A Practical HR Guide For Employee Termination in Spain
Your up-to-date guide for employee termination in Spain in a fair, legal and practical manner for international HR leaders and business owners.
Terminating an employee in Spain involves deeply understanding a well-defined legal framework that aims to balance the interests of both employers and workers. Spanish labour laws are designed to offer significant protections to employees, which means that employers must follow strict procedures and legal requirements when ending a contract. From reasons for dismissal to notice periods and severance pay, every step is governed by specific rules that, if overlooked, can lead to disputes, financial penalties, or reputational damage.
Compared to countries where employment relationships can be more flexible, Spain’s approach is much more regulated and structured. Employers need to be aware of various dismissal grounds, employee rights, and documentation requirements to ensure compliance and avoid legal challenges.
This guide will walk you through everything you need to know about employment termination in Spain, and offer practical advice for businesses of all sizes.
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Grounds for Termination in Spain
In Spain, employment termination is not taken lightly. The law recognises that ending an employment relationship can have significant consequences for the employee, so it requires employers to demonstrate valid grounds and follow proper procedures. Generally, the termination of a contract falls into three broad categories: objective dismissal, disciplinary dismissal, and termination due to collective redundancy or permanent incapacity. Each comes with specific requirements and implications.
1. Objective Dismissal (Despido objetivo)
Objective dismissal occurs when employment contracts are terminated for legitimate reasons recognised by Spanish law, including economic, technical, organisational, or production-related grounds. It can affect either a single employee (individual dismissal) or a group of employees (collective dismissal). Each case is subject to strict rules regarding justification, documentation, notice, and severance pay.
The reasons most commonly invoked are:
- Economic: where the company suffers persistent income or sales losses, such as three consecutive quarters of declining revenue compared to the same quarters in the prior year.
- Technical: when changes in production methods or technology render certain roles unnecessary.
- Organisational: when restructuring of departments, workflows, or personnel systems reduces the need for certain positions.
- Production-related: when a drop in demand for goods or services requires adjustments to the workforce.
Objective dismissals can be classified into Individual or Collective dismissals, each with the following particulars:
A) Individual Objective Dismissal
Individual dismissal on objective grounds applies when a single employee is terminated due to reasons linked to either the worker’s capabilities or the company’s operational needs. Common grounds include:
- Employee incompetence or ineptitude: where the employee lacks the necessary skills or qualifications to perform their role.
- Failure to adapt to changes: if the employee cannot adjust to a reasonable change in job responsibilities, even after being offered relevant training and a two-month adjustment period.
- Economic, technical, organisational, or production-related reasons: where company circumstances justify a reduction in staff.
- Loss of funding: for example, where a position is financed by a grant or external project that comes to an end.
Employers must provide written justification for the dismissal and give at least 15 days’ advance notice or pay salary in lieu of notice. The employee is entitled to 20 days of salary per year of service, capped at 12 months’ salary. This severance must be made available at the time of dismissal.
Because Spanish labour courts tend to interpret these dismissals strictly, individual dismissals on objective grounds are often challenged, and decisions can be overturned if employers fail to meet procedural or evidentiary requirements.
B) Collective Objective Dismissal (Collective Redundancy / Despido colectivo)
Collective redundancies occur when an employer dismisses a significant number of employees within a 90-day period due to economic, technical, organisational, or production-related reasons. Under Spanish law, a dismissal is classified as collective if:
- At least 10 employees are affected in companies with fewer than 100 workers,
- 10% of the workforce is affected in companies with 100–299 workers, or
- At least 30 employees are affected in companies with 300 or more workers.
- A dismissal of the entire workforce also qualifies as collective.
For collective dismissals, the employer is not required to show that the business would collapse without the dismissals, but must provide evidence of the economic or organisational difficulties and show that the dismissals will contribute to restructuring or restoring performance.
Spanish law also requires a formal consultation process with employee representatives and notification to the labour authority (SEPE). Alternatives such as redeployment or reassignment must be considered before proceeding. Failure to comply with these requirements can result in the dismissals being declared invalid, with employees reinstated or compensated.
The collective redundancy process begins with a consultation period with employee representatives. This stage cannot exceed one month (or 15 days in companies with fewer than 50 employees). While both sides must negotiate in good faith, the law does not require them to reach an agreement on the dismissals.
The labour authority must also be informed at both the start and conclusion of the procedure. The notification opening the consultation period must include, among other details:
- The specific reasons behind the collective redundancy.
- The number of affected employees and their professional categories.
- The number and classification of employees normally employed during the preceding year.
- The anticipated timeline for carrying out the redundancies.
