which questions the adequacy of the current legal ceiling, arguing that it does not comply with the standards of the European Social Charter in the protection of labour rights.

Alternatives Considered for the Reform of Compensation for Unfair Dismissal

In this context, several alternatives for reform have been outlined:

  1. Greater Discretion for Judges: One option is to allow judges to set compensation for unfair dismissal beyond the current limit of 33 days per year worked. This measure could tailor compensation to each specific case, but could increase litigiousness and generate disparities in compensation. The implementation of a compensation scale, similar to that used in road accidents, would provide a more predictable framework for judges.
  2. Establishment of a Minimum Ceiling: Inspired by models in European countries such as Italy and Portugal, this measure seeks to avoid derisory compensation for workers with little seniority. It is crucial to assess its feasibility and effectiveness in the Spanish labour context, and its possible implications for companies and the economy.
  3. Return to the previous regime: It is proposed to return to the compensation of 45 days per year worked with a ceiling of 42 monthly payments, and to reintroduce processing wages in cases of termination of the contract with compensation. This could restore a balance in labour relations and ensure adequate protection for workers.
  4. Comprehensive Reform of the Severance Pay System: This includes the introduction of variable severance payments and more stringent requirements for the justification of terminations. It is proposed to strengthen the cases of nullity in order to impose the reinstatement of the worker in cases currently considered unfair. Any change in this sense will require a detailed analysis of its possible repercussions on the labour market and the economy.

It is relevant to highlight the position of the High Court of Justice of the Basque Country in its ruling of 23 April 2024, which is of the opinion that the compensation rates do not adequately reflect the damage suffered by the worker in unfair dismissals, advocating additional and higher compensation.

In the Employment Department of Ayuela Jiménez, we consider that these potential changes in the compensation for unfair dismissal could generate greater legal uncertainty in the Spanish labour field. It is likely that other types of dismissal will also have to adjust their compensation schemes to comply with the new legal provisions.

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