Compensation for Unfair Dismissal: What is Due and How it is Calculated

When a company dismisses a worker without proving the alleged cause or failing to meet the formal requirements set by law, the dismissal is considered unfair. The compensation for unfair dismissal is the financial compensation that the law recognises for the worker in that case, and its amount depends on two factors: years of service and salary. It does not matter whether the dismissal is disciplinary, objective, or collective, because the classification of unfairness has the same economic consequences for both parties.

The final decision is not made by the company. Only a judge can determine whether a dismissal is fair or unfair, and their ruling dictates what amount must be paid and within what timeframe.

What Article 56 of the Workers' Statute Establishes

The basic regulation is in the Article 56 of the Workers' Statute. When the dismissal is declared unfair, the employer has five days from the notification of the ruling to choose between reinstating the worker or paying them compensation. If they do not communicate their decision within that period, the law assumes they opt for reinstatement, which obliges the company to rehire that person.

If the employer prefers to terminate the employment relationship, the compensation amounts to 33 days of salary for each year worked. Periods of less than a year are prorated by months, and the maximum is 24 monthly payments. The termination occurs on the effective cessation date at work, not on the date of the ruling, which is something to keep in mind when calculating pending salaries.

Contracts Signed Before February 12, 2012

For contracts formalised before the 2012 labour reform, the calculation is done in two parts. The time worked until February 12, 2012, is compensated at a rate of 45 days of salary per year, while the subsequent period is paid at 33 days per year. Each part is prorated by months when it does not reach a year.

In these cases, the general limit can be raised to 42 monthly payments. The amount cannot exceed 720 days of salary, unless the period before 2012 results in a higher number of days, in which case that result becomes the cap. This mixed formula remains in effect today for those with contracts prior to that date.

Can the Company Pay More Than What the Law States?

Yes, but with nuances. The amount in Article 56 serves as a legal minimum, so it cannot be reduced by an agreement between the company and the worker. However, it can be improved if stipulated by the collective agreement or the individual contract.

Such improvements often appear when the company wants to avoid litigation or reach a negotiated exit, and they are more common in companies with greater financial capacity. Therefore, before accepting any figure, it is worth checking if the applicable agreement specifies an amount higher than the legal one.

How It is Calculated in Practice

The calculation is based on three elements: seniority, daily salary, and the limit of monthly payments. Seniority is counted from the effective start of the employment relationship until the dismissal date, and includes previous service periods recognised by contract or judicial decision. If a worker has served for three years, seven months, and ten days, this is referenced as 44 months, or approximately 3.67 years.

For the daily salary, the calculation starts from the gross annual salary, including extra payments and salary supplements. Extra-salary concepts, such as allowances or transport bonuses, are excluded. According to the Supreme Court's criteria, the resulting figure is divided by 365 days, or by 366 in leap years. A gross annual salary of 24,000 euros thus equates to 65.75 euros daily.