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Dec 7, 2023

Navigating senior management contracts: decoding termination and redundancy (part 2)

In Part 1 of our exploration into Senior Management Contracts, we delved into the distinctive nature of being a 'senior manager,' a term not explicitly defined in the ET- Estatuto de los Trabajadores.

Beyond the nuances that set senior managers apart from traditional managerial roles, such as those discussed in Part 1, the benefits of this elevated position are few and far between for most individuals. In this second instalment, we shift our focus to the critical aspects of termination and redundancy, shedding light on the complexities that follow the unique advantages highlighted in our previous discussion.

From the company’s perspective, whilst some sign an senior management contract due to ignorance, others may be tempted to enter a senior management position, not only because of the favourable circumstances during redundancy, but also when the requirements of art.1.2 RD AD are not met. Nevertheless, these issues must be taken into consideration.

In the event of termination, there is a notice period of 3-6 months (arts.10and 11 RD). Usually however, the termination is made with immediate effect, because it is unsustainable to maintain a senior managerial position with mutually broken trust. In such cases, the employer is required to pay the equivalent of the 3 (or up to 6)months as compensation for non-compliance with the notice period, which can constitute a substantial amount.

The jurisdiction in these cases (special senior management relationship vs. standard relationship) operates on the same premise as in cases of employment vs. commercial relationship ("false self-employed") or temporary contract vs. permanent contract: it does not consider what the parties have called the contract, but rather the actual provision of services. Therefore, looking at the actual provision of services (powers of attorney, exercise of the same, chain of command, autonomy and full responsibility, etc.) and examining it in the light of the RD AD, will decide whether it constitutes a senior management relationship or an ordinary employment relationship.

The most infrequent situation is when both parties have signed a standard employment contract, yet, when the company ends it,  they argue there to be a senior management relationship. This situation becomes even more uncommon given the absence of an agreed notice period, and that the employee has not been able to increase the 7 days/year in the case of termination, or the 20 days/year in the event of an unfair dismissal. Hence, why these situations are rare.

More commonly however, is when the company initiates a termination where there is a senior management contract signed, the alleged senior manager sues on the grounds that their employment is that of an ordinary one, and not of special seniority (only formally). If the judge deems it an ordinary employment relationship, then the termination automatically falls under unfair dismissal (as it has not complied to any of the dismissal formalities).

To note, something that is perhaps even less common, is the possibility to offset the amount paid for a senior management redundancy (notice and compensation) with what should be paid in an ordinary employment relationship, for unfair dismissal.

As you navigate the intricate landscape of senior management contracts, it's crucial to stay informed and make well-informed decisions. Whether you're an executive considering a senior management position or an employer facing termination complexities, understanding the legal nuances is paramount. If you have further questions or seek personalised guidance, consult with legal professionals to ensure your journey through senior management contracts is as smooth as possible.

Further information

For further information on the topics raised in this article, contact José María Fernández Mota

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