Spanish court raises questions over calculation of severance pay

Various Spanish newspapers have reported that compensation for unfair dismissal regulated by the Workers’ Statute has been increased from 33 days per year worked to 48 days per year worked, following a decision by the High Court of Justice of Catalonia (11-page / 207KB PDF).

However, Madrid-based employment law expert Beatriz Moriones of Pinsent Masons said that the court’s award in favour of the employee in this case included a compensatory element, based on the civil law concept of ‘loss of profits’, on top of the employee’s entitlement under the Workers’ Statute.

“The court has not increased the legally fixed compensation in the case of dismissal but rather, as a way of compensating for loss of profits, following abusive action by the company, it has decided to use a mechanism designed for enforcement incidents, as a way of modulating the compensation, provided that the legally fixed compensation does not have any dissuasive effect on the company due to the amount,” she said.

However, should the employer appeal to the Spanish Supreme Court, “it remains to be seen whether the Supreme Court admits such a way, existing only for a specific case, of modulating the legally fixed compensation”, she said.

Severance pay on termination in Spain is governed by the Workers’ Statute, with different levels of severance payable depending on whether the dismissal is ‘fair’ or ‘unfair’. Where the dismissal is unfair, the employee is entitled to severance pay of 33 days’ salary per year worked, capped at 24 months’ salary. This entitlement is automatic in all cases of unfair dismissal cases, regardless of any other actions of the employer.

The court in this case heard that, following her dismissal, the employee had been refused unemployment payments through SEPE, the Spanish public employment service, that were payable in the context of the Covid-19 pandemic. The court was told that the employer had terminated her employment rather than include her in its temporary redundancy process through the ‘expediente de regulación temporal de empleo’ (ERTE) mechanism, through which she would have been entitled to public assistance regardless of the number of days of previous contributions to qualify for unemployment benefits.

In awarding the additional compensation, Moriones said that the court had referred to an earlier ruling based on article 281.2 b) of the Regulatory Law of the social jurisdiction. This law allows for an increase of up to 15 days per year per worker, with a cap of 12 monthly payments, for “enforcement incidents”, and the court has understood this as the legislator intending “to allow the ordinary [compensation] thresholds to be exceeded, imposing another higher limit, so that mutatis mutanda this provision could be applicable to these cases”.

“In other words, a case regulated for the event of incidents of enforcement of an irregular reinstatement, in the context of an unfair dismissal, is used to increase the severance payment, using the modulating capacity of the courts and tribunals in a different context, as in this case there has been no incident of enforcement whatsoever,” Moriones said.

“The court goes on to argue that such an increase in the legal compensation will be possible in exceptional circumstances in which the legal and assessed compensation is notoriously insufficient, so that a higher compensation can be set to compensate for the total damages and/or loss of profits, with the plaintiff always having to include in the petition the specific damages and/or loss of profits that have been caused,” she said.

In this case, the employer had acted in an “abusive” manner, the court said.

“[I]t is unquestionable that the plaintiff, if the company had not acted in an abusive manner, protected by the minimal cost of her dismissal due to her limited seniority in the company, had a certain and real expectation of having been included in the imminent ERTE processed due to force majeure ,” the judges said in their judgment.