When a company is facing a senior executive dismissal in Spain, the first question is rarely «how much will it cost?» but rather «can we do it tomorrow?». The answer is almost always the same: yes, but first check three things. Whether that person is genuinely a senior executive under Spanish law, what they signed when they joined, and what their incentive plans say. In our experience, most problems in an executive exit do not come from the dismissal itself, but from not having looked at these points in time.
This article summarises, from the employer’s perspective, the practical keys of the Spanish senior management regime under Royal Decree 1382/1985 and the mistakes we see most often, particularly in Spanish subsidiaries of international groups.
First question: is this person really a senior executive?
The senior management regime applies to individuals who exercise powers inherent to the legal ownership of the company, over its general objectives, with autonomy and full responsibility, limited only by the company’s governing bodies. The Article 1.2 of Royal Decree 1382/1985 establishes this special employment relationship. The Spanish Supreme Court requires powers over fundamental or strategic decisions, real autonomy and action on the company’s general objectives, and expressly rejects a broad reading of the concept (Supreme Court, Social Chamber, 16 March 2015, appeal 819/2014). Job title, seniority and salary are not enough.
If the relationship is in fact an ordinary employment relationship, the company cannot rely on the employer withdrawal available for senior management: loss of trust is no longer sufficient grounds. A termination without proven cause may be declared unfair, with the consequences of the ordinary regime (33 days per year, with transitional rules for service before 2012, or reinstatement), or null if grounds for nullity exist.
Country managers of international groups
This is the scenario we see most. The job title (Managing Director, Country Manager) and the parent company’s classification as an executive do not determine whether the role qualifies as senior management in Spain.
The question is whether the individual exercises real powers over the company’s general objectives with genuine autonomy. Subordination to other group executives, such as an EMEA VP, and the need for approval of significant decisions may point to an ordinary employment relationship, although the reporting line alone does not settle the classification (Supreme Court, Social Chamber, 4 June 1999, appeal 1972/1998, and Supreme Court, 16 March 2015, cited above).
Executives hired through an EOR
Where the executive is hired through an Employer of Record, it must be established who is the real employer, who directs the work and over which company the powers are exercised.
The contractual label alone does not prove the requirements of senior management (Article 1.2 of Royal Decree 1382/1985), and in practice this point deserves particular scrutiny.
Executive directors
A managing director who sits on the board usually holds a commercial (corporate) relationship rather than a senior management employment contract.
Their remuneration, including any severance, must comply with the articles of association, the relevant shareholders’ resolutions and the contract approved under Article 249 of the Spanish Companies Act; listed companies must also follow the specific remuneration policy rules (Articles 217, 249 and 529 octodecies of the Spanish Companies Act).
Paying severance that was not properly provided for can create corporate law issues.
The main exit routes and what they cost
| Route | Grounds | Notice | Financial consequence (absent agreement) |
|---|---|---|---|
| Employer withdrawal (desistimiento) | No objective or disciplinary cause needs to be proven: loss of trust is enough | 3 months (up to 6 if agreed in writing in indefinite or 5+ year contracts) | Mandatory minimum of 7 days’ cash salary per year of service, capped at 6 months’ pay, unless improved |
| Objective dismissal | Proven legal cause under Article 52 of the Employees’ Statute, e.g. economic, technical, organisational or production-related | 15 days, subject to any agreed terms | If fair: 20 days per year, capped at 12 months’ pay, unless improved |
| Disciplinary dismissal | Serious and culpable misconduct | None if fair | Fair: nothing. Unfair: 20 days per year, capped at 12 months’ pay. Null for breach of fundamental rights: reinstatement and back pay |
| Settlement agreement | Mutual agreement | As agreed | As agreed |
Employer withdrawal (desistimiento)
It must be notified in writing with the applicable notice. If notice is not given, the company must pay the salary for the notice period.
Severance of 7 days per year, capped at six months’ pay, is a mandatory minimum: the contract can improve it, but not exclude it (Supreme Court, Social Chamber, Plenary, 22 April 2014, appeal 1197/2013; to the same effect, Supreme Court, Administrative Chamber, 1528/2019, 5 November, appeal 2727/2017).
Objective dismissal
This route is also available where a legal cause exists and can be proven, for example economic, technical, organisational or production-related reasons: Article 12 of Royal Decree 1382/1985 refers to the grounds and procedures of the Employees’ Statute (Articles 52(c) and 53).
If the objective dismissal is fair, severance is 20 days’ salary per year of service, capped at twelve months’ pay, with fifteen days’ notice, without prejudice to any contractual improvements or guarantees.
Simply invoking a reorganisation is not enough: the cause and its impact on the elimination of the role must be justified.
In practice, this route is rare in senior management and requires particular care, because it assumes that the role can be eliminated. If a company dismisses its general manager on organisational grounds, the court’s first question will be obvious: who is running the company now?
If the duties are taken over by a replacement, by a parent company executive with the same remit or by someone hired shortly afterwards, the role has not really been eliminated and the dismissal will be unfair.
