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Severance pay under the latest labor reform

by Jun 24, 2023labor consulting0 comments

The “Labor Reform” approved by Law 3/2012, of July 6, 2012, on urgent measures for the reform of the labor market, modified the reduction in the cost of unfair dismissals.
Thus, in the event that the employer does not opt for reinstatement, it is obliged to pay compensation of 33 days’ salary per year of service, prorated by months for periods of less than one year up to a maximum of 24 monthly payments for contracts signed after the entry into force of the aforementioned Reform. Employees with seniority prior to February 12 will be entitled to an indemnity of 45 days of salary per year of service up to the date prior to the entry into force of the aforementioned Reform, the resulting amount may not exceed 720 days of salary (24 months), unless for the period prior to the Reform a higher number of days results, in which case this will be applied as the maximum indemnity amount, which may not exceed 42 monthly payments.
The 4th Chamber of the Supreme Court, on 29/09/14, interpreted that whenever 720 days were exceeded due to the computation of seniority prior to the Reform, the appellant should be allowed access to the limit of 42 monthly payments, which led to an increase in compensation and unease among employers who were affected by the increase in costs.
Subsequently, in the face of the controversy and in unification of doctrine, the Social Chamber of the Supreme Court on 23/02/16 resolved that if the compensation generated up to 12/02/12 exceeds 720 days, the time worked after that date will not be computed and the computation of the compensation will be stopped. Only the computation of compensation that does not reach the 720 days threshold for seniority prior to the Reform may increase the amount up to 24 months but at the rate of 33 days per year in the period after the 2012 Reform.
Some believe that this interpretation, which again lowers compensation costs due to job destruction, was the intention of the 2012 Labor Reform itself, which lowered the costs of unfair dismissal.

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