Dismissal Costs in Spain: Types of Contract Termination, Severance Pay, and Legal Process

No labor decision is made well in Spain without first knowing its exit door. The cost of dismissing is the variable every employer, and especially the foreign one used to at-will systems, must budget for from the day they sign the contract: there’s no Anglo-style “at will” here, and terminating a contract has a price set by law that depends on the cause, the form, and the worker’s length of service. The good news is that this price is predictable to the cent if you know the rules; the bad news is that procedural mistakes turn cheap dismissals into expensive ones with astonishing ease.

This guide explains, with the rules and case law in force in 2026, the types of contract termination, how much each dismissal costs (fair, unfair, and void, with worked examples), what the dismissal letter must contain after the latest shifts in Supreme Court doctrine, how the prior conciliation and the deadlines work, and what additional items (final settlement, back wages, taxation) complete the real bill. It also includes the current state of the debate on reforming severance pay, which has generated more headlines than actual legal change.

Types of Employment Contract Termination in Spain

Dismissal is only one of the exit routes. Article 49 of the Workers’ Statute lists the full catalog, and it’s worth having the whole map because each route has its cost:

• Worker resignation: zero cost in severance; only the final settlement.
• Mutual agreement: the parties agree on the exit and, usually, a negotiated compensation. It’s the most-used route for orderly exits of sensitive profiles.
• End of a temporary contract: severance of 12 days’ salary per year worked in production-related contracts. The map of arrangements is in our guide on permanent contracts and temporary contracts.
• Failure to pass the probationary period: free termination, with no cause or severance, while the probation is in force and agreed in writing. Hence its strategic value.
• Disciplinary dismissal: for serious and culpable breach by the worker (Article 54 of the Workers’ Statute).
• Objective dismissal: for economic, technical, organizational, or production reasons, or for ineptitude or failure to adapt (Article 52 of the Workers’ Statute).
• Collective dismissal (ERE): the collective version of the objective one when the legal thresholds are exceeded.
• Other causes: retirement, incapacity, force majeure, death of the individual employer.

Every dismissal ends up receiving one of three classifications, and that classification is what sets the final cost: fair, unfair, or void. This table summarizes the system:

Fair Dismissal: Causes and Cost

A dismissal is fair when the alleged cause is real, sufficient, and properly executed in form. There are two families with very different costs:

• Fair disciplinary: cost 0 € in severance. It requires a serious and culpable breach that fits a defined category (repeated absences, disobedience, offenses, breach of contractual good faith, voluntary and continued drop in performance, habitual drunkenness affecting the work, harassment). The evidentiary bar is high, and the collective agreement’s disciplinary regime defines which offenses justify dismissal: penalizing outside that framework is a direct path to an unfair ruling.
• Fair objective: 20 days’ salary per year worked, with a cap of 12 months’ pay. It requires proving economic causes (current or foreseen losses, or a persistent drop in revenue over three consecutive quarters compared to the same quarters of the previous year), technical, organizational, or production causes, with a reasonable connection between the cause and the eliminated position. It’s also available for supervening ineptitude or failure to adapt to technical changes.

The objective dismissal also has three simultaneous formal requirements whose omission is costly: a letter with a detailed statement of the cause, making the severance available at the very moment the letter is delivered (transfer or check available that day, unless a lack of liquidity is alleged and evidenced in the letter itself), and 15 days’ notice or its equivalent payment. An inexcusable error in calculating the severance or the failure to make it available turns the dismissal into an unfair one even if the economic cause was impeccable.

Unfair Dismissal: Calculating the Severance

A dismissal is declared unfair when the cause isn’t proven or the form fails. It’s, in practice, the market price of the non-causal exit in Spain: many companies assume from the start that the dismissal will be unfair and acknowledge it to close quickly. The cost:

• 33 days’ salary per year of service, with periods of less than a year prorated by months, and a cap of 24 months’ pay.
• For contracts before February 12, 2012, the calculation is dual: 45 days per year for the time before that date and 33 days for the time after, with specific caps (720 days as a general rule, respecting higher amounts already accrued up to a maximum of 42 months’ pay).
• The reference salary is the total gross daily salary: base salary plus supplements, prorated extra payments, and consolidated variable pay. Undervaluing the regulating salary (forgetting the bonus or in-kind pay) is the most common calculation error.

Example with round numbers: a worker with a gross annual salary of 30,000 € (82.19 € per day) and 5 years of service. Unfair: 33 days x 5 years = 165 days → 13,562 €. The same case as a fair objective dismissal: 100 days → 8,219 €. And if it were the end of a temporary contract: 60 days → 4,932 €. The exact length of service is evidenced by the registration and deregistration dates with Social Security, which you can cross-check in the worker’s employment history report.

Once unfairness is declared, the company chooses between paying severance (termination at the figure above) or reinstating with payment of the back wages accrued from the dismissal to the notification of the ruling. If the dismissed person is a legal representative of the workers or a union delegate, the choice belongs to the worker. An important current point for budgeting with certainty: after the Supreme Court’s plenary rulings of December 2024 and 2025, Spanish courts cannot add extra compensation to the fixed figure of Article 56 of the Workers’ Statute by relying on ILO Convention 158 or the European Social Charter; the statutory figure is today the ceiling in cases of mere unfairness, without prejudice to the legislative reform debate we discuss in the frequently asked questions.