It is not impossible: it may fit, for example, where the subsidiary is integrated into a regional structure that takes over effective management, where two management roles are merged or where the Spanish business is closed. But the cause and the actual redistribution of duties must be very well justified and documented.
Before considering this route, review the contract: if the agreed golden parachute and notice apply to any termination at the company’s initiative, choosing objective dismissal does not avoid them.
Nor should these 20 days be confused with the 20 days that apply by default to an unfair disciplinary dismissal of a senior executive: the figure is the same, but the legal basis and requirements of each route are not.
Disciplinary dismissal
The company must prove the misconduct, as in an ordinary dismissal. If the dismissal is declared unfair, reinstatement requires agreement between the parties; otherwise, the agreed severance or, failing that, 20 days’ cash salary per year of service, capped at twelve months’ pay, applies.
Where the termination is null because it breaches fundamental rights, reinstatement is mandatory and back pay is due (Supreme Court, Social Chamber, 18 June 2012, appeal 2604/2011).
Moreover, disciplinary dismissal does not necessarily remove the agreed notice compensation if the dismissal is declared unfair, even where the contract excluded notice on dismissal (Supreme Court 281/2026, 16 March, appeal 4506/2024).
Our advice: do not use disciplinary dismissal as a way of «testing» whether severance can be saved unless the grounds are properly documented.
Settlement agreement
In practice, this is the usual route. It allows the parties to set the exit date, the internal and external message, the waiver of claims and the treatment of bonus and equity in a single document.
The executive who was promoted from within
If the executive was promoted from an ordinary employment relationship, the contract should state whether that relationship is suspended or replaced by the special one.
Unless expressly replaced, it remains suspended. An agreed replacement only takes effect two years after the novation agreement (Article 9.2 of Royal Decree 1382/1985).
When the senior management contract ends and the ordinary relationship is still suspended, the executive may choose to resume it, unless dismissed on fair disciplinary grounds (Supreme Court, Social Chamber, 13 February 2008, appeal 4348/2006).
For the company, the practical consequence is that the exit may not be final: the executive can return to their former position.
If the ordinary relationship is resumed, time spent in senior management does not automatically count as service for calculating severance under that ordinary relationship; each period of service and any seniority recognition agreements should be reviewed separately.
Practical tip: keep an eye on the time limit. If the senior management contract is terminated while the ordinary employment relationship is suspended, a failure to reinstate the executive in their former position may amount to a dismissal from that ordinary relationship, which must be challenged within the 20 working-day limitation period.
The executive should therefore send the company a burofax (certified letter) as soon as possible, asking expressly what happens to their former employment relationship and, where appropriate, requesting reinstatement.
If the company refuses, expressly or by remaining silent, the conciliation claim should be filed without letting the period run out; if in doubt, the prudent approach is to count it from the termination of the senior management contract [CASE LAW vLex: start of the limitation period where the suspended ordinary relationship is not resumed].
For the company, the lesson is the reverse: if it receives such a burofax, it should reply expressly and promptly, as silence may be read as a refusal to reinstate.
Employer withdrawal is not a blank cheque
Although withdrawal requires no cause, the executive can still challenge it if they believe it hides a breach of fundamental rights: discrimination, retaliation for a complaint, exercise of the right to strike, pregnancy or childcare.
The Supreme Court has confirmed that the freedom to withdraw is limited by fundamental rights and that, in such cases, reinstatement with back pay is mandatory (Supreme Court, Social Chamber, 18 June 2012, appeal 2604/2011).
Before acting, review the context: recent complaints, sick leave, internal reports or conflicts with other executives.
Bonuses, equity and long-term incentives
Accrual and payment are not the same
This is the first distinction to draw. The period the bonus rewards (for example, January to December) is one thing; the date on which it is paid (for example, March of the following year) is another. The answer changes depending on when the exit occurs and who decides it.
Exit before the end of the accrual period
If the plan clearly requires the executive to remain employed until the end of the accrual period and they resign before then, the condition may be valid and exclude the bonus, including any pro-rata portion: having worked part of the year is not enough in itself (Supreme Court, Social Chamber, Plenary, 934/2020, 22 October, appeal 285/2018, ECLI:ES:TS:2020:3690).
Conversely, where the company terminates before the end of the period and the objectives had already been met, the bonus has been awarded despite the retention condition, as failing to meet it no longer depends on the employee (Supreme Court 254/2019, 27 March, appeal 1196/2017).
Exit after accrual but before payment
If the bonus has already accrued, a requirement to remain employed until a later payment date does not, as a rule, allow the company to withhold what has been earned, even if the executive resigns (Supreme Court 308/2022, 5 April, appeal 151/2021, ECLI:ES:TS:2022:1412).
For example, if the bonus rewards the year’s objectives, is paid in March and the executive resigns in February, there are grounds to claim it. Calling the retention condition an «accrual requirement» is not enough: the court looks at how the incentive is actually structured.
