Termination of Employment Contracts: Causes and Procedures

Posted on Dec 14, 2024 in Law & Jurisprudence

The termination of a contract of work includes the discontinuance of its effects. The termination of the employment contract will always be causal (a cause must be pleaded). The causes of extinction are listed in Article 49 of the Workers’ Statute (LET) (mandatory law: it cannot be changed by collective agreement or individual contract). Some of them are developed in later articles. The effects of exposure can be grouped as follows:

A. Termination of Contract by the Will of the Worker or Causes Affecting Their Person

The law recognizes the sole discretion of the worker to terminate the contract.

A.1 Withdrawal or Resignation Without Just Cause

Article 49.1.d) of the LET: The manifestation of the worker’s deliberate intention to terminate the contract (not causal). Resignation should include a notice period as established in collective agreements or local practice. If no notice is given or the notice period is not met, the worker’s breach is reflected in the settlement but does not alter the effects of extinction.

A.2 Cessation Due to Gender Violence

Article 49.1.m): The decision of the worker to abandon their job as a result of being a victim of gender violence. There seems to be no required notice period.

A.3 Termination Due to Employer’s Breach of Contract

Justified cause, Article 49.1.j) of the LET (dismissal reversed): The cause of extinction is a breach of contract by the employer (grave breaches, not necessarily due to fault: for example, a cause consisting of extinction due to the poor economic situation of the business), as listed in Article 50 of the LET. Application of extinction before the judge, without leaving the workplace, except in exceptional cases (cases endangering the worker’s dignity, physical integrity, etc.). The employee is entitled to compensation for unfair dismissal: 45 days’ salary per year of service, with a maximum of 42 months.

Causes (not a closed list):

Substantive changes unilaterally adopted by the employer in working conditions that would run contrary to the worker’s professional training or impair their dignity (typically, role changes).
Faults or late payment of wages, persistent and continuous over time (an occasional delay is not sufficient cause).
More serious breaches by the employer, such as a lack of effective occupation or the specific business refusal to reinstate the employee in their previous working conditions when, after challenging a transfer, posting, or substantial change, it has been declared unfair by a court ruling.

A.4 Termination Due to Death, Retirement, or Disability of the Worker

Article 49.1.e) and f) (cases involving their person)

Death of the employee: Because of the highly personal nature of the service, the worker’s physical disappearance is a cause of extinction (Social Security standards on death and survival apply).
Inability of the worker: Major disability, total or total permanent disability of the employee, without prejudice to the provisions of Article 48.2 of the LET (suspension of the contract for 2 years if improvement is possible).
The worker’s retirement: Collective agreements may establish a retirement age.

B. Termination of Contract by the Employer’s Will or Causes Affecting Their Person

When an employer decides to terminate the employment relationship, they must justify their decision based on some of the reasons listed by the legislation itself (causal dismissal). The system recognizes the following reasons that may justify the business decision to terminate the employment contract:

Causes related to the worker’s conduct (disciplinary dismissal (B.1)) or objective circumstances that affect their professional capacity (extinction due to objective causes of inefficiency, unsuitability, or even justified absences (B.2)).
Causes related to the operation of the company (collective redundancies or individual redundancies for economic, technical, organizational, or productive reasons, and extinction due to force majeure) (B.3 and B.4).
Causes related to the employer’s person (B.5).

B.1 Disciplinary Dismissal

Article 49.1.k) of the LET, serious breach of contract (in some cases, repetition is required, in others not if the breach is sufficiently transcendent) and fault (intent or negligence inexcusable and unjustifiable) of the worker, Articles 54, 55, and 56 of the LET, and 103 to 113 of the LPL:

As the last penalty, because of its importance and gravity, the dismissal has to meet the requirements of proportionality and suitability between the act committed and the penalty imposed.

Causes:

Repeated and unjustified absences or lateness to work. To find out the number required to constitute a breach, one must refer to sectoral rules (collective agreements). Absences or lateness to work motivated by physical or psychological violence arising from gender will be justified when so determined by social care services or health services, notwithstanding that such absences are reported by the worker at the earliest opportunity.
Indiscipline and disobedience at work (broad cause). Refusal to obey legitimate orders; circumstances of illegality, danger, or the like may justify a reasonable refusal.
Verbal or physical offenses to employers or persons working in the company or relatives living with them (insults, harassment, threats, blackmail, etc.; oral or written). Gravity: reiteration is not required; an offensive intent is needed.
Disloyalty or infringement of contractual good faith and breach of trust in the performance of work (broad cause) (breach of contractual good faith, or loss of confidence by the company; for example, working while in a work situation).
Continuing (gravity) and voluntary reduction in the standard or agreed-upon work performance (if involuntary, it would be ineptitude, which is an objective ground for terminating the contract).
Habitual drunkenness (if it endangers the lives of others, it need not be habitual) or addiction (alcohol and drugs) if it adversely affects the job (decrease in performance, risk of accidents to oneself or third parties).
Harassment on grounds of racial or ethnic origin, religion or belief, disability, sexual orientation, or age towards the employer or people working in the company.

