1.) PROCEDURE PRIOR TO THE ENTRY INTO FORCE OF Royal Decree LAW 5/2002 OF 24 MARCH:
The Workers' Statute, in the version established by Royal Legislative Decree 1/1995 of 24 March, defines dismissal as a management decision by which an employment contract may be terminated on the grounds of a serious and culpable breach by the employee, which must be communicated in writing, setting out the facts giving rise to it and the date on which it takes effect.
Once dismissal had been notified, the employee could bring a claim against it within the twenty working days following the day on which it had taken effect. However, an attempt at conciliation before the Individual Conciliation Service was a mandatory prerequisite.
Such an attempt at conciliation could end with or without an agreement between the parties. Where the parties did reach agreement, the employee was considered to be in a situation of lawful unemployment and was therefore entitled to access unemployment benefit (provided all other eligibility conditions were met).
If, on the other hand, conciliation ended without agreement, the employee was required to file a claim before the employment jurisdiction so that a ruling could be issued on whether the dismissal was fair or unfair — and could not begin to receive unemployment benefit in the meantime.
The judicial ruling could declare the dismissal fair, unfair or null and void — by virtue of whether the alleged facts were considered proven, whether they could not be substantiated or did not justify dismissal, or whether the grounds for dismissal amounted to a form of discrimination prohibited by the Constitution or by law, or had involved a violation of fundamental rights or civil liberties, respectively.
1.- Consequences of a finding of unfair dismissal:
The employer had the right to choose between reinstating the employee or paying compensation — in either case, together with payment of interim wages. If the employee was compensated, they became entitled to unemployment benefit from the day following the date on which the ruling was published.
2.- If the dismissal was found to be fair:
The employment relationship was terminated, with the employee having no entitlement to compensation, interim salary, or reinstatement within the company. In order to be entitled to unemployment benefit in this scenario, the employee was required to register as a jobseeker within 15 days of notification of the ruling; entitlement to benefits arose in all cases from 3 months after the date of the ruling.
As regards interim wages, the employer was obliged to pay the first 60 days, unless, during conciliation proceedings before the Individual Conciliation Service, they had acknowledged the unfair dismissal and deposited the compensation.
3.- Finally, if the dismissal was declared null and void:
This entailed the immediate reinstatement of the employee, with payment of all wages left unpaid. The employee could only access unemployment benefit if the court declared the employment relationship terminated on the grounds that reinstatement had not actually taken place, or had taken place irregularly.
2.) THE REFORM: KEY CHANGES FOLLOWING THE PUBLICATION OF Royal Decree 5/2002 OF 24 MARCH:
The publication of Royal Decree-Law 5/2002 of 24 May introduced significant changes to the consequences of dismissal, particularly in relation to challenging a dismissal and accessing unemployment benefit. Specifically, it established that entitlement to unemployment benefit begins from the moment of cessation of employment due to dismissal, irrespective of whether the dismissal is challenged before the employment courts. This made it possible for employees to receive income during the period between the dismissal and either the conciliation hearing or the ruling.
This measure enshrines the principle of immediate entitlement to benefit, giving immediate enforceability to the employer's decision to terminate employment. In other words, an employee is deemed to be legally unemployed solely by virtue of having received written notification of the dismissal (i.e., the dismissal letter) — regardless of whether the employee subsequently brings a claim against the company for dismissal.
The main consequences of this new legislation are, on the one hand, that the company avoids paying interim wages — that is, the amount equivalent to the sum of wages that the employee would have earned from the date of dismissal until the conciliation hearing before the relevant conciliation service, or until notification of the ruling, during which period the employer was previously required to keep the employee registered with Social Security. On the other hand, the employee may begin claiming unemployment benefit from the day following the date of dismissal, without having to wait for the conciliation hearing or judicial notification of the ruling.
The process for receiving dismissal compensation has been substantially simplified where the parties reach an agreement, making it generally unnecessary to appear before the Conciliation Services — a simple private agreement between the parties is sufficient.
The 20 working-day deadline for challenging the dismissal remains in force. Therefore, if the parties cannot agree on the amounts to be paid, the employee must bring a claim against the company before the employment jurisdiction, following a prior attempt at conciliation before the conciliation service, as was the case before this legislative amendment.
Bringing an action against the dismissal or termination shall not prevent the right to unemployment benefit from arising.
The ruling issued in dismissal proceedings will declare the dismissal fair, unfair, or null and void, although the consequences differ from those under the previous legislation.
