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The termination of the senior management contract

RD 1382/1985 extends most of the rules applicable to other employment contracts to the suspension and termination of the senior management contract. But we cannot forget that this contract is based, by definition, on a special trust between the company and the top manager, as argued by expert labor lawyers in the field.

As a result of this special trust, the senior manager receives more extensive and critical powers and powers than would be granted to the rest of the workforce. For this reason, there are certain particularities to take into account in the event of the termination of this type of contract. In particular we are going to deal with: 

1.- The forms of termination of the contract. In addition to those included in the Workers' Statute, the law provides for the possibility of unilaterally terminating this contract, both by the company and by the senior manager.

2.- The notice. It plays a crucial role in the voluntary termination of this type of contract, due to the importance of the functions assumed by the senior manager.

3.- Compensation. It complements the notice, assuming compensation for the company or the worker in the event of a break in their relationship.

4.- The consequences of the termination of the contract beyond its effective date.

Forms of termination of the senior management contract

RD 1382/1985 specifically regulates the special employment relationship of senior management personnel. This specific regulation is necessary due to the particular functions and powers of management personnel. Therefore, when analyzing the legal regime applicable to these professionals, it is essential to attend to the aforementioned RD and the employment contract.

In particular, the Royal Decree allows the contract to be terminated for the causes and procedures established in the Workers' Statute. Such causes and procedures include:

1.- Conventional causes. It is a matter of the mutual agreement of the parties, whether eventual or is consigned in the contract. However, the causes incorporated in the contract may not be invoked if there is abuse of right by the company. These causes include the expiration of the agreed time if the contract is not indefinite.

2.- Personal causes. They make references to situations that affect the parties, such as death, severe disability, absolute disability or retirement of the worker or the termination of legal personality. They would also include the case of female workers who are forced to definitively abandon their employment due to gender violence.

3.- Objective causes or force majeure. They give rise to objective or collective dismissal, depending on the percentage of the affected workforce. Note that the senior management contract also admits disciplinary dismissal.

In addition to these general causes, senior management contracts can be terminated voluntarily. That is, the resignation of the worker or the withdrawal of the company is admitted. But in these cases, the particularities that we outline below will apply.

Advance notice in the termination of contracts of senior executives and directives

Before the voluntary termination of the contract occurs, whoever wishes to break the employment relationship must grant prior notice. In general, the notice in this class of contracts is three months. However, this period may be up to six months as long as it is detailed in the contract, when it is indefinite or has a duration of more than five years.

If the company or the worker does not respect the notice, they must compensate their counterpart. Such compensation will be calculated based on one day's salary per day of unfulfilled notice.

Compensation after the termination of the employment relationship 

If the company breaks its commitment voluntarily, the senior manager will have the right to collect the compensation that has been agreed in the contract. In the absence of an agreement in this regard, the compensation will be equal to seven days' salary per year of service, with a maximum of six monthly payments.

When the termination of the contract is due to a dismissal, the clauses of the Workers' Statute will govern, although in the case of unfair dismissals, the default compensation will be 20 days of salary per year of service, with a maximum of twelve monthly payments.

Finally, there are some cases in which the senior manager can voluntarily dissolve the employment relationship while preserving his right to compensation. In particular, when substantial changes in working conditions affect it negatively, due to non-compliance by the company (including non-payment or continued delay in the payment of salary) or due to a company succession or relevant change in ownership.

This last assumption requires some attention. If the company changes ownership, renewing its governing bodies or the content and approach of its main activity, its senior managers will have a period of three months to resign. If they do, they will retain their right to receive compensation.

Consequences of the termination of the senior management contract beyond its effective date

The legal consequences of the termination of the senior management contract may extend beyond its effective date. In this sense, non-competition is particularly relevant. 

Due to its critical functions within the organization, the company may have a commercial or industrial interest in having its laid-off senior managers not compete with it for a reasonable period of time. In this case, they must establish a non-concurrence agreement in the contract itself. 

The maximum duration of this agreement is two years. In addition, the company must financially compensate the manager. Note that the industrial or commercial interest must be real and effective, so this clause cannot be used to unjustifiably immobilize the unemployed person.

In summary, the termination of the senior management contract may occur for the usual causes and by voluntary resolution of the parties. However, certain particularities apply that make it advisable to intervene by expert labor lawyers in the field.

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