What is dissuasive compensation in dismissals, and why is it generating legal uncertainty for companies?
In recent months, our courts have begun to hand down rulings in which the possibility of ordering the company to pay the dismissed worker an additional compensation to that legally established for unfair dismissal is opened, the so-called “compensation deterrent”.
These sentences, and until the Supreme Court rules on the matter, can create a framework of legal uncertainty for companies, which until now knew the cost of dismissing their workers and from now on, the amount of that compensation may be conditioned by other factors or personal situations of the worker, difficult to assess at the time of dismissal.
However, apart from future court rulings that may be issued on this issue, the Ministry of Labor has announced that it is evaluating the possibility of regulating this matter by law, modifying the Workers’ Statute.
The UGT and CCOO unions have also raised this matter to the Social Rights Committee of the Council of Europe, considering that the current compensation for unfair dismissal in Spain is not sufficiently reparative and proportional to the damage it produces to the person, and if these are estimated claims, could lead to an increase in these requests by the dismissed workers and also to their granting by the Courts.
Conditions for the collection of additional compensation
Currently, the amount of compensation for unfair dismissal in Spain, which is 33 days of salary per year of service, is one of the highest in Europe according to OECD data.
The judgments handed down by the Superior Court of Justice of Catalonia, dated September 16, 2022, and April 23, 2021, condition the collection of this complementary or dissuasive compensation, on the fact that two coincident requirements are met:
- The notorious and evident insufficiency of the compensation because it is manifestly meager.
- That the existence of an illegality, legal fraud or abuse of rights in the business decision to terminate the contract be clear and evident.
The Superior Court of Justice of Catalonia has recognized the additional compensation for unfair dismissal
The latest ruling of the TSJC on this issue, dated January 30, 2023, recognizes compensation in addition to the legal compensation established for unfair dismissal.
This is a company that proceeds to the objective dismissal of a worker in March 2020, for economic and productive reasons derived from the coronavirus crisis, offering her the payment of the maximum compensation of 33 days of salary per year of service.
A few days later, the company files an employment regulation file for the suspension or reduction of five employment contracts due to force majeure, alleging the same reasons that were used in the worker’s dismissal letter.
The worker had been with the company since November 2019, and for this reason, she could not collect the unemployment benefit. However, having been included in the employment regulation file due to force majeure, he could have kept his job and take advantage of the extraordinary measures on unemployment protection in force at that time.
The first instance ruling declared the dismissal of the worker admissible, but the TSJC revoked this ruling, declaring the dismissal inadmissible, understanding that the reasons for the dismissal were not of a structural nature, but temporary, since the reasons for dismissal alleged in the letter were the same ones alleged in the ERTE due to force majeure presented 5 days later, in which the suspension was requested or reduction of working hours of 5 employment contracts.
Regarding the additional compensation granted, it indicates the following:
“In the present case, the legal compensation assessed, which did not reach 1,000 euros, was clearly insignificant, did not compensate for the damage caused by the loss of the job, nor did it have dissuasive effects for the company.
The nullifying decision is certainly not without cause, since it is based on economic and productive causes, yes, of a merely circumstantial nature, as was said, but it reveals, in any case, an excessive exercise of the right to dismiss, because it meant excluding the plaintiff of the ERTE started a few days later, which, had it not been the case, would have made it possible for her, in addition to keeping her job, to have taken advantage of the extraordinary measures on unemployment protection contemplated in art. 25 of RD8/2020.”
The Court understands that the fact that the plaintiff was not able to take advantage of those extraordinary measures on unemployment protection in force at that time means that the plaintiff must collect an amount for lost earnings, which amounts to 3493.3 euros.
Dissuasive compensation for unfair dismissal can increase the number of court cases
In short, and unless this issue is clarified through regulations, we will see more legal uncertainty and greater conflict in the Social Courts and Tribunals, since if the dismissed people see the possibility of obtaining additional compensation beyond the established legal one, many fewer conciliation agreements will be entered into and, consequently, more cases will reach the courts.