The Court of Justice of the European Union and termination compensation for fixed-term contracts

Written on 26 Apr 2019

In its ruling of 11 April 2019, the European Court of Justice (hereinafter "ECJ") has ruled on the adaptation of Spanish law to the European Directive on equal treatment between fixed-term and permanent employees, when the termination of contracts occurs by the termination of a service contract.

The dispute giving rise to preliminary questions originates in 2011, when Unión Fenosa entered into a contract for the hiring of services with Cobra Servicios Auxiliares S.L., by means of which it subcontracts the services of electricity meters, service orders and monthly reading of gas from the province of A Coruña. In 2015 the contract was terminated, which motivated Cobra to terminate the contracts of all the employees on its payroll. To this effect, the company differentiated between employees bound by fixed-term contracts and employees with permanent contracts. Fixed-term employees were paid the compensation corresponding to the termination of fixed-term contracts (12 days per year worked), with permanent employees a collective dismissal procedure was initiated that ended with the payment of the compensation for objective dismissals (20 days per year worked with a maximum of 12 monthly payments).

Faced with the divergent result of compensation, the Tribunal Superior de Justicia de Galicia (“TSJ de Galicia”) submitted two preliminary questions to the ECJ. These were aimed at determining whether there was a possible difference in discriminatory treatment in the amount of compensation when the termination of all contracts (fixed-term and permanent) occurs for the same reason: termination of the contract.

The ECJ has already confirmed the legality of the disparity of the compensation regime when certain requirements are met (specifically, the existence of objective grounds justifying the diversity of treatment). However, the particularity of this assumption lies in the fact that fixed-term employees performed the same work and the same functions as permanent employees, and the termination of their contracts occurred for the same reason. In this respect, the TSJ de Galicia questions whether national legislation is compatible with European legislation when the situation of employees is comparable and the termination occurs for the same reason, but the termination of contracts has different consequences.

In order to respond to the questions raised, the ECJ refers to the European legislation: Council Directive 1999/70/EC. Specifically, Clause 4 provides that, with regard to working conditions, employees with a fixed-term contract should not be treated less favourably than permanent employees engaged in “comparable work”, unless this difference in treatment is “justified by objective grounds”.

Thus, to verify the adequacy of Spanish legislation to the European Directive we must:

  • Compare the functions and jobs performed by the employees, with the aim of being able to determine whether the permanent employees and fixed-term employees hired to provide services during the contract were “in a comparable situation during the same period of time”.
  • Determine if there is an “objective reason” that justifies the difference in the indemnity amount when the extinction derives from the same cause; the resolution of the contract.

Analysis of the first point, which lies with the national judge, consists in determining whether fixed-term and permanent employees perform the same tasks and functions. In particular, clause 3 of the Directive defines “comparable work” as identical or similar work or occupation, taking into account its qualifications and the tasks it performs. In the account of the facts of the present case, the TSJ de Galicia declares as proven that, in fact, all the employees performed the same functions, regardless of the contractual modality.

Secondly, with regard to the existence of objective reasons, the ECJ reviews its consolidated case-law on what “objective grounds” may justify the difference in treatment between temporary and permanent employees, pointing out that such inequality must respond to a genuine need and must be necessary to achieve the objective pursued. These objective reasons may arise from the nature of the tasks for which fixed-term contracts are used.

The Spanish Government justifies the existence of different amounts of compensation in the different attempted expectations of the employee. Accordingly, the compensation corresponding to the employee bound by a permanent contract is intended to compensate for the failure of his legitimate expectations regarding the continuity of the employment relationship, which are foiled by the concurrence of any of the causes provided for in Article 52 of the Workers’ Statute. On the other hand, termination due to the completion of a project or service contract occurs for a reason which the employee could have anticipated when his fixed-term employment contract was concluded and, therefore, does not merit the same indemnifying treatment as that of a employee bound by a permanent contract.

The ECJ welcomes the arguments of the Spanish Government. It understands that this difference in context can explain that the amount of compensation granted to the employee upon termination of their employment contract is not identical in both cases. Therefore, there are objective grounds that justify the diversity of treatment between fixed-term and permanent employees. However, the ECJ also acknowledges in paragraph 52 of the judgment that the TSJ de Galicia must examine whether in this case there has been an termination for an identical objective reason; such as the termination of the contract, and whether it was resolved early (thus undermining the expectations of contractual duration of both fixed-term and permanent employees). That is to say, there is no objective reason that protects the different compensation treatment. If, in fact, we are faced with this assumption, and the employees carried out comparable jobs, it will be appropriate to award the claimants the same compensation as employees with permanent contracts, that is to say, 20 days per year of service with a maximum of 12 monthly payments.

We are awaiting the ruling of the Galician Supreme Court. Which, in view of what has been stated by the ECJ, is competent to examine the matter and determine whether, in the event of termination of the contract due to early termination of the contract, the differences in compensation between fixed-term and permanent employees performing comparable work can be considered discriminatory.