The ruling affects millions of employees across sectors. Photo credit: ra2 studio/Shutterstock
Spain faces fresh pressure from European authorities to overhaul its rules on unfair dismissal. The European Committee of Social Rights (CEDS) has called on the government to introduce “despido restaurativo” (restorative dismissal), a system designed to provide dismissed workers with compensation that reflects the actual harm they have suffered, rather than a fixed severance formula. The move comes after unions argued that Spain’s current indemnity rules are insufficient and fail to comply with the European Social Charter, leaving workers inadequately protected.
The ruling affects millions of employees across sectors, highlighting the potential gap between Spanish labour law and European social-rights standards. It also raises questions about how Spain’s courts and legislators will respond to the pressure, and whether the reform could reshape employer–employee relations in the country.
What ‘Despido Restaurativo’ Means
Tailored Compensation for Workers
The current Spanish system compensates unfairly dismissed employees with a fixed indemnity: 33 days’ salary per year worked, capped at 24 months. Despido restaurativo proposes a personalised approach, including lost wages, emotional damage, and social disruption. In some cases, courts could even order readmission of the worker, rather than just monetary compensation.
The goal is twofold: provide adequate redress to employees and discourage arbitrary dismissals, ensuring fairer treatment across workplaces.
European Pressure and Union Complaints
CEDS Rulings and Union Action
In 2022, the union Unión General de Trabajadoras y Trabajadores (UGT) filed a collective complaint to CEDS, arguing Spain’s severance rules were inadequate. The European body ruled in March 2024 that Spain violated Article 24 of the European Social Charter, which guarantees workers adequate compensation or alternative remedies for unfair dismissal.
In June 2025, Comisiones Obreras (CCOO) reinforced the complaint. The CEDS reaffirmed that Spanish legislation is too rigid, insufficiently compensates actual damage, and fails to dissuade employers from unfair practices.
Parliamentary Proposal, Courts Still Limited
In September 2025, a non-binding parliamentary proposal urged reform to implement despido restaurativo, but it has not yet become law. Courts continue to enforce the current 33-days-per-year indemnity. Even the Supreme Court confirmed in July 2025 that judges cannot award compensation beyond this statutory cap.
The government has acknowledged the European call for reform, but concrete legal changes remain pending.
Implications for Labour Relations
Potential Shifts if Adopted
If Spain implements despido restaurativo, unfair dismissal would become costlier and less common. Employees would receive compensation reflecting actual losses, including lost earnings and emotional harm. Employers might adopt more stable employment practices, reduce temporary-contract reliance, and improve workplace conditions.
The reform could align Spanish law with European standards and reduce the gap highlighted by CEDS. Until legislation changes, workers remain in a grey zone: protected in theory under European rulings, but limited under Spanish courts.
Impact on Expats and Residents in Spain
What It Means for Foreign Workers
For expats and long-term residents, the reform could provide much-needed reassurance. Foreign employees in Spain often face uncertainties around contract types, temporary work, and unfamiliar labour laws. Despido restaurativo would ensure that both Spanish nationals and non-nationals could receive fair, personalised compensation in cases of unjust termination.
Expats, particularly those on fixed-term contracts or working in international companies, would benefit from clearer legal remedies that consider their individual circumstances. The potential for readmission or tailored compensation reduces the risk of financial instability following dismissal. It could also make Spain a more attractive destination for skilled foreign workers, showing alignment with European labour standards and reinforcing confidence in the country’s employment protections.
What Workers and Employers Should Know
- CEDS has ruled Spain’s unfair-dismissal system breaches the European Social Charter.
- Current indemnity (33 days × years worked, capped at 24 months) is insufficient to cover real damage.
- Despido restaurativo aims to provide personalised compensation and, in some cases, readmission.
- Non-binding parliamentary proposals exist but no legislation has been enacted.
- Courts still apply current fixed indemnities, leaving workers unprotected in practice.
Looking Ahead
A Turning Point for Workers in Spain
The next months will be decisive. Adoption of despido restaurativo could position Spain as a European leader in worker protection, ensuring fairer treatment for millions, including expats and residents alike. Conversely, failure to act would prolong the inadequacies criticised by European authorities and unions, leaving workers exposed under the current rigid indemnity system.
