The ruling that revolutionizes severance pay

They are few, but they can mark a before and after. The judgments that pronounce on the so-called "reparative" compensation, which seeks to restore the damage caused to a worker by an unfair dismissal, are beginning to be invoked by lawyers to obtain additional compensation to that established in the law. Although there were already some judgments of the social courts that granted it when the compensation assessed was "meagre" and in the business decision there was a "clear illegality, fraud of law or abuse of rights", they met the resistance of the superior courts of justice (TSJ), which ended up applying the maximum limits set by the legislator. The accolade has come from the hand of the TSJ of Catalonia, which at the end of January issued a pioneering sentence.

The resolution, of which the magistrate Felipe Soler was rapporteur, considered that the legal compensation assessed of a worker, less than 1,000 euros, was "insignificant" and did not compensate "the damage caused by the loss of the job" nor had "deterrent effect for the company". The employee, who since the end of 2019 was indefinite of a Barcelona mobility company, was dismissed for economic and productive reasons after the outbreak of the pandemic, which prevented her from benefiting from the ERTE initiated a few days later.

"There is no doubt that the plaintiff, if the company had not acted abusively, covered by the minimum cost of her dismissal due to her short seniority in the company, had a certain and real expectation of having been included in the imminent ERTE processed by force majeure, with which she could have benefited from the extraordinary measures on unemployment protection, with recognition of the benefit even lacking the minimum contributions necessary for it, "underlines the judgment when setting an additional compensation of 3,500 euros.

Paradigm shift

This type of "restorative" compensation illuminates a paradigm shift in labor law, where assessed compensation governs, calculated according to objective criteria, such as salary or years of service, and subject to maximum limits. Regardless of other parameters, such as the profits that the worker ceases to obtain as a result of the termination of the contract or the damage he suffers in his patrimony, the prevailing model allows the employer to terminate the employment relationship unilaterally at any time, knowing exactly what the cost of unfairly dismissing an employee will be.

However, in recent years an increasing number of judges are awarding compensation in excess of those legally established, putting an end to what they have described as "excessive exercise of the right to dismiss", especially when it comes to employees with little seniority. As explained by the social magistrate Carlos Javier Galán, for this they value "the damages that are accredited by the worker", as long as "they are not covered with the compensation assessed in the Workers' Statute".

Judgments are usually based on Article 24 of the Revised European Social Charter, which recognises "the right of workers dismissed without valid reason to adequate compensation or other appropriate redress". This 1996 instrument, which extends the rights that must be given in labor relations, after being ratified by Spain, entered into force on July 1, 2021. They also apply Article 10 of Convention 158 of the International Labour Organization on termination of employment at the initiative of the employer.

However, these additional compensations are not without controversy. The possible increase in legal uncertainty is the main obstacle they face. "If the judicial bodies set them discretionally, they will lead to legal uncertainty. And that insecurity is not positive for anyone, but, especially, for companies, which need scenarios of certainty, "warns the magistrate. In his opinion, "the legislator should review the regulation of dismissal in Spain and adapt it to the criteria of the international treaties that the State has signed, providing it with objectivity and not leaving it to the discretion of each judge."

An opinion also shared by Enrique Ceca, managing partner of the Labor area of the law firm Ceca Magán Abogados. "This new interpretation made by the courts distorts the objectivity of the calculation of severance pay, so that, inevitably, there will be uncertainty in companies as they cannot know in advance and accurately the final compensation amount," he argues. In addition to legal uncertainty, another of the misgivings raised by "reparative" compensation is related to the possible "increase in litigation". According to Clara Mañoso, partner of the Labor Department of the firm Araoz & Rueda, as "this compensation model involves transferring to the worker the obligation to prove the damage caused" by the termination of the contract, the final cost of the dismissal is usually specified "after a long judicial process".

Despite this, Luis Aguilar, counsel of the Labor area of the international firm Eversheds Sutherland, increasingly detects more cases in which dismissed workers request them "for strategic and negotiation purposes", although he also expresses his bewilderment due to the legal uncertainty involved in the granting of this type of compensation. However, until the Supreme Court rules on the matter, "if the severance pay does not really compensate the worker" for the loss of employment, Mañoso's recommendation is "to request that additional compensation since the dismissed person has nothing more to lose."

Falling costs

The "reparative" compensation is linked to the cost of dismissal in Spain, which was left out of the 2021 labor reform. Currently, the compensation for unfair dismissal of the PP Government of 2012 is still in force, which reduced it from 45 days per year worked to 33, with a maximum of 24 monthly payments. Since 1977, when it was 60 days of salary per year of service, it has experienced a marked decline. Currently, the European Committee of Social Rights must resolve a claim by UGT and CC OO, who defend that the dismissal is not sufficiently "dissuasive" or "compensatory". What you rule will influence compensation.

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