Procedure:

Letter of dismissal in writing (writing is an essential procedural requirement imposed on the employer for the contract to be validly extinguished, despite the dismissal and breach of this requirement occurring explicitly or tacitly (denial of access to the center); it is also an act of dismissal if the dismissal is described as being unfair to the employee due to formal defects), indicating the facts that motivate it (in a clear and precise manner to allow the defense of the worker) and the date when it takes effect (may or may not coincide with the date of issue of the letter).
If a worker is a union member, the shop steward must be heard before dismissing the employer if the worker’s union membership is known.
If a worker representative is dismissed, it is required to open a contradictory file (besides hearing the concerned party, the remaining members of the representation they belong to) before the employer takes the measure of dismissal for misconduct.
If the employer has made a dismissal without observing the formal requirements set out in Article 55.1, they can make a new dismissal meeting the requirements omitted in the foregoing.

Effects: The dismissed employee may settle with the employer, or, if the decision is not accepted, contest the dismissal (within 20 working days from the day following the dismissal). To bring such actions against dismissal, filing a prior conciliation application is necessary, or a prior complaint if the employer is public.

Possible judicial qualifications:

Null Dismissal: Article 55.5 of the LET. Immediate reinstatement of the worker and payment of unpaid salary (compensation for moral or material damages may also be appropriate, provided that arguments and evidence are provided regarding their amount).

If the employer does not regularly rehire the worker, the court may seek enforcement of the sentence.

If the motive is one of the grounds of discrimination covered by the Constitution or by law, or if it occurs in violation of fundamental rights and civil liberties (for example, in retaliation against a claim by the employee).
When appropriate, unless it is stated otherwise, the dismissal of: workers during the period of suspension of the employment contract for maternity, risk during pregnancy, risk during breastfeeding, diseases caused by pregnancy, childbirth, breastfeeding, adoption or foster care, paternity, or notified on a date such that the notice period ends within this period.
The dismissal of pregnant workers, from the beginning of pregnancy to the beginning of the period of suspension referred to above.
Workers who have requested one of the permits referred to in paragraphs 4, 4a, and 5 of Article 37 of this Act or are enjoying them (breastfeeding and reduced hours).
Workers who have applied for leave to care for children or relatives.
Workers who are victims of gender violence due to the exercise of the rights of reduction or rearrangement of working time, geographic mobility, change of workplace, or suspension of employment.

The Supreme Court has held that dismissal is only null if the employer knows the state of pregnancy.

Fair Dismissal: Article 55.4 of the LET. Alleged non-compliance, the judge validates the extinction without compensation or payment of processing wages. The worker may, if they meet the precise requirements, apply for unemployment benefits.

Unfair Dismissal: Article 55.4. The employer may elect (within five days of notification of the sentence) to reinstate or compensate the employee with 45 days’ salary per year of service, plus processing wages, which are the result of multiplying the daily wage of a worker fired by the number of days from the date of dismissal until notification of the sentence. (If the employer recognizes the unfairness and offers compensation provided by law, filed in the Social Court within 48 hours following the dismissal and made available to the worker, processing wages are not paid).

In the case of unfair dismissal of a legal representative or union delegate, they will exercise their right of option.

Alleged causes of unfair dismissal or causes:

Failure to meet formal requirements for dismissal. To avoid that classification, Article 55.2 of the ET provides that an employer can make a new dismissal within twenty days, as previously seen. A different question is whether, if the dismissal has already been dismissed due to formal defects, the employer can effect a new dismissal, which would not constitute a remedy of the above, within days of being notified of the decision.
The employer does not sufficiently establish the worker’s alleged failure in the letter of dismissal, its severity, or guilt.

B.2 Dismissal for Objective Reasons

Articles 49.1.1, 52, and 53 of the LET.

It is a measure due to an objective situation that negatively affects the company and that is legally deemed appropriate to help overcome. Situations that occur justify the business decision of extinction. As an element of intent is absent, and there is no fault on the part of the worker, it carries a termination indemnity of 20 days’ salary per year of service, with a maximum of 12 months.

