The unfair dismissal of executives is back at the centre of legal debate after the Supreme Court issued a ruling that drastically limits companies’ room to avoid paying the notice period agreed in senior management contracts. The High Court has made clear that a notice-waiver clause cannot apply to any termination of the contract: it only operates when the dismissal is fair and genuine, never when it disguises an unjustified dismissal.
For any company with executives bound by a senior management contract, understanding the limits of this doctrine is no longer optional. A mistake in drafting or applying these clauses can translate into long and costly legal claims.
What the ruling says about unfair dismissal of executives
The Supreme Court’s decision examines a common scenario in business practice: a company dismisses a senior executive and, to avoid paying the notice period agreed in their contract, invokes a clause that allows it to waive that notice in exchange for a reduced substitute payment. The problem arises when the dismissal does not respond to a genuine cause, but rather amounts, in practice, to an unfair dismissal of executives disguised as an ordinary contract termination.
The High Court is categorical: when an unfair dismissal of executives occurs, the company cannot rely on the exclusion clause to reduce the cost of the departure. That clause is only valid for fair, genuine dismissals, not for those lacking a justified cause.
Unfair dismissal of executives and the notice-waiver clause
Senior management contracts often include a clause allowing the company to replace the notice period with a smaller payment, avoiding the full cost of a termination with all guarantees. This provision is lawful when it responds to a genuine, justified dismissal. The problem, according to the Supreme Court, is that many companies also use it as an escape route in the event of an unfair dismissal of executives, that is, when the dismissal lacks an objective justification.
In that scenario, the company seeks to benefit from a clause designed for a different situation, shifting onto the executive a financial loss that the law does not protect.
Fraud of law: why unfair dismissal of executives does not allow companies to avoid notice
The Supreme Court is blunt about this practice: applying the exclusion clause in the event of an unfair dismissal of executives amounts to a fraud of law and a clear abuse of rights. The clause is agreed to cover legitimate terminations, not so that the company can artificially reduce the financial consequences of an unjustified dismissal.
The practical consequence is clear: the company must pay the full notice period, or the compensation owed for failing to do so, whenever the unfair dismissal of executives is proven in the judicial proceedings. Claiming otherwise, according to the doctrine set by the High Court, has no legal grounding.
What companies should review in their senior management contracts
This doctrine requires reviewing how notice clauses are drafted and applied in senior management contracts. Some practical recommendations:
- Precisely define the situations in which the exclusion clause applies, distinguishing a fair dismissal from one that is not.
- Document the genuine cause of the dismissal before invoking any clause that modifies the notice period.
- Review existing contracts to anticipate a future unfair dismissal of executives and avoid it turning into litigation.
- Seek specialised legal advice before communicating the termination to a senior executive.
Anticipating these scenarios prevents a poorly planned business decision from turning into a lengthy legal process, with the resulting financial and reputational cost.
How Tecem Abogados can help you
At Tecem Abogados we have spent thirty years supporting companies in Málaga and Benalmádena in drafting and defending their commercial and employment contracts. We know that experience is only useful when paired with constant updating: laws change, case law refines its criteria, and staying ahead of every development makes the difference between protecting the company or arriving too late to a dispute.
Our team reviews every senior management contract with an eye on the scenarios that can lead to an unfair dismissal of executives, so that the agreed clauses are solid and do not become an added problem on the day of the departure.
Frequently asked questions about unfair dismissal of executives
What is an unfair dismissal of executives?
An unfair dismissal of executives is the termination of a senior executive’s position that lacks a genuine, proven cause, even though the company formally presents it as an ordinary contract termination.
Can the company always apply the notice-waiver clause?
No. According to the Supreme Court, that clause only operates in fair, genuine dismissals; applying it to a dismissal without justified cause is a fraud of law.
What happens if the company invokes the clause improperly?
It must pay the full notice period or the corresponding compensation, since the clause does not cover that situation.
How can a company protect itself against this type of dispute?
By reviewing and updating its senior management contracts with specialised legal advice, and always documenting the genuine cause of any dismissal.