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Employment law

i Non-compete obligations

Under Spanish employment law, non-compete obligations differ depending on whether they apply while the employment relationship is in force or after its termination. These obligations are as follows.

Non-compete during the term of the employment contract

Ordinary employees can work for other companies unless to do so qualifies as unfair competition, or the parties have reached an exclusivity arrangement. Therefore, if exclusivity has not been agreed to in the employment contract, an ordinary employee may work for another company provided that in doing so he or she would not be unfairly competing with the work performed for his or her employer.

In relation to executives, unless the company has stated otherwise in writing, they have a total exclusivity obligation and cannot work for other companies, regardless of whether or not this would amount to unfair competition.

An executive does not have to be compensated financially for an exclusivity obligation. However, if the employee with an exclusivity obligation is an ordinary employee, he or she must be financially compensated for it to be valid. The amount paid to the employee as compensation must be 'adequate'. There is no express provision under Spanish law that clarifies when compensation is 'adequate'; however, 10 per cent of the fixed remuneration received by the employee is normally considered sufficient.

Post-contractual non-compete obligation

The employer must have an effective industrial or commercial interest in the employee not competing with it after the termination of his/her employment contract: this could be defined as the interest that an employer has in preventing a well-trained ex-employee (often at its expense) from taking advantage of the know-how acquired while working for it to perform competing activities. This industrial or commercial interest is also defined as an interest in protecting information about 'sensitive' corporate matters: methods of production, commercialisation and organisation systems and, in general, information that is useful for the correct performance of the business (relationships with clients, suppliers, etc.).

Therefore, in order to determine whether or not a company has an effective industrial or commercial interest in an employee not competing with it, the specific functions and duties of the employee must be analysed: if during his or her employment, the employee has performed duties that are closely related to, for example, the business' strategy, clients, suppliers or know-how, the company would have an effective industrial or commercial interest in the employee not competing with it. If the employee has not performed any activities or duties related to these aspects of the company (for example, if the employee has only performed general administrative tasks), imposing a non-compete obligation on that employee would probably be considered unenforceable because the company lacks an effective interest in it.

The employee must receive a financial compensation from the employer that is adequate: however, the Statute of Workers does not define 'adequate compensation'. Whether the compensation agreed is 'adequate' for the purposes of the Statute of Workers is again analysed on a case-by-case basis, in terms of factors such as: (1) the employee's chances of finding a new non-competing job; (2) the geographical scope of the prohibition; and (3) the length of the obligation.

There is no general rule regarding the method of payment of compensation for non-compete obligations: the most common methods of payments are the following: (1) a monthly payment during the term of the non-compete obligation beginning at the end of the employment relationship; (2) a lump sum at the end of the employment relationship that compensates the entire non-compete period; or (3) a monthly payment during the employment relationship.

A post-contractual non-compete obligation cannot last longer than two years for technical employees or executives and six months for other employees. To determine whether or not an employee can be considered a technical employee, the following issues would have to be taken into account:

  1. the company's professional categories;
  2. the specific duties performed by the employee in question; and
  3. the employee's specific knowledge of the company's know-how, strategy, clientele and techniques.

Although damages are not specifically regulated for this purpose, penalty clauses linked to the breach of a non-compete obligation are acceptable. It is advisable that the penalty to be paid for a breach does not exceed the financial compensation agreed for the non-compete obligation. Otherwise, evidence of the harm suffered is required to make a penalty clause enforceable.

Unlike other jurisdictions, unilateral waivers of non-compete obligations are not acceptable when their terms have been agreed by both parties. Therefore, clauses that allow the employer or the employee to unilaterally waive the fulfilment of the obligation once it has been entered into are null and void.

It should not be forgotten that this non-compete obligation is linked to the termination of the employment relationship, and consequently it is not triggered (1) during garden leave, where the commitments of non-compete during the term of the employment contract still apply; or (2) after a transaction affecting the ownership of the company, where a different non-compete obligation might be agreed for the sellers.

Finally, although non-solicitation covenants are not specifically regulated in Spanish employment law, the above-mentioned rules for non-compete obligations are applicable.

Terminations

An employment contract may be terminated on the following grounds:

  1. mutual agreement of the parties;
  2. valid reasons previously identified in the employment contract;
  3. upon the expiration date or completion date for the contracted job or service;
  4. the employee's resignation.
  5. death or permanent disability of the employee;
  6. the employee's retirement;
  7. death, retirement or permanent disability of the employer;
  8. force majeure;
  9. collective redundancy based on economic, technical, organisational or production reasons;
  10. by the employee because of a breach of contract by the employer;
  11. disciplinary dismissal;
  12. dismissal for objective reasons; and
  13. by a female employee who is forced to leave her job because she has been a victim of domestic violence.

Collective redundancies must be based on economic, technical, organisation or production reasons. An individual dismissal for objective reasons may be based on: (1) the employee's incapacity to perform the job; (2) the employee's failure to adapt to technical changes to his or her job; (3) the employee's continuous and unjustified absences; or (4) economic, technical, production or organisational grounds. Employees whose employment contracts are terminated as part of a collective redundancy or as a result of an individual dismissal for objective reasons have the right to a statutory severance payment equivalent to at least 20 days of salary per year of service, up to a maximum limit of 12 months of salary.

Employees may be dismissed as a result of a serious and wilful breach of their duties (disciplinary dismissal) (for instance, a lack of discipline or insubordination towards the employer or other employees, or a continuous and voluntary decrease in efficiency).

An employee dismissed for objective or disciplinary reasons may file a claim before the labour courts, which must then determine whether the dismissal was fair, unfair or null. If the dismissal is declared unfair, the employer may choose between (1) reinstating the employee; or (2) paying the statutory compensation for unfair dismissal, which is 33 days of salary per year of service up to a maximum of 20 months of salary. The employer must also pay the employee the salaries accrued between the date of the dismissal and the notification of the judgment if it the employee in question is an employee representative. If the dismissal is declared null and void, the employer must reinstate the employee and pay the back-dated salary from the date of dismissal until the date of reinstatement.

A company transaction itself is not a valid ground for dismissal and that the purpose of the transfer of undertakings regulations is to guarantee the stability of employment relationships in the framework of the transfer of a business. However, it is possible and common that, after a transfer, there are grounds to carry out a collective redundancy (e.g., duplicate posts after a merger).

In addition, the grounds for terminating ordinary employment relationships also apply to executive employment contracts, and the severance payment corresponding to unfair dismissals is 20 days of gross salary in cash per year of service, up to a maximum of 12 months of salary.

In the case of executive relationships, the contract may also be terminated by both parties by giving a minimum of three months' prior written notice. This minimum period may be extended up to six months, if so agreed by the parties, in the case of executive employment contracts of indefinite duration or with a fixed duration of more than five years. The company may also withdraw from the contract by paying the executive the contractual severance payment or, failing that, the equivalent of seven days of gross salary in cash per year of service, up to a maximum of six months of salary. The same severance payment is payable to an executive who terminates his or her employment contract in the event of a transfer of undertaking or significant changes in the company's ownership that bring about changes in its governing bodies or main activity.