Ignacio del Fraile analyses the new framework for severance payments | El Economista

Gómez-Acebo & Pombo’s labour partner comments on the limits placed by judges on ‘extra’ compensation and the greater rigour required in the justifications.

The current debate on severance payments is intensifying as the Supreme Court prepares to rule on cases challenging the established legal maximum of 33 days’ salary per year of service for unfair dismissals. While the Supreme Court’s position remains uncertain, recent court rulings are already pointing to ‘red lines’ that restrict the cases in which additional compensation could be awarded. The rulings make it increasingly clear under what conditions such claims are likely to fail, although they recognise situations where exceptional damages justify compensation above the legal cap.

The government has put its own redundancy reform plans on hold, postponing them until after working time reduction has been addressed. However, redundancy issues remain very active in both courts and law firms, spurred by a recent decision of the European Committee of Social Rights (ECSR), which criticised the Spanish compensation cap as contravening the European Social Charter. This non-binding decision has encouraged judges who previously supported higher compensation in certain cases, a trend initially initiated by the High Courts of Catalonia and the Basque Country. This influence has increased uncertainty for companies, as dismissal cases continue to challenge employers not only about the legitimacy of dismissals, but also about the potential costs of unfair dismissal judgments.

In this context, Ignacio del Fraile, labour partner at Gómez-Acebo y Pombo, highlights an important change: ‘Before, people used to fight for the lawfulness of the dismissal, now they fight for the unfairness’. He calculates that 95% of the lawsuits ask for nullity, i.e. reinstatement with all back pay, while an increasing number claim damages above the standard ceiling. However, he stresses that judges are increasingly clarifying the circumstances in which these claims are unsuccessful. Typically, courts have only awarded higher compensation awards when three conditions are met: the initial compensation is ‘meagre’, the dismissal appears to be in ‘fraud of law’ or even ‘illegal’ (e.g. arbitrary dismissals without discriminatory motives) and, most importantly, the worker can prove and quantify the economic damage caused by the dismissal.

Court rulings from tribunals that initially awarded additional compensation now serve to provide guidance to companies and workers. An important condition, as del Fraile stresses, is that dismissal notices must be ‘detailed’, ensuring that the justification for dismissal is fully documented to avoid arbitrariness. Gone are the days of vague, page-and-a-half long dismissal letters, as del Fraile points out, stressing that companies must thoroughly justify dismissals if they want to minimise the risk of high severance pay or nullity rulings.

For employees, the burden of proof has also intensified. Del Fraile notes that judges focus on egregious abuses that justify exceptional remedies. This nuanced approach leaves both employees and companies in a high-risk environment, where meticulous preparation of arguments on both sides is essential. While legal scholars anticipate that the Supreme Court’s ruling will likely support this careful interpretation, it remains uncertain how potential legislative changes could affect the broader landscape of labour relations in Spain.

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