The CEO management contract is regulated in Royal Decree 1382/1985. The scope this law is for CEO position and that is to say an employee who fulfills functions of this CEO position with full autonomy and responsibility. We could define him as employed workers who exercise powers inherent to the legal ownership of the Company, and related to its objectives. We can say in this way that it is the general directors with broad powers who have the treatment of high positions.
The special employment relationship of CEO management is based on the mutual trust that exists between the employer and the CEO. That is why the parties can freely agree to exercise their rights and obligations, without prejudice to observing the minimums established by this Royal Decree.
We usually see regular ordinary employee contracts for this positions which could become a big mistake, because it is absolutly necessary to fulfill the CEO contract with the mandatory requisits of this Spanish Royal Decree, and there are some important aspects to take note about from a legal prespective. Don't hesitate to ask for help if you need some.
Formalities for the manager contract:
The CEO contract must be formalized, in principle, in writing, but the lack of a written agreement is not a requirement that affects the validity or effectiveness of the contract. There is only one exception: when the CEO accesses this new position for internal promotion, the contract will always be required to be formalized in writing.
The CEO will need a NIE (Foreign Identification Number) from the Spanish Government before working for the Spanish company or branch. Contact us if you need with forign formalities.
Content of the manager or CEO contract:
The content of this type of contract is determined, fundamentally, by everything that the parties freely agree on based on the principle of reciprocal trust. However, there is a minimum content that cannot be avoided:
- identification of the parties;
- object of the contract;
- agreed remuneration, specifying its different items, in cash and in kind;
- contract period.
POSSIBLE SPECIAL AGREEMENTS:
Both parties may be able to make use in this contract of the autonomy of the will and agree to what they freely agree, however they must respect the following limits established in the Royal Decree that regulates the relationship:
- Trial period: it may not exceed nine months. Once the trial period has elapsed without any withdrawal, the contract will produce full effect, counting the trial time of the services provided in the seniority or antiguity of the CEO as Company's employee.
- Duration of the contract: the CEO contrat will have the duration agreed by the parties.
- Working time: it is free for the parties to determine the working day, hours, parties and permits, as well as holidays; provided they do not exceed those that are usual in the corresponding professional field.
- Pact of non-attendance and permanence in the Company: the CEO management worker may not enter into other employment contracts with other Companies, unless authorized by the employer or written agreement to the contrary. The parties can even agree on the employer's right to receive compensation in the event that he has provided the CEO with a professional specialization and he leaves the job before the set time.
- Post-contractual competition: the parties can set a maximum limit of two years during which the CEO, in exchange for financial compensation, cannot compete with the employer in the same working area. This agreement will only be valid under if the following requirements:
a) That the employer has an effective industrial or commercial interest in it.
b) That the CEO is satisfied with adequate financial compensation.
- Confidentiality: the position held by the manager allows him to have access to the information of the entire company; For this reason, it is common to include in the contract a pact by which the CEO undertakes not to disseminate the 'most sensitive' information for the employer.
CEO social security QUOTE contribution:
The CEO must contribute for all the concepts of the General Regime Social Security System, except FOGASA and unemployment. Therefore, they will be assimilated to employed workers, for the purposes of inclusion in the corresponding Social Security Regime, but excluding unemployment protection and that granted by the Salary Guarantee Fund. Despite the casuistry that may exist, this is the correct framework for social security.
EXTINCTION OF THE SPECIAL EMPLOYMENT RELATIONSHIP OF THE SENIOR MANAGERS:
Because this relationship is grounded on trusty between parties, even when the CEO dismissal would be declared inadmissible, there is no obligation for the employer to reinstate him again in the company and there is no obligation to pay judicial court time salaries.
TERMINATION OF THE EMPLOYMENT RELATIONSHIP with ceo initiative:
The CEO can terminate the employment relationship voluntarily without the right to any compensation. He must give a minimum notice of three months, although it can be up to six months, if this is established in writing in the contracts entered into for a period of more than five years. In the event of non-compliance, the employer will be entitled to compensation equivalent to the wages corresponding to the duration of the non-compliance period.
