The Spanish government has recently introduced drastic changes to employment regulations which also affect compensation and benefits by broadly reducing the cost burden on employers. In particular:
- Severance pay on termination: the maximum severance pay has been reduced from 45 days' salary per year of service (subject to a maximum amount equivalent to 42 months' pay) to 33 days' salary (subject to a maximum amount equivalent to 24 months' pay). However, the biggest change introduced by the reform is to bring most terminations into the category of so-called "objective dismissals", where the maximum severance amount payable is 20 days' salary per year of service (subject to a maximum amount equivalent to 12 months' pay).
- An employee can no longer claim for payment of salary accrued during dismissal proceedings, which had to be paid if the dismissal was declared unfair by a Labour Court. As these proceedings could take up to six months, that reduces the cash risk for the employer significantly in the case of litigation.
- Employers are now entitled to reduce employees' salaries and benefits without reducing working hours if the company is in financial difficulties. This was not permitted before the reform.
- Employees of banking entities which have been bailed out by the government or received public funds cannot receive severance pay over certain specified amounts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
