Objective Dismissal in Spain: Causes and 20-Day Compensation

🇪🇸 Read the original in Spanish

Dismissal is one of the most complex situations and one that generates the most doubts in the Spanish labour market, both for workers who see their contracts terminated and for employers who must make this difficult decision. In the legal system of Spain, objective dismissal (despido objetivo) is presented as a legal way to terminate the employment relationship for reasons not attributable to serious misconduct by the worker, but rather to circumstances of the company itself or the employee's lack of adaptability. Understanding how objective dismissal works, its justified causes, the formal procedure required by law, and the corresponding compensation of 20 days per year worked is essential to ensure that the process is carried out with full legal guarantees and to prevent it from being declared unfair or null and void by the courts.

What is objective dismissal in Spanish legislation?

Objective dismissal is a method of terminating an employment contract regulated mainly in the Estatuto de los Trabajadores (Workers' Statute, approved by Royal Legislative Decree 2/2015, of October 23), specifically in its Articles 52 and 53. Unlike disciplinary dismissal (despido disciplinario), which is based on guilty and serious behaviour by the worker, objective dismissal responds to the viability needs of the company or to objective circumstances of the worker themselves, without any bad faith on their part.

For this reason, the law compensates the worker with mandatory financial compensation and grants them the right to receive unemployment benefits (el paro), provided they meet the contribution requirements demanded by the Ley General de la Seguridad Social (General Social Security Law or LGSS).

The 4 legal causes of objective dismissal

For an objective dismissal to be fully valid, the company must rigorously prove one of the legally established causes in Article 52 of the Workers' Statute. A mere generic allegation is not enough; the company bears the burden of proof and must document the existence of these reasons.

1. Economic, technical, organisational, or production causes (ETOP)

This is the most common cause in labour practice. It is defined by reference to Article 51.1 of the Workers' Statute:

• Economic causes: The existence of a negative economic situation is verified. The law presumes this exists when there are current or anticipated losses, or a persistent decrease in the level of ordinary income or sales. The decrease is considered persistent if, for 3 consecutive quarters, the level of ordinary income or sales of each quarter is lower than that recorded in the same quarter of the previous year.
• Technical causes: These occur when changes are made, among others, to the means or instruments of production (for example, the introduction of new machinery or software that automates tasks).
• Organisational causes: These manifest when changes occur, among others, in the systems and work methods of the staff or in the way production is organised (for example, the merger of two departments).
• Production causes: These occur when changes take place in the demand for the products or services that the company intends to place on the market (for example, the loss of a main client that represented 50% of turnover).

2. Ineptitude of the worker

Regulated in Article 52.a) of the Workers' Statute, this refers to the lack of professional skills necessary to perform the job. For it to be valid, it must be an ineptitude that was known or occurred after the worker was effectively placed in the company. If the ineptitude already existed before the trial period (periodo de prueba) was completed, the company cannot subsequently claim it for an objective dismissal.

3. Lack of adaptation to technical modifications in the workplace

According to Article 52.b), the company can terminate the contract if the worker does not adapt to reasonable technical modifications introduced to their job. However, the company must first offer the worker a course aimed at facilitating adaptation to the modification made. During the training period (a minimum of 15 days), the contract is suspended and the worker receives their usual salary. At least 2 months must elapse from the time the modification was introduced or from the end of the training before the dismissal can proceed.

4. Lack of budget allocation (for non-profit entities)

Applicable to indefinite-term contracts signed directly by non-profit entities for the execution of public plans and programmes, when such programmes depend on a stable budget allocation that is ultimately not renewed or is terminated (Article 52.e).

The 20-day compensation: calculation and limits

The legal compensation for objective dismissal is set at 20 days of salary per year of service, with periods of time shorter than a year prorated by months, up to a maximum of 12 monthly payments.

To calculate this compensation exactly, three steps must be followed:

Step 1: Calculate the daily salary

The salary used as a basis is the regulatory salary (salario regulador), which includes the base salary and all salary supplements (seniority, night shift bonus, commissions, etc.), as well as the proportional part of the extra payments (pagas extraordinarias).

• If the salary is monthly, the gross annual salary is usually divided by 365 days (or the monthly salary with prorated extra payments divided by 30).