Scope for senior executives
These judgments concern ordinary employment relationships. They are a relevant reference but do not automatically resolve every clause in a senior executive contract.
The nature of the incentive, its real accrual period, the wording of the condition and the plan’s leaver rules must all be reviewed. In particular, a genuine retention incentive calls for a different analysis from an ordinary performance bonus and should not be confused with a mere deferral of salary already earned.
Share plans, options, phantom shares or LTIPs
These are usually governed by the parent company, often under foreign law, with good leaver and bad leaver provisions.
Check whether a withdrawal qualifies as good leaver, what happens to unvested awards and whether a Spanish court could treat those amounts as salary for severance purposes.
Our advice
Bonus schemes should be drafted with the exit in mind from day one, not at the time of termination.
Non-compete and confidentiality
Requirements
A post-termination non-compete may last a maximum of 2 years, requires a genuine business interest and adequate financial compensation (Article 8.3 of Royal Decree 1382/1985).
Unilateral waiver
An employer’s right to cancel the non-compete unilaterally in order to avoid paying compensation is null; the Supreme Court held so precisely in the case of a senior executive (Supreme Court, Social Chamber, 21 January 2004, appeal 1707/2002).
Any amendment or termination of the covenant must be negotiated with the executive: a unilateral decision notified before or at the time of exit is not enough.
Compensation paid during employment
It may be paid during employment, but it must be clearly identified, its payment documented and the amount adequate for the restriction.
The risk increases when the company tries to reclassify part of ordinary salary as non-compete compensation after the event without a clear provision.
Tax treatment of severance
Exemption
The mandatory minimum severance on withdrawal (7 days per year, capped at six months’ pay) is exempt from Spanish personal income tax (Article 7(e) of the Personal Income Tax Act; Supreme Court, Administrative Chamber, 1528/2019, 5 November, appeal 2727/2017).
This was reiterated in the case of an executive who was also a board member (Supreme Court 805/2025, 24 June, appeal 4736/2023), although its scope is tax-specific and tied to those facts.
Limits
The exemption is also subject to the general cap of EUR 180,000. Any excess is taxable, although it may benefit from the reduction for irregular income, subject to limits.
Settlement agreements
A genuine termination by mutual agreement is not automatically treated as employer withdrawal for tax purposes. When negotiating an exit, the real reason for termination and its documentation must be handled carefully.
Checklist before announcing the exit
- Confirm the real classification
- Quantify the scenarios
- Review bonus, equity, LTIP and their leaver provisions
- Decide on the non-compete
- Revoke powers of attorney
- Plan the return of devices
- Consider garden leave during the notice period
- Prepare internal and external communication
Our recommendation
No exit route is better than another in the abstract. The termination must match the company’s real reason: if what exists is a loss of trust, withdrawal is the natural route; if there is serious misconduct that can be proven, disciplinary dismissal; if the role genuinely disappears for economic, technical, organisational or production-related reasons, objective dismissal.
Forcing a route that does not fit, such as a disciplinary dismissal without evidence to save severance or an objective dismissal when the role is filled the next day, is what turns a legitimate decision into a dispute.
Each case therefore requires a thorough analysis before acting: the executive’s real classification, their contract, their incentives, the context of the exit and the cost of each scenario. With that information on the table, the company can choose the right route and, where it makes sense, negotiate the exit from a strong position.
At Suárez de Vivero we advise Spanish and international companies on senior management contracts, executive exits, executive remuneration and senior management disputes, with particular experience in Spanish subsidiaries of foreign groups.
Frequently Asked Questions
What severance is a senior executive entitled to in Spain?
It depends on the exit route. On withdrawal, absent agreement, 7 days’ salary per year of service capped at 6 months’ pay, plus 3 months’ notice. On fair objective dismissal, 20 days per year capped at 12 months’ pay, with 15 days’ notice. On unfair disciplinary dismissal, 20 days per year capped at 12 months’ pay. The contract may improve these amounts.
Can a company terminate a senior executive without cause?
Yes, through employer withdrawal (desistimiento), in writing and with notice. However, if it hides a breach of fundamental rights it may be declared null, with mandatory reinstatement and back pay.
What if the executive is not really a senior executive?
The ordinary regime applies: withdrawal is not available and a termination without proven cause may be declared unfair (33 days per year or reinstatement) or null.
Is senior executive severance taxable in Spain?
The mandatory minimum severance on withdrawal is exempt from personal income tax, subject to the general cap of EUR 180,000. Any excess is taxable.
How long can an executive non-compete last?
A maximum of 2 years, with a genuine business interest and adequate financial compensation. The company cannot waive it unilaterally to avoid paying compensation.
Is an executive who leaves before the payment date entitled to their bonus?
If the bonus had already accrued, a requirement to be employed on the payment date does not, as a rule, allow the company to withhold it, even if the executive resigns.
If the executive resigns before the end of the accrual period and the plan clearly requires them to stay until then, they may lose it, including any pro-rata portion. If the company terminates early and the objectives had already been met, there are grounds to claim it.