On the other hand, the CEO may claim for contract termination, without the need for prior notice and with the right to the agreed or legal compensation when the employment relationship is terminated by any of the following assumptions:
a) Substantial modification in the working conditions that are notoriously detrimental to their professional training, undermining their dignity, or are decided with serious violation of the contractual good faith by the employer.
b) When there is non-payment or continued delay in the payment of the agreed salary.
c) When there is any other serious breach of contractual obligations, by the employer.
d) In the event of a succession of the company or in the event of an important change in the ownership of the same, which has the effect of a revocation of its governing bodies or a change in the content or approach of its main activity.
The compensation you will receive will be that established in the clauses or, in the absence of an agreement, the equivalent of seven days of cash salary per year of service with a limit of six monthly payments.
TERMINATION OF THE EMPLOYMENT RELATIONSHIP DUE TO LOSS OF CONFIDENCE OF THE EMPLOYER:
As CEO is a contractual relationship that is based on the existence of trust between both parties, the employer can terminate the special employment relationship without the need for a justifying cause, the mere fact of losing the employment relationship is sufficient reason to terminate this employment relationship. confidence in the person.
This withdrawal must be notified in writing with a minimum notice of three months and the payment of the agreed compensation must be paid or, failing that, the legal one that is equivalent to seven days of cash salary per year of service, with a limit of six monthly payments. .
It should be borne in mind that unlike the ordinary employment relationship, the severance payments received by the CEO are considered as salary and are subject to taxation, unlike the severance pay received by the employment relationship that an ordinary employee may have. If the CEO is also part of the company's board of directors, he will be registered in the general regime as assimilated and, therefore, he will not have the right to unemployment benefit or protection from FOGASA.
TERMINATION OF THE EMPLOYMENT RELATIONSHIP DUE TO SERIOUS AND GUILTY NON-COMPLIANCE OF THE CEO:
The employer may terminate the employment relationship due to serious and culpable non-compliance by the CEO, but this dismissal may be declared appropriate or inappropriate.
When appropriate, the CEO will not be entitled to any compensation. However, the judge who declares this sanction appropriate will need that such disloyalty or breach of trust would be proven with facts that demonstrate the violation of the duty of fidelity to the governing bodies of the company or with acts that the CEO has executed in bad faith . Mere conjectures will not suffice.
When it is inadmissible, the CEO will be entitled to the agreed compensation. A shield clause could have been agreed to protect the CEO in the event of unfair dismissal, and a compensation of one year of remuneration to which he would be entitled had been stipulated. In this case, the reinstatement will only fit if it had been included in the contract. In the absence of an agreement, the compensation will be equivalent to twenty days of cash salary per year of service and up to a maximum of twelve monthly payments.
RESUME OF THE PREVIOUS COMMON EMPLOYMENT RELATIONSHIP IN CASE OF CEO EXECUTIVES PROMOTED WITHIN THE COMPANY:
In the event that the CEO has been promoted within the company through a CEO contract, it should be specified whether the new special relationship replaces the previous common one, or whether it suspends it. In order to preserve the rights acquired by the employee, the substitution will only take effect after two years in which the contractual novation has occurred, before that period it will be understood that there has been a suspension. In the absence of an agreement contained in the contract, it will be understood that the common employment relationship prior to the CEO relationship is suspended.
In the event of termination of the CEO contract, without prejudice to the compensation to which they may be entitled as a result of said termination, the worker will have the option to resume their original employment relationship under the same conditions in which they were before to abandon her. This implies that the company must maintain the same salary that it had been receiving or adapt it to the professional category that corresponds to it according to the collective agreement.
If the company were to oppose this resumption, it should also pay the compensation corresponding to unfair dismissal in ordinary labor relations (33 or 45 days of salary per year worked with a limit of 42 monthly payments).
The only exception to that resumption of the ordinary employment relationship prior to the CEO when disciplinary dismissal of the CEO is declared appropriate.
FOULS AND PENALTIES:
The CEO may be sanctioned for failure to comply with the obligations arising from this special relationship.
Such offenses, whatever their nature, will prescribe twelve months after their commission, or as soon as the employer becomes aware of them.
The conflicts that arise between the senior CEO and the Companies will be the responsibility of the judges and magistrates of the social jurisdictional order, since it is a contractual relationship of an employment nature.
IRPF TAXATION OF INDEMNIFICATIONS IN SENIOR MANAGEMENT CONTRACTS:
Compensation for termination or dismissal are exempt from personal income tax. See the judgment of the Surpemo Court.
There is some delicate wording on CEO contracts. As a very experienced Barcelona labor lawyer we recommend specialized advice. Don't hesitate to contact me if you need some help.