Step 2: Calculate seniority in the company

This is counted from the first day of the employment relationship (including periods of previous temporary contracts or temp agency (ETT) periods if there has been continuity). Fractions of a month are always computed as a full month. For example, if an employee works 1 year, 2 months, and 3 days, for compensation purposes, 1 year and 3 months (15 months in total) will be computed.

Step 3: Apply the formula and the maximum limit

The mathematical formula is: $$\text{Compensation} = \text{Daily salary} \times 20 \times \left(\frac{\text{Months of seniority}}{12}\right)$$

The resulting total amount cannot exceed the limit of 12 monthly payments (i.e., the salary of a full year or 360 days of salary).

Practical examples of compensation calculation

Below are two common scenarios to illustrate how these rules are applied in Spanish labour reality.

Example 1: Alejandro, dismissal for economic causes (without reaching the limit)

Alejandro works as an administrative assistant in a logistics company that has suffered losses for three consecutive quarters. The company notifies him of an objective dismissal for economic causes.

• Seniority: 3 years and 4 months (equivalent to 40 months).
• Gross annual salary: €24,000 (including prorated extra payments).
• Daily salary: $€24,000 / 365 \text{ days} = \mathbf{€65.75}$ per day.
• Calculation of compensation: Alejandro is entitled to 20 days per year.
• Years worked: $40 \text{ months} / 12 = 3.33 \text{ years}$.
• Accumulated compensation days: $3.33 \text{ years} \times 20 \text{ days} = \mathbf{66.66 \text{ days}}$.
• Compensation amount: $66.66 \text{ days} \times €65.75 = \mathbf{€4,382.89}$.
• Checking the limit: The limit of 12 monthly payments for Alejandro is €24,000. Since €4,382.89 is below the limit, he receives the full calculated amount.

Example 2: Sophia, long-term worker (reaching the maximum limit)

Sophia is a systems engineer at a technology consultancy that is undergoing an organisational restructuring and is eliminating her position.

• Seniority: 22 years and 1 month (computes as 266 months for proration purposes).
• Gross annual salary: €45,000.
• Daily salary: $€45,000 / 365 \text{ days} = \mathbf{€123.28}$ per day.
• Calculation of theoretical compensation:
• Years worked: $266 / 12 = 22.16 \text{ years}$.
• Compensation days: $22.16 \text{ years} \times 20 \text{ days} = \mathbf{443.2 \text{ days}}$.
• Theoretical amount: $443.2 \text{ days} \times €123.28 = \mathbf{€54,637.70}$.
• Checking the limit: The maximum limit of 12 monthly payments for Sophia is her gross annual salary: €45,000.
• Final result: Since the theoretical calculation (€54,637.70) exceeds the legal cap, the compensation Sophia will receive is mandatorily reduced to the maximum limit of €45,000.

Step-by-step practical procedures

Objective dismissal is a formal act that requires strict compliance with the requirements established in Article 53.1 of the Workers' Statute. Any formal defect can be grounds for a judge to declare the dismissal unfair (improcedente).

1. Drafting and delivery of the dismissal letter: The company must communicate the dismissal in writing to the worker via a dismissal letter (carta de despido). This document must detail with absolute clarity and precision the causes justifying the decision (facts, economic data, balance sheets, etc.) and the effective date of the dismissal.
2. Making the compensation available: Simultaneously with the delivery of the dismissal letter, the company must make the 20-day per year compensation available to the worker. This is usually done by bank transfer or a cheque delivered at the same time. Failure to make this simultaneous payment invalidates the dismissal (unless the company claims a lack of liquidity due to economic causes, which must be expressly stated in the letter).
3. Granting the notice period: The law requires a notice period (preaviso) of 15 days from the delivery of the letter to the effective termination of the contract. During this period, the worker is entitled to a paid leave of 6 hours per week to look for a new job. The company may choose to pay for these 15 days in the final settlement (finiquito) instead of requiring them to be worked.
4. Notification to the legal representation of workers (RLT): The company must immediately deliver a copy of the dismissal letter to the staff delegates (delegados de personal) or the works council (comité de empresa).
5. Signing the receipt of balance and settlement: On the day of effective termination, the finiquito is delivered with the accrued and unpaid amounts (untaken holidays, proportional part of extra payments, and the salary days of the current month).
6. Registration with the SEPE: The company issues the company certificate (certificado de empresa) electronically so that the worker can apply for unemployment benefits at the State Public Employment Service (SEPE) within 15 business days from the effective date of the dismissal.