Void Dismissal: When It Occurs and Consequences

Voidness is the most severe classification and the only one that can’t be bought off with money. A dismissal is void when its motive is discrimination or a violation of fundamental rights, and also in the cases of objective voidness tied to work-life balance, where there’s no need to prove the motive: pregnant workers, those on birth and childcare leave or after returning from it (during the legal protection periods), those with reduced hours for childcare, victims of gender-based violence exercising their rights, among others. For these groups, the dismissal is only saved if the company proves an impeccable fairness entirely unrelated to the protected situation.

The consequences:

• Mandatory reinstatement in the same position and conditions: the company cannot opt to pay severance.
• Full back wages from the dismissal date to the effective reinstatement.
• Additional compensation for damages when there’s a violation of fundamental rights: here a complementary reparation is available (moral damage included), set by the court. It’s the great exception to the fixed system.

The practical lesson for the employer: before dismissing, always check whether the person is in any situation of reinforced protection. Dismissing a pregnant worker “because we didn’t know” is void all the same: the protection is objective. We review the full catalog of protected rights in our guide on labor law, rights, and protections in Spain.

The Dismissal Letter: What It Must Include

The letter is the document where dismissals are won and lost, because it frames the court debate: the company can only defend at trial the facts stated in the letter. Its requirements:

• Specific, dated facts: generic formulas won’t do (“poor performance”, “loss of trust”). What happened, when, how, and why it constitutes a breach or an objective cause. In the objective dismissal, the economic or organizational cause must be described with figures and enough detail for the worker to defend themselves.
• Effective date of the dismissal.
• In the objective dismissal: additionally, the simultaneous availability of the 20 days per year and 15 days’ notice or its payment, as we saw.
• Prior hearing in the disciplinary dismissal: the change many companies still haven’t incorporated. Since the Supreme Court’s doctrinal shift of November 2024, based on Article 7 of ILO Convention 158, the worker must have the opportunity to defend themselves against the charges before the letter is delivered, unless it isn’t reasonably feasible. Omitting this step in current disciplinary dismissals leads to an unfair ruling for a formal defect. Added to this are the prior proceedings the agreement may require for certain groups and the hearing of union delegates if the worker is affiliated and the company knows it.

Delivery is documented with the worker’s signature (or witnesses if they refuse to sign) or by certified fax (burofax). And a veteran’s tip: the letter is drafted with the ruling in mind, not with the day’s anger. How the letter, the contract, and the conditions fit together is explained in our guide on employment contracts in Spain and what you need to know.

Prior Conciliation and Deadlines to Challenge the Dismissal

The process after the dismissal has a strict calendar both parties must master:

• The worker has 20 business days of limitation from the effective date to challenge the dismissal. After the deadline, the dismissal becomes final.
• Before suing, the conciliation request before the regional mediation service (SMAC/CMAC) is mandatory, and it suspends the running of the deadline. A conciliation hearing is held where most Spanish dismissals are settled by agreement: the company acknowledges the unfairness and agrees on a figure, frequently somewhat below the maximum, in exchange for avoiding trial.
• Without an agreement (or without the company appearing), the way is clear for the claim before the Labor Court. Between scheduling, trial, and ruling, many months can pass depending on the court’s caseload, a factor both parties weigh when negotiating.

For the company, conciliation is a risk-management tool: settling at the SMAC with an agreement drafted with the right safeguards (waiver of actions, full and final settlement, confidentiality) buys certainty and avoids potential back wages, costs, and wear. For that, you have to arrive at the hearing with the file in order and the numbers calculated.

Additional Costs: Final Settlement and Liquidation

The severance isn’t the only check of the exit. Every worker who leaves, for whatever cause, is entitled to the final settlement, which liquidates what’s accrued and pending:

• Salary for the days worked in the current month.
• Accrued and untaken vacation, which is paid and subject to contributions.
• Proportional parts of the non-prorated extra payments.
• Accrued variable pay (bonus, commissions) according to its accrual conditions.

The real bill of the dismissal is completed by other items worth budgeting for: the notice omitted in the objective dismissal (15 days’ salary), the back wages in cases of voidness or reinstatement, the defense fees and, where applicable, the surcharges if the exit was executed badly. On the tax side, the mandatory legal severance is exempt from personal income tax up to 180,000 €, provided there’s a real separation from the company; whatever is agreed above the legal severance (typical in mutual agreements) is taxed as employment income, with a possible 30% reduction for irregularity. The exemption doesn’t reach disguised agreed exits: the classification matters, and a lot, in the net the worker receives. This is the kind of exit planning we integrate when designing the workforce and pay packages of young companies in our legal advice for startups in Spain service: the exit cost is designed at the entrance, with well-agreed probationary periods, a controlled regulating salary, and variable pay with clear accrual conditions. And if you’re sizing up the full cost of a position before hiring, start with our guide on how to hire employees in Spain as a foreign company.

The cost of dismissal in Spain isn’t a mystery: it’s a table of three classifications, two calculation formulas, and a handful of formal requirements where everything is decided. The employer who budgets the exit when signing the entrance, treats the letter as if a judge were going to read it (because one might), reviews the situations of reinforced protection before acting, and uses conciliation as a tool rather than a formality turns dismissal into a predictable cost instead of an open risk.

At ILLAY Legal we advise foreign companies and entrepreneurs on planning and executing contract terminations through fully online service: analysis of the optimal route, exact calculation of severance, drafting of letters and agreements, and representation in conciliation. Tell us your situation and we’ll tell you exactly how much each option costs and how to execute it without surprises.

Frequently Asked Questions: Dismissal Costs in Spain