The CEO management contract is regulated by the Royal Decree 1382/1985. This law covers those who hold the position of CEO, i.e. an employee who carries out the tasks of a CEO with full autonomy and responsibility. We could define him or her as an employee who exercises powers inherent to the legal ownership of the Company in accordance with its objectives. It is the general director holding a superior position with broad powers.
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 the minimum requirements established by this Royal Decree.
Written by Josep Conesa
Labour and bankruptcy lawyer
Often we see regular, ordinary contracts being used in situations such as these, but that could be a big mistake, because it is absolutely vital for the CEO contract to fulfil the mandatory requirements of this Spanish Royal Decree. As such, from a legal perspective, there are some important aspects to take note of. Don't hesitate to ask us for help to draft such a contract if you need some.
CHARACTERISTICS OF CEO CONTRACTs IN SPAIN
Formalities of the managerial contract
The CEO contract must be formalised. In principle, this should be 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 as a result of internal promotion, in which case it will always be necessary for the contract to be formalised in writing.
If the CEO if foreign, they will need a NIE (Foreign Identification Number) from the Spanish Government before working for the Spanish company or branch. Contact us if you need advice regarding the paperwork for foreigners.
Content of the managerial or CEO contract
The content of this type of contract is determined, fundamentally, by that which the parties have freely agreed upon, based on the principle of reciprocal trust. However, certain elements must be included in the contract, as an absolute minimum:
- 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 exercise their freewill here and freely agree to that which they consider appropriate, however they must respect the following limits established in the Royal Decree that regulates the relationship:
- Trial period: This may not exceed nine months. Once the trial period has finished and neither of the parties have withdrawn, the contract will come into full effect, and the trial period will count towards the seniority or antiguity of the CEO as the Company's employee.
- Duration of the contract: The CEO contract will have the duration agreed by the parties.
- Working schedule: The parties are free to determine the working day, hours, public holidays and permits, as well as annual leave; provided that they do not exceed the norms within the corresponding professional field.
- Pact of non-competition and permanence in the Company: The CEO management worker may not enter into other employment contracts with other Companies, unless authorised 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 specialisation or training and he leaves the job before the agreed time.
- Post-contractual competition: The parties can set a maximum limit of two years after the employment contract has been terminatedduring 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:
- That the employer has an effective industrial or commercial interest in it.
- That the CEO is provided with adequate financial compensation.
- Confidentiality: The position held by the manager allows him to have access to information about 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's social security contributions
The CEO must make contributions for all of the concepts of the General Regime of Social Security System, except FOGASA and unemployment. Therefore, they will be likened to employed workers, for the purposes of inclusion in the corresponding Social Security Regime, apart from regarding unemployment protection and the Salary Guarantee Fund. Despite the casuistry that may exist here, this is the correct framework for social security.
EXTINCTION OF THE SPECIAL EMPLOYMENT RELATIONSHIP OF SENIOR MANAGERS
Because this relationship is based on trust between the parties, even if the CEO dismissal were to be declared inadmissible, there would be no obligation for the employer to reinstate him or her again in the company and there would be no obligation to pay judicial court time salaries.
TERMINATION OF THE EMPLOYMENT RELATIONSHIP on the ceo's initiative
The CEO can terminate the employment relationship voluntarily without the right to any compensation. He must give notice of at least three months, although the notice period can set as up to six months if this is established in writing in 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 circumstances:
a) Substantial modification in the working conditions that are clearly detrimental to their professional training, undermining their dignity, or are decided in serious violation of the contractual good faith of 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 on the part of the employer.
d) In the event of a succession of the company or in the event of an important change in its ownership, 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 the CEO will receive will be that which is 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 the CEO relationship is a contractual one 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, given that the mere fact of losing confidence in the person is sufficient reason to terminate this employment relationship.
This withdrawal must be notified in writing with a minimum notice period of three months, and the agreed compensation must be paid or, failing that, the legal compensation must be paid (the equivalent of 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 as a result of 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 and, therefore, he will not have the right to unemployment benefit or protection from FOGASA.
TERMINATION OF THE EMPLOYMENT RELATIONSHIP DUE TO SERIOUS, culpable NON-COMPLIANCE OF THE CEO
The employer may terminate the employment relationship due to serious and culpable non-compliance on the part of the CEO, but this dismissal may be declared either admissible or inadmissible.
When it is admissible, the CEO will not be entitled to any compensation. However, the judge who declares this sanction appropriate will need such disloyalty or breach of trust to be proven by facts which 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 compensation of one year of remuneration to which he would be entitled could have been stipulated. In this case, the reinstatement would only come about 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, up to a maximum of twelve monthly payments.
summary OF THE PREVIOUS COMMON EMPLOYMENT RELATIONSHIP should the CEO EXECUTIVES have been PROMOTED WITHIN THE COMPANY
In the event that the CEO contract came about through internal promotion, 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 since the contractual update 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 they abandoned it. This implies that they must continue to receive the same salary as before or adapt it to the professional category that corresponds to them 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 labour relations (33 or 45 days of salary per year worked, with a limit of 42 monthly payments).
The only exception to the resumption of the previous ordinary employment relationship of the CEO is when disciplinary dismissal of the CEO is declared apropriate.
Fines 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 expire twelve months after either their commission or the moment when the employer became aware of them.
CONFLICT RESOLUTION
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 Supreme Court.
CONCLUSIONS
CEO contracts require some very specific and cautious wording. As a highly experienced Barcelona labour law firm, we recommend counting on specialised advice. Don't hesitate to contact me, Josep, if you need some help.
