Spanish labour law determines a limited compensation system in cases of dismissals being ruled unfair. In this respect, it should be recalled that at present the stipulated severance pay amounts to 45 days salary per year worked up to a maximum of 42 monthly payments for the period worked prior to the reform on 12 February 2012 and, for the period worked after such date, 33 days salary per year worked up to a maximum of 24 monthly payments.
However, over the last few years this compensation has been subject to continual debate: is such severance pay sufficient? Can the courts order payment of higher severance pay?
The first ruling by a High Court of Justice after a long debate
This debate became even more intense on 21 May 2021 when Spain ratified the European Social Charter that, in Article 24, on termination of a contract by the employer dismissing the worker, in accordance with the provisions in Convention 158 of the International Labour Organisation (ILO), stated that, in cases when a worker is dismissed without a valid reason, he/she must be entitled to adequate compensation or other appropriate relief.
However, this is not a new issue, as already mentioned, since various courts have ruled on this matter, considering that it is possible to order an employer to pay higher severance pay than the one legally stipulated.
Nevertheless, it was not until judgement number 469/2023 ruled by the High Court of Justice of Catalonia of 30 January 2023 that such possibility actually became a reality when an employer was ordered to pay severance pay higher than the one legally stipulated.
Overview of the judgement
The case examined by the High Court of Justice of Catalonia was related to a worker who was recruited in November 2019 and was dismissed for objective reasons related to production at the end of March 2020 due to the drastic drop in sales and cancellation of services caused by the COVID-19 crisis and so the company notified its employee of its intention to pay her the maximum legally stipulated severance pay. Five days later, the company implemented a furlough system (ERTE in Spanish) due to force majeure, effective as of 1 April 2020.
However, although the Labour Court admitted the action claiming an amount to be added to the legally stipulated severance pay for dismissal, by virtue of its judgement, it admitted that the termination measure was fair, against which the worker lodged an appeal.
In such appeal, the worker petitioned that her dismissal was ruled null and void by applying Legislative Royal Decree 9/2020 and due to alleged discrimination based on her short period of seniority and for her employer to be ordered to pay severance pay higher than the stipulated legal amount, due to the moral damages caused and her loss of earnings.
Although the High Court of Justice ruled out that the dismissal was null and void for the reasons alleged by the worker, it did rule that the dismissal was unfair because the reason alleged by the company was of a circumstantial and not structural kind, which, as such, was surprising when the High Court of Justice recalled that, regarding the refusal of the petition to rule the dismissal null and void, the aforementioned Legislative Royal Decree 9/2020 was not applicable at the time of the dismissal.
Therefore, once the dismissal had been categorised, the High Court of Justice began analysing the additional severance pay petitioned. On the one hand, it rejected the amount of €20,000 for moral damages, since such damages had not been proven, on the other hand, it admitted that a higher severance pay than the one legally stipulated must be paid due to the worker’s loss of earnings. In this respect, the alleged loss of earnings consisted of the amount she would have received for the extraordinary unemployment benefits that would have been payable if she had been included in the furlough system.
Therefore, the High Court of Justice took into consideration the following when admitting such petition:
- The legal severance pay that was payable to the worker did not even reach the amount of €1,000 and hence was obviously insignificant and did not compensate the damage caused by her losing her job neither did it have a dissuasive effect for the company.
- Although the dismissal was not based on a nexus causal, it was considered that the right to dismissal had been excessively exercised, when the worker could have been included in the furlough system, would have received the extraordinary benefits and would have kept her job.
Therefore, due to not knowing the period in which the furlough system implemented by the company came into force, it applied 1 April 2020, as the date it began, until 21 June 2020, the date when the state of emergency was cancelled, in order to calculate the amount of the benefits that the worker could have received and hence the amount that the company had to be ordered to pay.
The High Court of Justice thus ordered the company to pay supplementary severance pay amounting to €3,493.30.
What can we expect in the future?
This judgement has opened a Pandora’s Box because, although it was not the first one that determined the legally stipulated severance pay is insufficient, it was indeed the first one to admit a petition for supplementary severance pay.
However, the most serious problem does not arise from this acknowledgement but from the grounds contained in the judgement.
Firstly because, in order to justify its decision, the High Court of Justice took into consideration facts that took place after the date the termination decision was adopted, which were not known at such time that is, to say the least, a controversial issue. What would have happened if the company had not implemented a furlough system? And what would have happened if had implemented it later?
However, in any case, returning to the crux of the matter, the grounds of the High Court of Justice to admit the petition for higher severance pay than the one legally stipulated is certainly a concerning doubt because a subjective factor comes into play that simply creates legal uncertainty: The “dissuasive nature” of the severance pay for dismissal.
If each judge/court can decide whether or not severance pay meets this requirement it will certainly mean we could be faced with completely contradictory rulings and that chance will play a role that should not be a factor in the labour jurisdiction.
Has a claim been filed against your company for supplementary/additional severance pay? Please do not hesitate to contact me in order to assess the features of the specific case and find the most suitable defence for your company.
Author: Guillermo Guevara, lawyer at RSM Spain