- The selection criteria used to determine which employees will be dismissed.
- A copy of the notice provided to employees or their representatives regarding the employer’s intention to initiate the process.
- The names of the worker representatives forming the negotiation committee, or confirmation that such a committee was not constituted within the statutory timeframe.
If no agreement is reached during consultations, the employer may still proceed with the dismissals. In that case, employees are entitled to statutory compensation of 20 days’ salary per year of service, capped at 12 months’ salary. Workers also retain the right to contest the dismissals in the labour courts.
2. Disciplinary Dismissal (Despido disciplinario)
This type of dismissal is based on employee misconduct or breach of contractual obligations. The employer must prove that the employee’s actions constitute a serious fault, such as repeated absenteeism without valid justification, insubordination, or violation of workplace rules.
Unlike objective dismissal, no severance is typically required if the dismissal is upheld as justified. However, the dismissal must be communicated in writing, specifying the reasons for the action. An employee can challenge the decision if they believe the dismissal was unfair, with the labour courts determining whether the dismissal was proportionate and lawful.
3. Permanent Incapacity or Retirement
Termination due to permanent incapacity has undergone important changes since the entry into force of Law 2/2025 on 1 May 2025, following the European Court of Justice ruling of 18 January 2024 (Case C-631/22). Previously, a declaration of permanent incapacity by Social Security allowed companies to terminate the contract automatically. This practice is no longer valid under the revised Article 49.1(n) of the Workers’ Statute.
Now, when an employee is declared permanently incapacitated, the following procedure must be observed:
- The employee has 10 days after the declaration to express whether they wish to continue the employment relationship.
- The employer then has up to three months to:
- make reasonable adjustments to the job so the employee can continue working, provided these do not place an excessive burden on the company; or
- identify and offer a suitable vacant position that matches the employee’s professional profile (the employee has the right to reject this offer); or
- terminate the employment contract if the adjustments are excessively burdensome or if the employee rejects the proposed change of position.
The employer must notify the employee of its final decision in writing, with clear justification.
When evaluating whether an adjustment places an excessive burden, factors such as the company’s size, resources, economic situation, and turnover must be considered. Any subsidies or public aid received for workplace adaptations must also be taken into account.
For small companies (with fewer than 25 employees), the law provides additional guidance: the cost of adaptation can be considered excessive if it exceeds either the equivalent of unfair dismissal compensation (33 days’ salary per year of service, capped at 24 months) or six months of the employee’s salary, whichever is greater.
In companies with employee representatives, there is also an obligation to consult them regarding the scope of possible adjustments and the identification of roles compatible with the employee’s new situation.
As a result, employers can no longer treat permanent incapacity as an automatic ground for dismissal. Each case requires careful assessment of potential adjustments or redeployment before termination is considered lawful.
Retirement, on the other hand, remains a natural form of contract termination, requiring compliance with statutory pension and social security regulations.
Step-by-Step Termination Procedure in Spain
Once the grounds for termination are clearly defined, employers must follow a structured process to ensure compliance with Spanish labour laws. Spain’s legal framework requires precision in documentation, communication, and timelines, which helps protect both parties and minimise disputes.
Below is a detailed guide outlining each step employers should follow when terminating an employee.
Step 1. Prepare Documentation and Justify the Grounds
Before initiating any termination, employers must gather the necessary documents to support the decision. For objective dismissal, this includes evidence such as financial reports, restructuring plans, or medical assessments confirming incapacity. For disciplinary dismissals, records of previous warnings, attendance logs, or HR investigations are essential.
All documentation must clearly show the reasons for dismissal and why the employee’s actions or circumstances warrant termination. Poor or incomplete documentation can expose the employer to legal challenges and claims of unfair dismissal.
Step 2: Provide Written Notice
Spanish law mandates that dismissal, whether objective or disciplinary, be communicated in writing. The letter must specify:
- The reason for dismissal.
- The effective date of termination.
- The applicable notice period.
- The amount of severance, if any.
For objective dismissals, employers are required to give at least 15 days’ notice unless otherwise stated in the employment contract or collective agreement. This formal communication ensures that the employee is fully aware of their rights and the rationale for dismissal.
Step 3: Calculate and Offer Severance Pay
In Spain, severance pay is calculated based on the employee’s years of service and the grounds for dismissal. For most objective dismissals or collective redundancies, the standard entitlement is 20 days of salary per year of service, capped at 12 months’ salary. Employers must provide a detailed breakdown of the severance calculation, including the salary components used and any deductions for tax or social security purposes.
