Individual employment relations in Spain

Requirements regarding an employment contract

The minimum working age for starting an employment relationship is 16 years. Once the employment contract is signed, the company must tell the Public Employment Service the conditions of the contract and send the service a copy of it no more than 10 days later. Another copy of the contract must be submitted to the employee representatives for the workplace.

Dismissal and termination procedures

Employers are required to notify their workforce of planned redundancies 15 days in advance. This notice period applies to both collective and individual redundancies, and all employees irrespective of their tenure. In 2010, the notice period was reduced from one month to two weeks by Royal Decree-Law 10/2010. The Spanish economy appears to be more flexible now than that of the average Organisation for Economic Co-operation and Development country in this area, as the average notice periods in the countries are 3.5 weeks for workers with 9 months’ tenure at the time of dismissal, 1.3 months for workers with 4 years’ tenure and 2.7 months for workers with 20 years’ tenure.

In the event of collective dismissal (more than five employees if the whole workforce is affected; at least 10 employees in companies with fewer than 100 employees; 10% of the employees in companies with 100–300 employees; and 30 employees in companies with more than 299 employees), legislation requires that employees are paid a minimum legal compensation of 20 days’ pay for each year of service, up to a maximum of 12 months’ pay.

In the event of individual unfair dismissal of an employee who has an open-ended contract, legislation requires that employees are paid a minimum legal compensation of 33 days’ pay for each year of service, up to a maximum of 24 months’ pay.

In the event of individual fair dismissal, legislation requires that employees are paid a minimum legal compensation of 20 days’ pay for each year of service, up to a maximum of 12 months’ pay.

In enterprises with fewer than 25 employees, the Public Fund of Wage Warranty (Fondo de Garantía Salarial) will pay 40% of the legal indemnification of employees in the event of collective redundancies.

Severance pay for temporary contracts was modified by Royal Decree-Law 10/2010, which established that as of 1 January 2015 severance pay would increase annually by 1 day per year of service, from 8 days per year of service paid in 2010 to 12 days. Accordingly, in 2014 severance pay for temporary contracts was 11 days per year worked. If the employer dismisses the temporary worker before his or her contract expires, severance pay will be equal to 33 days’ pay for each year of service, up to a maximum of 24 months’ pay.

On this subject, a polemical decision was announced by the European Court of Justice (ECJ) in September 2016 (C-596/14). Under Spanish Law, permanent employees get 20 days per worked year of severance pay when laid off, whereas temporary workers get 12 days and temporary substitutes (interinos) do not get any compensation. In a judgment issued on 14 September 2016, the ECJ established that temporary substitutes also have the right to receive severance pay, and that the amount received by temporary workers and permanent workers should not be different because of their type of contract, on the legal grounds of the Framework Agreement on Fixed-term Work (set out in the annex of Council Directive 1999/70/EC).

This decision has created great uncertainty on the subject of severance pay in Spain, because according to the court decision both temporary workers and temporary substitutes should have the same compensation as other employees (20 days, up to a maximum of 12 months’ pay).

Currently, the Spanish regulation is still the same (no severance pay for temporary substitutes), although more similar cases have reached the ECJ and the Spanish High Court and are awaiting decisions. It seems that the legislator will wait until these pending cases are resolved in order to regulate the issue based on a more consolidated jurisprudence. So, the repercussions of the ECJ decision remain to be seen.

Parental, maternity and paternity leave

In recent years, maternity and paternity leaves have changed significantly.

The duration of parental leave was extended from four to five weeks on 5 July 2018. In September 2017, the People’s Party and Ciudadanos agreed to extend paternity leave to five weeks from the following year onwards. However, in January 2018 this agreement was still subject to the approval of the 2018 Budget Law, so the extension had not been applied in practice (and parental leave was still four weeks long). The socialist government finally announced this measure as part of the Budget Law (Law 6/2018).

In February 2019, the socialist government enacted Royal Decree-Law 6/2019, establishing the gradual equalisation of maternity and paternity leaves. Paternity leave therefore rose to eight weeks in 2019, and to 12 weeks in 2020, and by 2021 both parents enjoyed equal, non-transferable paid leave of 16 weeks, which could be extended by two weeks per child in the case of a multiple birth.

Statutory leave arrangements

Source: Authors’ own elaboration.

Sick leave

In order to be eligible for sick leave, the employee must have made social security contributions for 180 days during the five years prior to the beginning of the leave, in the case of common illness. In the case of a labour accident, no contribution period is required.

The benefit amount payable is determined on the basis of contributions that are established according to salaries. For the first three days of a common illness, the employee will not receive any benefit. Between the 4th day and the 20th day, the replacement rate is 60% of the regulatory base salary. After the 20th day, the replacement rate is 75% of the regulatory base. In the case of a labour accident, the replacement rate is 75% of the regulatory base from the first day.

Retirement age

The retirement age was increased in 2011 (Law 27/2011) from 65 to 67 years of age. This postponement of retirement is being applied progressively between 2013 and 2027. It increased by one month per year until 2018, and has been increasing by two months per year since 2019. It will continue to increase at this rate until 2027. Workers are able to retire at the age of 65 years and benefit from maximum pension rights if they have paid social security contributions for at least 38 years and 6 months.

The period of contribution that is taken to determine the regulatory basis of the pension rose from 15 to 25 years from 2013 to 2022. This rise was applied gradually, increasing by one year in this period.

Women who have interrupted their careers as a consequence of a birth or adoption are able to claim 9 months of contributions per child before the age of 67 years, up to a maximum of 2 years.

In July 2021, an agreement was reached between the government and social partners (the CEOE, Cepyme, CCOO and the UGT) on pension reform. The agreement is the first major pact on pension in the context of social dialogue since 2011 (La Moncloa, 2021).

• The agreement provides for a new evaluation mechanism to maintain the purchasing power of public pensions in accordance with the average annual inflation recorded in the previous year.

• The agreement includes various incentives aimed at bringing the effective retirement age closer to the statutory age for retirement. These measures comprise new incentives for delayed retirement, such as exemptions from social security contributions and increases in the pension amount.

• Social partners committed to negotiating a new ‘intergenerational equity mechanism’ in compliance with the Recovery, Transformation and Resilience Plan. The new mechanism is expected to come into effect from 2027 and will aim to balance the effort of financing pensions across generations.

Another proposal for reform on which there is still no consensus is related to the extension of the period on which the calculation of retirement pensions is based from 25 to 30 years between 2027 and 2038. This measure was agreed on by the Spanish government and the European Commission in the context of Spain’s Recovery and Resilience Plan. According to estimates by the Bank of Spain, such a measure will lead to a reduction in the average initial pension. However, extending the calculation period to the most favourable number of years may help to smooth the fall in the average initial pension amount while also contributing to reducing inequalities among retirees (Muñoz-Julve and Ramos, 2022).