Spain: The Declaration of Employee’s Permanent Incapacity and Termination of Contract

The purpose of this entry is to analyse the configuration of the termination of contract that occurred as a result of the declaration of permanent incapacity of the employee, given that since the entry into force on 1 May 2025 of Law 2/205, the scenario has changed and any error may precipitate the declaration of nullity of the termination of contract.

Before 1 May 2025, when an employee was declared permanently incapacitated by Social Security, the company can proceed with the termination of the contract automatically.

However, following the ruling of the Court of Justice of the European Union of 18 January 2024 (C-631/22), which declared this practice contrary to law, Spain has been forced to change its internal regulations, specifically Article 49.1(n) of the Statute of Employees.

With the new wording, when an employee is declared permanently incapacitated or unfit for work, the procedure to be followed is as follows:

• The employee has a period of 10 days after being declared permanently incapacitated to express their wish to continue the employment relationship.
• The company has a period of three months to:
  1. make reasonable adjustments to the job so that the employee can continue working, provided that this does not place an excessive burden on the company; or
  2. find an available vacancy that matches the employee’s professional profile (the employee may reject this new job offer); or
  3. terminate the employment relationship because the burden of making adjustments is excessive or because the employee has rejected the proposed change of position.

The company must notify the employee of its final decision in written form, providing detailed reasons and justification.

In order to determine whether the burden is excessive, the cost of the adaptation measures in relation to the size, economic resources, economic situation, and total turnover of the company shall be taken into account. In addition, the regulation itself indicates that any subsidies or public aid received by the company shall be taken into account.

Notwithstanding the above, companies with fewer than 25 employees may consider the burden excessive when the cost of the adaptation (without taking into account public aid) exceeds the greater of the following amounts:

• Payment for unfair dismissal (calculated at 33 days’ salary for each year worked, up to a maximum of 24 months’ salary) of the person requesting the adaptation.
• Six months salary of the person requesting the adaptation.

Finally, it should be noted that companies with employee representatives will be required to consult with them on the scope of the adjustment measures and identify jobs that are compatible with the employee’s new situation.

In conclusion, companies must bear this regulatory change in mind and rethink their strategy for contract termination in cases where an employee is declared permanently incapacitated.