Spain employment update - from active retirement reform to pay transparency

On the horizon

The Government encourages active retirement with continued employment

The Council of Ministers has approved a new Royal Decree with the aim of encouraging active ageing and continued employment. This new regulation significantly updates the framework for flexible retirement, expanding the options for combining pension entitlement with professional activity and facilitating the return to work of individuals who have already retired.
Key changes include the possibility of working up to 80% of full-time hours, the removal of the waiting period previously required to access this form of retirement, and the introduction of the option to combine pension receipt with self-employment.

The regulation will enter into force on 28 August 2026.

Developments to watch

Agreed dismissals under scrutiny: increased SEPE controls and sanctions risk

The SEPE is strengthening its oversight of simulated or agreed dismissals intended to facilitate access to unemployment benefits, warning that such conduct may constitute a very serious infringement and fraud on the law. It also warns that these arrangements may result in significant consequences, including the loss of benefits for the employee and fines for the employer of up to EUR 225,000.

Considering this increased scrutiny, companies should ensure that any termination is based on genuine grounds and properly documented.

Unfair dismissal compensation back in focus: potential changes ahead

The Ministry of Labour has resumed negotiations to increase compensation for unfair dismissal.

Although employers’ associations have so far rejected any change, the reopening of the debate raises the possibility of a revision of the current framework which could have a direct impact on dismissal costs and conditions. Companies should therefore closely monitor further developments and assess the potential implications of any reform.

What the courts are saying

Post-contractual non-compete clauses at risk where compensation is paid as salary

The Supreme Court has warned that post-contractual non-compete agreements may be declared null and void if the financial compensation is paid as part of salary rather than as a distinct and independent consideration. In such cases, where the compensation is included in the payslip, it is treated as ordinary remuneration and loses its compensatory nature, undermining the existence of genuine consideration for the post-contractual restriction. As a result, the non-compete clause may be held invalid, exposing the company to legal and operational risk.

Companies should review the configuration and form of payment of these agreements to avoid their invalidity.

Reduction of working hours and bonuses: obligation to adapt objectives and variable remuneration

The Supreme Court has clarified that employers may not apply the same performance targets for variable remuneration to employees with reduced working hours for work-life balance reasons, as this constitutes a discriminatory practice. Accordingly, companies must proportionally adjust both the performance targets and the amount of the incentive to reflect actual working hours, ensuring fair and equitable treatment.

The Supreme Court requires companies to detail the items included in payslips

The Supreme Court clarifies that the employer’s obligation to document salary is not limited to listing remuneration items and deductions but must be sufficiently clear for the employee to verify that all amounts and calculations are correct. Accordingly, payslips must be sufficiently clear and detailed to enable employees to verify the accuracy of amounts and calculations, accrual periods, and any incidents, without having to reconstruct the calculation independently.

In view of this ruling, companies should review the level of detail and transparency of their payslips to ensure they are properly understood and to mitigate the risk of claims or penalties.

Absence of time recording increases the risk of liability in overtime disputes

The Supreme Court has established that the absence of a working time record does not mean that the overtime claimed by employees is deemed proven. However, the lack of adequate time records significantly hinders the employer’s ability to evidence working time and mount an effective defence, potentially allowing the employee’s account to prevail. As a result, the absence of proper time recording increases the risk of an adverse outcome in overtime disputes.

Employers should therefore ensure that robust time-recording systems are in place to mitigate this risk.

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