Severance must be made available at the time of delivering written notice. In cases of objective dismissal, the employee is also entitled to a 15-day notice period, which the employer may either honor through continued employment or substitute with payment in lieu.
The amount owed increases significantly in cases of unfair dismissal. For contracts terminated before 12 February 2012, compensation was set at 45 days’ salary per year of service, capped at 42 months’ salary. For periods of service after that date, the rate is 33 days’ salary per year of service, capped at 24 months’ salary. In practice, severance for employees with longer service may be calculated using both scales, depending on when their employment began.
No severance is owed for a valid disciplinary dismissal, provided the employer can substantiate the misconduct. However, if a court finds the dismissal unfair, the employee may be entitled to the same compensation as in unfair dismissal cases.
Failure to pay severance correctly or on time is a common source of disputes. Employers must be precise in their calculations and transparent in their documentation, as errors often lead to court challenges. Understanding the distinctions between dismissal types and their corresponding severance obligations is essential for compliance with Spanish labour law.
Step 4: Conduct the Termination Meeting
Once the documentation is prepared and the letter drafted, employers must hold a termination meeting. This is an opportunity to explain the reasons for dismissal, discuss the employee’s rights, and address any concerns they may have.
For objective dismissals, the employee should be allowed to ask questions, seek clarification, and potentially negotiate aspects such as notice period or severance payment structure. Disciplinary dismissals often require additional sensitivity as emotions can run high.
While this meeting is not legally mandatory in every case, it is highly recommended to demonstrate goodwill and reduce the likelihood of disputes.
Step 5: Issue Final Documents
At the conclusion of the process, employers must provide the employee with the following:
- A work certificate (certificado de empresa) indicating employment details and reasons for termination.
- A payment breakdown showing salary, severance, and any unused leave entitlements.
- A social security document confirming contributions and any benefits accrued.
- If applicable, documentation relating to retirement or incapacity certification.
Failure to provide these documents promptly can hinder the employee’s ability to claim benefits or access unemployment insurance, and can also invite penalties for the employer.
Step 6: Address Appeals and Legal Challenges
Employees affected by redundancy have the right to challenge their dismissal in the labour court (Juzgado de lo Social), where the judge may classify the termination as fair, unfair, or null (void).
i) Fair dismissal:
If the court validates the redundancy as lawful, the employer does not owe any compensation beyond the severance already provided.
ii) Unfair dismissal:
If the dismissal is deemed unjustified, the employer must choose between reinstating the employee or paying statutory compensation. This compensation is calculated at 45 days’ salary per year of service for periods before 12 February 2012 and 33 days per year for service after that date. If reinstatement is impossible (for example, if the workplace has closed), the employer may also be required to pay an additional indemnity of 15 days’ salary per year of service, up to a limit of 12 months.
iii) Void dismissal:
If the court finds the dismissal discriminatory or in breach of fundamental rights (for example, dismissal in retaliation for a legal claim or during protected situations such as paternity leave), the company must reinstate the employee and pay “processing wages” covering the period between the dismissal and the court’s ruling.
In practice, individual redundancies are frequently litigated, as employees often seek to have the termination reclassified as unfair to obtain higher compensation. For this reason, employers must be able to clearly demonstrate the objective reasons cited in the dismissal letter, particularly economic grounds.
To strengthen their position in court, companies are advised to obtain an independent expert report outlining the financial difficulties. Having the expert confirm the report during proceedings can provide additional credibility and support for the employer’s case.
Key Risks for Employers
Even when following the correct procedure, terminations in Spain come with several risks that can impact an organisation’s finances, reputation, and employee morale. Spanish labour law strongly protects workers, and courts tend to side with employees in disputes where processes were mishandled. Below are the most common pitfalls employers face—and how to mitigate them.
1. Risk of Unfair Dismissal Claims
One of the biggest risks is that an employee challenges the dismissal as unfair or procedurally flawed. Courts in Spain often review not only the legitimacy of the reason but also whether employers followed due process. A termination letter that lacks specific details, vague performance issues without documented warnings, or failure to allow the employee to respond can result in reinstatement orders or heavy compensation awards.
For example, dismissals citing “incompatibility” or “poor performance” without supporting documentation are frequently overturned by courts. Employers are advised to maintain thorough records of evaluations, communications, and performance improvement plans.
2. Incorrect Severance Calculation
Severance pay is often a source of disputes. Employers who miscalculate payments—for instance, by excluding certain allowances or incorrectly applying years of service—may face legal claims. Spain’s standard framework of 20 days’ salary per year worked (up to 12 months) can be complicated by collective agreements, long-service adjustments, or contractual bonuses.