Mistakes you should avoid

Both companies and workers often make critical mistakes during this process that can compromise their rights or lead to serious financial liabilities.

• Not making the compensation available at the time the letter is delivered: Verbally arguing that "it will be paid later" without legally justifying a real lack of liquidity in the dismissal letter itself automatically makes the dismissal unfair if the worker claims before the courts.
• Signing documentation as "approved" if you do not agree: The worker should sign the dismissal letter and the settlement writing in their own handwriting the mention "No conforme" (Not agreed) next to the date and their signature. This allows them to keep their right to claim judicially fully intact.
• Confusing business days with calendar days to sue: The deadline to challenge a dismissal in Spain is extremely short and strict. It is 20 business days (días hábiles), excluding Saturdays, Sundays, and national, regional, or local public holidays. Failure to submit the conciliation petition (papeleta de conciliación) on time results in the expiration of the right to action.
• Drafting a generic or vague dismissal letter: Companies that use vague formulas such as "due to organisational needs" without providing numerical data, dates, or specific facts expose themselves to having the dismissal declared unfair in court due to the worker's defenselessness.

Frequently Asked Questions (FAQ)

What is the difference between objective dismissal and unfair dismissal?

Objective dismissal is a legal termination method with a compensation of 20 days per year worked based on justified causes (economic, technical, etc.). Unfair dismissal (despido improcedente) is a classification made by a judge (or recognised by the company in the conciliation act) when it is proven that the causes alleged by the company were not real, were not justified, or the formal requirements were not met. The compensation for unfair dismissal is 33 days per year worked (with a limit of 24 monthly payments) for contracts signed from February 12, 2012, and 45 days per year for periods prior to that date.

Am I entitled to unemployment benefits if I undergo an objective dismissal?

Yes, absolutely. Objective dismissal legally places the worker in a legal situation of unemployment. To be able to collect the contributory unemployment benefit (el paro), the worker must have contributed for a minimum of 360 days within the 6 years prior to the dismissal and carry out the application process with the SEPE.

What happens if the company claims it has no money to pay the compensation?

Article 53.1.b) of the Workers' Statute allows the company not to make the compensation available to the worker simultaneously with the dismissal if it alleges a lack of liquidity due to the economic cause. However, this circumstance must be mandatorily stated in the dismissal letter. The worker may subsequently claim this amount. If it is judicially proven that the company did have liquidity, the dismissal will be declared unfair.

Can I challenge an objective dismissal if I believe the causes are false?

Yes. The worker has a period of 20 business days to present a conciliation petition (papeleta de conciliación) before the corresponding mediation service of their Autonomous Community (for example, the SMAC). If no agreement is reached in said act, a lawsuit must be filed before the Social Court (Juzgado de lo Social). It will be the employer who must prove the truth of the alleged causes before the judge.

Is tax paid to the Tax Agency on compensation for an objective dismissal?

No, compensation for objective dismissal is exempt from personal income tax (IRPF) up to the limit established as mandatory in the Workers' Statute (the 20 days per year with the limit of 12 monthly payments), and provided they do not exceed the amount of €180,000. Any amounts exceeding these limits will be subject to taxation.

In summary

• Objective dismissal is based on non-disciplinary causes (economic, technical, organisational, production, ineptitude, or lack of adaptation) regulated in the Workers' Statute.
• The mandatory legal compensation is 20 days of salary per year of service, prorating full months for shorter periods, with a maximum limit of 12 monthly payments.
• The procedure mandatorily requires the delivery of a written dismissal letter, making the compensation available simultaneously, and granting a 15-day notice period.
• To challenge the dismissal, the worker has a strict expiration period of 20 business days from the day following the effective date of the dismissal.
• Signing the documentation with the note "No conforme" is a crucial preventive step for the worker if they wish to initiate a judicial or administrative claim.

General legal information, not personalised legal advice. For your specific situation, ask your question for free at AbogadoAI — answers grounded in Spanish law (BOE), in English.

This is general information, not legal advice. Verify on the BOE or consult a lawyer for your specific case.