Termination and severance rules in Spain: what international employers should know

Employee terminations in Spain are governed by strict labour laws designed to protect workers from unjust treatment. For international businesses unfamiliar with these rules, dismissing employees can quickly become a legal minefield, leading to expensive disputes, unexpected severance liabilities, and reputational damage. Even when a termination seems justified, missteps in documentation or process can result in a ruling of unfair dismissal.

In this guide, we’ll break down the different types of legal dismissal under Spanish law, explain how notice periods and severance work, and highlight the key risks international employers should be aware of. We’ll also explore how a Spanish Employer of Record (EOR) can help you learn terminations compliantly, especially if your company doesn’t have a legal entity in Spain.

Legal grounds for employee termination in Spain

In Spain, there are only a few legally valid grounds for employee termination, and each one must be carefully documented and justified. These include:

• Justified dismissal (disciplinary): This applies when an employee commits a serious breach of contract, such as repeated absences, insubordination, misconduct, or loss of trust and confidence. Employers must be able to provide solid, written evidence of the behaviour and demonstrate that the termination is proportionate.
• Objective dismissal: This occurs for reasons unrelated to misconduct, but due to business needs, such as economic difficulties, technological changes, or organizational restructuring. Objective dismissals require notice and are subject to severance pay.
• Mutual agreement or voluntary resignation: In this case, either both parties agree to terminate the contract, or the employee resigns. It’s essential that resignation is voluntary and in writing.
• End of a fixed-term contract: If a fixed-term or temporary contract reaches its end date, the employment may conclude without additional severance, though misuse of such contracts is often challenged in court.

Spanish courts will scrutinise the employer’s reasoning and documentation. If a dismissal is deemed “improcedente” (unfair or unjustified), the company could be required to pay significantly more in compensation or even reinstate the employee.

Notice periods and documentation

Spanish labour law requires specific procedures to be followed depending on the type of dismissal. For objective dismissals, employers must provide:

• At least 15 calendar days’ notice before termination
• A written letter of dismissal clearly stating the reasons and the effective termination date
• A severance payment of 20 days’ salary per year worked, provided at the time of the notice

For disciplinary dismissals, no notice is legally required, but:

• A written notice letter must still be issued
• The employer must detail the exact infraction(s) and refer to any previous warnings or disciplinary measures
• The employee has the right to challenge the dismissal in the labour court if they consider it unjustified

Regardless of the type of dismissal, proper documentation is critical. Without it, courts tend to rule in favour of employees, considering the dismissal unjustified and awarding higher severance.

Severance pay and compensation

Spanish law provides clear rules on severance pay. The amount owed depends on the reason for dismissal:

• Objective dismissal: 20 days of salary per year worked, up to a maximum of 12 months
• Unfair dismissal (as declared by a judge): 33 days of salary per year worked (or 45 days for contracts before 2012 reforms), with a cap of 24 months
• Disciplinary dismissal with cause: No severance is owed, but the employer must prove the justification

Severance must be paid at the time of dismissal unless otherwise agreed or delayed due to court proceedings. If the employer fails to follow proper procedures or provides insufficient reasoning, the dismissal is likely to be deemed unfair, which can dramatically increase severance costs.

Employers should also note that severance payments are partially exempt from income tax under certain conditions, particularly if resulting from an objective or court-declared unfair dismissal.

Legal risks and disputes

Unfair dismissal claims are frequent in Spain and are often successful when employers fail to follow the correct procedures. One of the most significant issues arises when dismissals are not communicated through a formal written notice. Employers also frequently struggle to provide sufficient evidence to justify misconduct or prove objective business reasons behind the termination. Other common pitfalls include misclassifying employment contracts and failing to issue severance payments promptly.

Spanish labour courts allow employees to contest dismissals legally. Suppose a court determines the termination was unjustified. In that case, the employer may be ordered to reinstate the employee with full back pay, a resolution often seen in smaller businesses, or to pay an increased severance amount, depending on the court’s judgment.

To avoid these costly outcomes, it’s critical to maintain detailed documentation throughout the employment relationship. This includes performance evaluations, disciplinary warnings, and consistent written communication. These records not only support the employer’s case during a dismissal but also serve as vital protection in the event of a legal dispute.

How an Employer of Record can help manage terminations in Spain

For international companies without a legal presence in Spain, managing dismissals lawfully can be especially challenging. A Spanish Employer of Record (EOR) offers a reliable, compliant solution by becoming the legal employer on your behalf.

An EOR handles all employment matters, from onboarding and payroll to terminations, and ensures every step aligns with Spanish labour law. Here’s how an EOR supports you during the termination process:

• Proper classification: Ensures workers are correctly classified and employment contracts follow Spanish regulations
• Documentation support: Drafts termination letters, calculates severance, and provides compliant notice procedures
• Expert advice: Consults with in-country legal professionals to assess the dismissal’s validity and mitigate legal risk
• Severance and final payments: Processes final payroll, tax filings, and severance payments to meet legal timelines
• Risk mitigation: As the official employer, the EOR absorbs liability, protecting the foreign parent company from direct legal exposure

This model is handy if you are:

• Scaling down a local team
• Terminating one or two roles without HR presence in Spain
• Restructuring after a failed market test
• Avoiding permanent establishment and looking to wrap up operations compliantly

Let’s say a US-based company hired two salespeople in Barcelona without a legal entity via a Spanish EOR. After a shift in strategy, they decided to end the local team. Rather than manage severance laws on their own, they instructed the EOR to manage both dismissals. The EOR issued valid termination letters with 15 days’ notice, calculated severance accurately, and ensured both employees were paid in full, without exposing the US company to legal risk or reputational harm.

Know the rules

Terminating employees in Spain is more than just an HR process; it’s a legal procedure governed by strict rules. Whether for economic reasons or disciplinary cases, international employers must understand the legal grounds for dismissal, provide proper notice and documentation, and accurately calculate severance to remain compliant.

Failure to follow Spanish procedures often leads to claims of unfair dismissal, resulting in high compensation or reinstatement. That’s why working with local experts or, better yet, a Spanish Employer of Record, can provide peace of mind.

If your business is scaling down, restructuring, or parting ways with team members in Spain, our Employer of Record service ensures that every step of the termination process is handled in a compliant and professional manner. We help you meet all legal requirements while supporting your employees with respect and fairness. Contact us to ensure your offboarding is smooth, secure, and fully aligned with Spanish labour law.