Causes:

Ineptitude of the worker (can be detected as a result of surveys to monitor the health of employees, suspension of firearms license, withdrawal of driving license) occurring after effective placement in the company, or original but unknown to the employer (no degree), except that there was a trial period in which case it may be invoked later.
Lack of adaptation of workers to technical changes to the workplace if such changes are reasonable, within 2 months of implementation, and the worker does not adapt.
Economic dismissal (individual and/or plural). Objectively proven need to amortize jobs for the causes of Article 51, below the number in that article.
Absences (even justified, but most have not been substantiated) that exceed the limits set by law (on an intermittent basis, reaching 20% of working days in two consecutive months or 25% in four discontinuous months within a period of 12 months), provided that the overall rate of absenteeism also established is exceeded (5% of the total workforce in the workplace).
Contracts for the implementation of plans and public programs without a stable economic framework (lack of appropriation for the maintenance of the employment contract) (this is a case of attrition for economic reasons).

Procedure:

Written notice to the employee, stating the reason and facts.
Making available to the employee, simultaneously with the delivery of the written communication, an indemnity of 20 days’ salary per year of service (maximum 12 months).
Advance notice of 30 days from the delivery of the written communication, replaceable by payment of salaries for that period, with 6 hours a week to find work.

Effects: Objection to extinction, 20 days.

Null Dismissal: Immediate reinstatement of the worker with payment of unpaid salary.

Assumptions as before (dismissal is null and void (except where appropriate) for disciplinary reasons).
If it was for economic reasons and was made in fraud of law, circumventing the rules on collective redundancies.
Lack of formal legalities of written communication.
If no allowance had been made available to the worker.

Fair Dismissal: The employer meets formal requirements and accredits the cause.

Unfair Dismissal: The cause is not accredited although formal requirements are met (readmission or damages (contract for the promotion of permanent contracts, 33 days)).

B.3 Collective Redundancies

Article 49.1.i) and Article 51 of the LET: Dismissal based on economic (need to overcome the negative situation of the company), technical, organizational, or production reasons (to ensure the future viability of the enterprise and employment therein), provided that it is duly authorized under the provisions of the law. (The difference with economic plural or single is the number of workers affected and the subsequent procedure for doing so).

Numerical Scope:

Total cessation of business, if there are more than 5 workers.
In 90 days: 10 workers are dismissed in companies with fewer than 100 workers, 10% in firms with 100 to 300 workers, or 30 workers in companies with 300 or more.

Procedure: Administrative authorization by the labor authorities under the relevant procedure of employment regulation (ERE) and simultaneous (both) opening of the consultation period with employee representatives (duty to bargain). Decision by the company at the end (if there is an agreement, the agreement governs; if there is disagreement, the decision is made by the employer). Once permission has been granted, it is communicated to the worker, with compensation of 20 days’ salary per year of service and related unemployment benefits.

In any case, a redundancy for organizational or production reasons made without prior administrative approval (without an administrative decision rejecting the request) will be declared invalid in court if the dismissal is challenged.

B.4 Dismissal Due to Force Majeure

Article 51.12 and Article 49.1.h) of the LET: If force majeure (an involuntary, unpredictable, and unavoidable event, which may be a catastrophic event or a decision of the government (eminent domain)) excludes the provision of work indefinitely, provided that its existence has been proven by the labor authority, after investigation of a case of regulation of employment and irrespective of the number of workers affected (ERE). Compensation is 20 days’ salary per year of service. (There is no consultation procedure, but communication of the request made to the legal representatives of the workers).

B.5 Contract Extinction Due to Death, Retirement, Disability, or Termination of the Legal Personality of the Entrepreneur

Article 49.1.g) of the LET (causes affecting their person)

The first three cases, individual:

Death of the entrepreneur: Contracts are extinguished if the heirs do not want to continue with the company’s activity, except for business subrogation under Article 44 of the LET. One month of compensation.
The employer’s retirement (if the company closes; they can keep or not the ownership of the company through a representative). One month of compensation.
The inability of the employer: Disqualification of their powers as trustees, provided they do not continue with the company through representatives of the disabled employer. One month of compensation.
The extinction of the legal personality: If the employer is a legal entity (foundation, association, society). An ERE is required, after obtaining the relevant authorization.

C. Contract Extinction by Mutual Agreement Between the Worker and the Employer

Article 49.1. a), b), and c) of the LET

Mutual agreement: No formalities are required; it is often reflected in the settlement (the receipt of settlement may have discharge value, i.e., it extinguishes the contract of employment if the wording of it and the performance of the parties show that extinctive intent). An employee may request the presence of a legal representative at the time of signing.
Conditions precedent: Reasons mentioned in the contract, except that they constitute a clear abuse of rights by the employer (agreed cases). A complaint is required by either party once the cause is given.
Expiration of the agreed time: Temporary contracts. Completion by the time agreed or completion of the work or service contract, requiring a complaint in all cases and at least 15 days’ notice if the duration exceeds one year. Compensation of 8 days’ wages per year of service (not for interim contracts and training).