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Compensation for objective dismissal: all requirements

Objective dismissal is the unilateral employer decision to extinguish the labor relationship with the worker because of objective reasons which means, reasons that are not directly attributable to the worker, a fact that distinguishes this type of dismissal from disciplinary dismissal in which the reason is directly attributed to the guilty and serious behavior of the worker. The reasons that can motivate an objective dismissal are regulated in article 52 of Worker’s Statute (ET) and specifically are:

  • Inability of the worker known or overcome after its effective placement in the company.
  • Lack of adaptation to the necessary technical modifications.
  • Technical, organizational, economic or production causes.
  • Lack of work assistance, despite being justified, but intermittent.
  • Insufficiency of budget allocations.

Requirements of objective dismissal

Some requirements have to be accomplished in order to do a correct objective dismissal. These requirements are regulated in the article 53 of ET:
Formal requirements: relative to the way in which the dismissal must be made.

  • Communication to the worker by a letter of dismissal indicating the causes or motives.
  • Notify the worker 15 days in advance.
  • Pay the corresponding compensation for dismissal for objective reasons: 20 days per year of service, with a maximum of 12 monthly payments.
    Material requirements: relative to the reason or justification from the documents containing the causes of the dismissal. Some example, if dismissal occurs due to economic causes, a document must be submitted in accordance with the Law that proves this situation, or if it is a dismissal due to lack of adaptation, the employer have to demonstrate this situation.

Fiscal arrangement for objective dismissal

The compensation received for objective dismissal is exempt for the amount established as compulsory according to the worker’s regulations mentioned in the previous sections, always with the limit of 180,000 Euros established by the Personal Income Tax law, except in certain cases, where the exemption could reach the limits of wrongful dismissal: 33 days per year worked with a maximum of 24 monthly payments.
The compensation established by agreement, collective bargaining agreement, or contract between the parties cannot be considered as obligatory.

Difference between fair and wrongful termination

Fair dismissal is defined as the one that was carried out correctly, that is to say, that the causes that motivated the dismissal are correctly justified by the employer, which means that the formal and materials requirements have been met and therefore dismissal is fair.
On the contrary, wrongful dismissal is the one that has not been carried out correctly, that is to say, without fulfilling some of the formal or material requirements established, or when the non-compliance alleged by the employer in his communication tot the worker is no credited. This is a dismissal not adjusted to the Law that grants the worker the right to claim.

Compensation for wrongful termination

The amount to be compensated depends on the worker’s seniority in the company and his salary. When calculating the compensation that corresponds, two parameters must be taken into account:

  • For the total number of days spent in contracts prior to February 12, 2012, compensation will be paid as follows: 45 days of salary per year worked, with a maximum of 42 monthly payments.
  • For the days of antiquity after February 12, 2012, when the labour reform was carried out, compensation for dismissal has to be 33 days of salary per year worked, with a maximum of 24 monthly payments.

Tax treatment for wrongful dismissal

In cases where the dismissal is qualified as inadmissible, the worker shall be exempt the part of compensation that he is entitled to perceive according to the previous section, always with the limit of 180,000 Euros. The excess of any of these limitations taxes on the Personal Income Tax as earned income.

Tax treatment for lawful dismissal

In the event of lawful dismissal, when the employee has failed in developing his job, the employer is not obligated to pay any compensation. Any amount that the worker receives for this reason cannot have the character of indemnity, being fully subject to the tax, although there is the possibility of being exempt if it is recognized in the act of conciliation before a Judge, and always up to the limit of the indemnity for wrongful termination.
If you are in one of this situations and do not know how to act or need information about it, please contact us and we will try to advise and help you to make the most convenient decision based on your situation.

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