Contracts for executive Employees

Content overview

• What is the legal nature of a contract for executive employees?
• How is the figure of the executive defined by law?
• What criteria must an executive employee meet according to jurisprudence?
• What are the special features of a contract for executive employees?

What is the legal nature of a contract for executive employees?

The "Estatuto de los Trabajadores" (ET), the most important regulation in the field of labour law in Spain, basically distinguishes between two types of employment relationship:

1. general and
2. specific (Art. 2 ET). The latter is an activity in which all the defining characteristics of the employment relationship are present, and at the same time it has a number of specific features that prevent the application of the general rules.

One of these special employment relationships is that of the so-called executive employees (Art. 2.1.a) ET). This figure has a limited scope as it generally only includes the top executive of a company, who reports directly either to the employer or to the company's director. Thanks to this responsible position within the company, the executive employee can influence the central decisions of the company. This special employment relationship is regulated by Royal Decree 1382/1985 of 1 August (RD, prior to this regulation, this employment relationship was excluded from the Labour Code).

How is the figure of the executive defined by law?

According to Art. 1.2 of the RD, " executive employees are those employees who exercise the powers connected with the legal ownership of the enterprise and related to the general objectives of the enterprise, their independence and full responsibility being limited only by the criteria and direct instructions of the person or higher governmental and administrative bodies of the enterprise that hold this ownership".

The fundamental aspect of this special working relationship is "the mutual trust of the parties, who will adapt the exercise of their rights and duties to the requirements of good faith" (Art. 2 RD). This special trust and "almost" horizontal relationship of the executive employees with the employer or the company’s direction allows a greater flexibility in contracting, which brings this figure closer to the autonomy of will between the parties, typical of the civil contract, and moves it away from the greater rigidities typical of labour contracts.

What criteria must an executive employee meet according to jurisprudence?

An executive employee in the sense of the norm should not be considered as a person with authority to decide in the company. Jurisprudence has established a number of criteria which must be met:

• Exercise of powers that are attributable to the organisational core (legal ownership) of the company
• These powers must relate to the general objectives of the undertaking, not just to partial aspects or sectors
• Ability to perform legal acts and transactions on behalf of the company and to dispose of assets
• autonomy (independence) and full responsibility, the only limitation being direct instructions from the person who actually owns the company

What are the special features of a contract for executive employees?

A contract for executive employees has several special features, including:

• It must be formalised in writing and in duplicate, one for each signatory party. In the absence of a written contract, the relationship will be deemed to be that of a executive employees, provided he/she performs the above functions.
   
• Probationary period: The probationary period may be fixed at the free will of the parties, but shall in no case exceed 9 months.
   
• Duration of the contract: The duration of the contract is agreed by the parties. In the absence of a written agreement, it is assumed to be concluded for an indefinite period.
   
• Working hours: The working hours may be freely determined within the framework of the contract in respect of working days, timetable, public holidays, vacations and holidays, but agreements which go clearly beyond what is considered normal in the professional environment in which it is carried out are not permitted.
   
• Non-competition and durability agreement: Unless expressly authorised, the executive employee may not conclude contracts with other companies. In the case of a post-contractual non-competition agreement, which must in any case be specified in the contract, the duration of the agreement must never exceed 2 years and it is necessary that there is a commercial interest in signing the clause and that the executive employee is adequately financially compensated.
   
• Internal promotion: There is an important casuistry for the cases in which an ordinary worker linked to a company is promoted to the position of an executive employee within the same company.
   
• Termination at the request of the executive employee: The executive employee may terminate his employment contract without giving reasons by giving 3 months' notice, unless the parties have agreed a different notice period, which may not exceed 6 months.
   
• In the event of a serious breach of contract by the employer, substantial changes in working conditions or the takeover of the company, the executive employee is entitled to terminate the contract without notice, with the right to compensation as stipulated in the contract or, in the absence thereof, in the applicable provisions.
   
• Termination at the request of the employer:
   
  • The employer may terminate the contract by giving three months' notice without giving reasons, unless the parties have agreed a different notice period, which may not exceed six months.
  • The employer may dismiss the executive employee for disciplinary reasons, for a serious and culpable breach or for other reasons specified in the ET.
  • There is a proper compensation system for each of the situations of extinction with different tax implications for each case.
     
• Sanctions regime: The executive employee may be sanctioned for non-compliance with the obligations arising from this special relationship in accordance with the conditions agreed in the contract.

At Lozano Schindhelm we advise you on all legal aspects related to executive employees contracts, whether it is a matter of negotiating your contract, possible conflicts in the employment relationship or the notice of termination.

Authors: Dr. Moritz Tauschwitz, Luis Bravo