Severance payments for managers: Calculation and conditions

A manager is not an ordinary worker in a company. This is the reason why, when it comes to dismissing them, it is necessary to take into account special regulations other than the Workers' Statute.

Specifically, we refer to Royal Decree 1382 of 1985, of 1 August, which regulates the special employment relationship of senior management personnel. Article 11 contains everything related to the dismissal of senior management and the corresponding indemnities.

The two types of senior management dismissal

Focusing on Articles 10, 11 and 12 of Royal Decree 1382/1985, we are faced with the fact that two different types of dismissal are contemplated. They are as follows.

Dismissal for disciplinary reasons

It is only applicable when the dismissal is attributed to a serious and culpable breach by the manager. In this case, Royal Decree 1382/1985 is based on Article 55 of the Workers' Statute, to which it refers directly.

It does so in order to establish its conditions. Specifically, it determines that the employer is obliged to notify the dismissal to the worker in writing. This document must state the reasons for the dismissal and the date from which the decision will come into effect.

In the event that the dismissal is declared unfair by a judge, the compensation for senior management dismissal is set at 20 days' salary per year worked. The total limit is 12 monthly payments.

Dismissal by decision of the employer

Also known as dismissal by withdrawal. In this case, Royal Decree 1382/1985 establishes the conditions, requirements and formalities for dismissal:

• Dismissal must be communicated in writing, giving at least three months' notice. In the event that the contract has a duration of more than five years or is indefinite, this period may be agreed for up to six months.
• The severance pay for senior management dismissal in this case is equivalent to seven days' salary per year worked with a maximum of six monthly payments. This is provided that the manager and the company did not agree on a different amount at the time of signing the contract.

In the event of non-compliance with the notice period, the manager is entitled to receive compensation equivalent to the salaries for the period not completed. For example, if he/she is dismissed with only one month's notice, at least two additional monthly payments will be added to the compensation.

Does a senior manager have the right to challenge his or her dismissal?

In the same way as any other employee. If the senior manager believes that his or her rights have been violated, he or she may go to court to seek a decision from a judge.

In this regard, the judge may declare the dismissal to be justified, in which case the conditions set by the employer will be respected. However, the judge may also declare the dismissal unjustified, which will lead to an increase in the compensation received by the manager, or even his or her return to the job. It can even declare it null and void if it considers that the employer has violated a fundamental right.

The reinstatement of a senior manager after dismissal

This is a rather complex issue. To resolve it we have to take a look at Article 9.3 of Royal Decree 1382 of 1985.

Let us start from the premise that a senior management contract is a special employment relationship that generally derives from an ordinary employment relationship. In other words, it is not uncommon for a company employee to move up the internal organisation chart and, at a certain moment, the company offers him or her this responsibility.

In this case, when the senior management dismissal occurs, the employee has the opportunity to resume his or her ordinary employment relationship, i.e. the original one, without losing the right to receive the corresponding severance pay.

This option is only available in cases where the dismissal is due to the employer's withdrawal. The legislation makes an exception when the dismissal has disciplinary causes and is considered fair by a judge.

In short, this is all you need to know about senior management dismissal. As we have seen, this is a special employment relationship with specific conditions, but in many aspects it is similar to those reflected in the Workers' Statute. A law with which, no doubt, most people are more familiar.

In our law firm we have employment lawyers specialised in senior management personnel, you can consult us on any subject related to your activity and the relationship with your company.