1.- If the dismissal is declared fair, the termination of the employment contract will be confirmed with effect from the date on which it took place, with no entitlement to any compensation. The key change is that the employee may now claim unemployment benefit from the date on which the dismissal was formally communicated to them in writing, whereas previously they had to be registered as unemployed for a minimum of three months before receiving the benefit.
2.- Where, as a result of legal proceedings, the dismissal is deemed unfair and the option of paying compensation is chosen, the employee will continue to receive unemployment benefit or, if they have not yet begun to receive it, will start receiving it with effect from the date of actual cessation of work.
If the dismissal is declared unfair and the option of reinstating the employee is chosen, the employee must return to their former position within the company, which is then responsible for paying any outstanding salary and the corresponding Social Security contributions.
Any amounts the employee received in unemployment benefit between the date of dismissal and their return to the company will be considered unduly paid through no fault of the employee. In such cases, the public employment authority will cease payment of unemployment benefit and reclaim the Social Security contributions made, whilst the employer must reimburse the employment authority the amounts received by the employee, deducting these from the outstanding salary up to the total amount of those wages.
3.- Finally, where a dismissal is declared null and void, the new Royal Decree-Law aligns its effects with those described above in relation to an unfair dismissal with reinstatement.
WHEN IT IS ADVISABLE TO USE CONCILIATION SERVICES:
Although recourse to conciliation services is not mandatory in dismissal proceedings where the parties have reached an agreement, there are certain circumstances in which it may be advisable to do so:
1.- The first arises when the parties wish to enforce the agreements reached. Where a Conciliation Record exists, the parties may apply directly to the courts for enforcement, as it carries the force of an enforceable instrument. By contrast, if the parties have only a private agreement, enforcement requires a separate court claim for the amount owed and formal recognition of the debt, which means additional time and the extra cost of court proceedings.
2.- A second consideration is that a Conciliation Record may carry the weight of a ruling, and any declarations made by both parties that are recorded in it are binding with greater legal force than those contained in a private document — for example, acknowledgements of length of service, job category, or special circumstances.
3.- Another matter of considerable importance is the tax treatment applicable to dismissal compensation payments, which can be problematic in cases where, for instance, there is uncertainty as to whether the employment relationship falls under the general employment regime or the senior executive regime, given that the amounts exempt from tax differ significantly between the two.
3.) 'THE COUNTER-REFORM': ONGOING NEGOTIATIONS BETWEEN THE GOVERNMENT AND SOCIAL PARTNERS:
The Government is currently negotiating with the Social Partners to soften the impact of Royal Decree-Law 5/2002, having proposed a series of measures that would come into force on 1 January 2003.
The main proposed changes relating to dismissal and unemployment are as follows:
1. Reinstatement of procedural wages:
In the event of a dismissal, the employer would have 48 hours to deposit with the court the full amount of the dismissal compensation — if the employer considers the dismissal to be unfair and wishes to pay the 45 days' salary per year of service. If the 48-hour deadline passes without such a deposit, procedural wages begin to accrue until the compensation is deposited or, as the case may be, until a judicial decision is issued. In the latter scenario, if the ruling finds the dismissal to be unfair, the employer will be required to pay the full amount of procedural wages, with no possibility of claiming any portion from the Wage Guarantee Fund (FOGASA).
This means that, in any event, if the dismissal is found to be unfair, the employer must pay all procedural wages and the corresponding Social Security contributions, with no cap — previously set at 60 days. Taking into account the trial and any appeal, this process can extend to a year and a half.
2. Compatibility of income and subsidy:
dismissal compensation will no longer be treated as income, meaning it may be received alongside benefits and early retirement schemes for workers aged 52 and over.
CONCLUSIONS:
Under the current dismissal procedure, any company that carries out a dismissal before the end of 2002 avoids having to pay procedural wages.
From January 2003, it is expected that companys will once again be required to pay procedural wages to dismissed employees, with no cap on the amount — representing a significant additional cost that, in some cases, may even exceed the compensation payment itself.
This substantial financial risk places the company at a clear disadvantage when seeking to exercise its right to mount a legal defence — a right enshrined in the Spanish Constitution. Companies are effectively forced to 'pay up and say nothing', weighing up whether to pay the 45-day compensation or risk having to cover all procedural wages and their corresponding contributions — a sum that small and medium-sized enterprises (SMEs) in particular may simply be unable to afford.
Finally, bear in mind that if a case goes to appeal before the High Court of Justice, proceedings can take up to two years. Any delays caused by the poor functioning of the justice system will ultimately be borne by the company. Of course, it may be possible to bring a claim against the State for damages arising from such delays — but that would be an entirely separate legal battle...