3. Ignoring Notice Period Requirements
Failing to provide adequate notice or compensating for notice periods is another frequent cause of dispute. Objective dismissals require at least 15 days’ notice, unless otherwise stipulated, while other forms of dismissal must comply with contractual or collective bargaining obligations.
If an employer abruptly terminates employment without proper notice or bypasses agreed timelines, the courts can view the dismissal as invalid, potentially reinstating the employee or awarding additional compensation.
4. Overlooking Special Protections for Vulnerable Groups
Spanish law provides extra protections to specific employee categories. Pregnant workers, employees on parental leave, disabled employees, or those who have served as worker representatives (e.g. union members or works council delegates) enjoy heightened safeguards. Employers cannot terminate these employees without exceptional justification and must follow stricter procedures, including prior authorisation from labour authorities.
Not being aware of these protections or failing to document compliance can lead to severe sanctions, including reinstatement orders and penalties.
5. Data Protection Non-Compliance
With data protection laws such as the GDPR fully in force across Spain, the handling of employee information during termination must be meticulous. Employers must ensure that sensitive data such as medical records, compensation details, or family information, is securely processed, with documented consent where required.
Improper handling of personal data during or after termination, such as retaining records unnecessarily or sharing information without consent, can lead to fines and reputational damage. This is especially relevant when managing employee exits remotely or across borders.
6. Misunderstanding Collective Bargaining Agreements
Spain’s labour landscape is highly influenced by sector-specific collective agreements, which often include additional rights beyond statutory entitlements. Misinterpreting or ignoring these agreements can result in unlawful dismissals.
For instance, some sectors require additional severance compensation, extended notice periods, or stricter grounds for termination. Employers must carefully review collective bargaining agreements applicable to their industry and region before proceeding with termination.
Post-Termination Obligations and Best Practices
Terminating an employee in Spain is not simply about issuing a dismissal letter and paying severance. Employers must navigate a series of post-termination responsibilities that ensure compliance with labour laws while helping maintain goodwill. These obligations, when handled with transparency and care, not only prevent disputes but also protect the organisation’s reputation and employee trust.
Keep these 5 points top of the mind:
A) Issuing Final Documentation
Once the termination process is complete, employers are required to provide specific documents to the departing employee. These documents are essential both for legal compliance and for enabling the employee to claim unemployment benefits or other entitlements.
- Work Certificate (Certificado de Empresa): This document confirms the employee’s job title, duration of employment, salary details, and reasons for leaving. It’s required for unemployment insurance claims and must be accurate and delivered promptly.
- Settlement Statement (Finiquito): This outlines the breakdown of all payments due, including wages, unused leave, bonuses, and severance. It must be signed by the employee to acknowledge receipt, but signature alone does not waive the employee’s right to contest the settlement later.
- Unemployment Documents: Employers must ensure that employees receive the necessary paperwork to apply for state unemployment benefits (Prestación por Desempleo), including registration forms and references for benefit calculations.
Failing to provide these documents on time or with accurate details can result in penalties or lawsuits. It also creates delays for the employee’s transition and can damage the employer’s credibility.
B) Handling Non-Compete Clauses
Where a non-compete agreement is part of the employment contract, employers are required to compensate employees for adhering to it post-termination. Spanish courts scrutinise such clauses to ensure they are reasonable and not overly restrictive.
Non-compete agreements must be supported by financial compensation during the restricted period. This compensation is usually a percentage of the employee’s last salary and must be explicitly stated in the contract. Without proper documentation or payment, the clause may be unenforceable, exposing the company to legal claims.
C) Continuing Health and Insurance Coverage
Though not always mandatory, employers are encouraged to clearly communicate provisions around continued health insurance or other benefits post-termination. Where the contract includes extended coverage terms, or where collective agreements stipulate benefit continuity, the employer must comply fully.
Transparency around these arrangements helps avoid confusion, fosters trust, and can even assist in negotiations when settlements are contested.
D) Managing Final Payments
In addition to severance and notice payments, employers must calculate and settle outstanding amounts such as unused vacation days, bonuses, and commissions. Spanish law mandates that these payments be made promptly upon termination.
Delays in payments or incorrect calculations can lead to formal complaints, wage audits, and further compensation orders. Employers should standardise their payroll processes and regularly audit benefit calculations to avoid discrepancies.
E) Supporting Employee Transition
Beyond the legal obligations, organisations are advised to approach termination with empathy and clarity. Offering outplacement support, counselling services, or career transition assistance can soften the impact and help maintain goodwill.
