The Superior Court of Justice of Madrid recently ruled that when an employer is calculating an employee’s length of service for the purposes of making a compensation payment to him it should take into account his entire service with various group companies, not just his service with the last group employer.

In Spain a dismissal will only be fair if it is for one of the prescribed reasons set out in the Workers’ Charter, for example misconduct, capability, etc. If a dismissal is found to be unfair, a Labor Court can order the employer to re-instate an employee or alternatively to pay him a compensation payment based on his length of service with the employer, up to a maximum of 42 months’ salary.

In practice, rather than arguing about whether they have a potentially fair reason for it, many Spanish employers simply dismiss an employee, acknowledge it is unfair and then pay compensation. From a legal perspective this approach does not imply any kind of wrongdoing on the part of the employer. It is simply seen as a straightforward and quick way of effecting a dismissal. Any payment can be made tax-free, up to the maximum 42 months’ salary.

In light of the Superior Court’s recent decision, however, any employers considering adopting this approach should ensure that if an employee has worked continuously for a number of group companies they calculate any compensation payment for dismissal based on his first date of service with the group. A lack of due diligence here could mean that any compensation payment is higher than first anticipated.