In Spain, where labour protections are robust and disputes can escalate quickly, demonstrating fair treatment during and after termination not only mitigates risk but also contributes to a positive employer brand.
Best Practices and Recommendations for Employers
Successfully managing employee termination in Spain goes beyond following the letter of the law. Employers that plan ahead, communicate clearly, and act consistently are far more likely to avoid disputes, maintain a good reputation, and support both the business and the departing employee. Here are some practical recommendations to ensure a smooth and legally sound process.
1. Start with Clear Employment Contracts
A termination process built on vague terms or incomplete documentation is more likely to result in disagreements. From day one, it’s essential to create employment contracts that clearly outline job responsibilities, notice periods, severance conditions, non-compete clauses, and benefit entitlements.
Ensure that clauses around termination reasons, probationary periods, and disciplinary processes are fully compliant with Spanish labour laws, particularly the Workers’ Statute (Estatuto de los Trabajadores) and applicable collective bargaining agreements.
Having detailed, well-structured contracts helps both employers and employees understand expectations and responsibilities, reducing the risk of conflict during termination.
2. Train Managers and HR Teams on Compliance
A lack of awareness about Spain’s employment laws is one of the biggest reasons disputes arise during termination. Invest in regular training for HR personnel and managers to ensure they understand the statutory requirements, from notice periods to severance payments.
Training should cover areas like:
- When termination is justified
- Documentation required at each stage
- Employee rights around severance, benefits, and data protection
This proactive approach helps avoid costly errors, supports ethical practices, and ensures decisions are backed by legal expertise.
3. Document Every Step of the Process
Spanish courts place significant weight on proper documentation. Every step, from disciplinary meetings to performance reviews and termination letters, should be recorded, with signed acknowledgements where appropriate.
Ensure that written communications are clear, specific, and free from vague language like “unsatisfactory performance” unless it is supported by measurable data. Documenting the reasons for termination not only protects the employer in disputes but also demonstrates fairness and due diligence.
4. Offer Fair and Timely Settlements
Settlement payments such as severance, unused leave, and bonus arrears should be calculated with accuracy and disbursed promptly. Delays or disputes over payment can escalate into formal complaints, wage audits, or even legal action.
Where ambiguity exists, consult labour law experts to ensure the figures meet both statutory requirements and any contractual obligations. Offering a fair settlement, even when not legally required, builds goodwill and may prevent costly litigation.
5. Communicate with Empathy and Respect
Terminations are challenging experiences for both the employer and employee. While strict adherence to legal requirements is essential, how the process is handled has a lasting impact on morale, reputation, and productivity.
Best practices include:
- Providing clear explanations about the reasons for termination
- Offering counselling or outplacement services
- Ensuring that the employee feels heard and respected throughout the process
Approaching termination as a human experience rather than just a legal obligation can foster trust and maintain positive relationships, even post-employment.
6. Engage Legal and Payroll Experts
Given the complexities of Spain’s labour framework, it’s advisable to involve legal counsel and payroll specialists in the termination process. This is particularly important when handling:
- Disciplinary dismissals
- Redundancies
- Severance negotiations
- Data protection concerns
Experts can ensure compliance with laws such as the Workers’ Statute, collective agreements, and privacy regulations like GDPR. They can also help employers interpret ambiguous clauses, manage cross-border employees, and avoid potential pitfalls.
7. Review Policies Regularly
Labour laws and social security regulations in Spain are subject to updates and changes. What is compliant today may be outdated next year. Regular policy reviews ensure that contracts, benefits packages, and termination procedures remain aligned with current requirements.
Annual audits, internal policy reviews, and consultations with legal experts can help identify gaps early and avoid exposure to fines or disputes.
How Beyond Borders HR Can Help
Managing employee termination in Spain requires a deep understanding of local labour laws, procedural nuances, and cultural sensitivities. At Beyond Borders HR, we help organisations navigate this complexity with clarity and confidence.
We assist you in ensuring that every step from identifying valid grounds for dismissal to drafting compliant termination letters, calculating severance pay, and conducting exit interviews is handled with precision. Our experts work closely with you to tailor solutions that fit your business structure while aligning with Spain’s legal requirements.
Beyond compliance, we guide you on how to communicate effectively with employees, minimise disputes, and protect your company’s reputation. Whether you are facing redundancy, performance-related dismissal, or mutual termination, our support helps you approach each case fairly and thoughtfully.
With our help, you can ensure that your processes are not only legally compliant but also respectful of your workforce, turning a difficult situation into one handled with professionalism and care.
Need help handling Spanish dismissals with confidence? Chat to Beyond Borders HR for expert guidance.
