Salary or compensation nature of the payment of housing rent agreed in an international mobility contract, in order to assess its possible inclusion in the calculation of severance pay

Written on 19 Oct 2018

The Social Chamber of the Supreme Court in its ruling 3135/2018 of July 19, opts for the salary nature of this concept, reiterating the doctrine contained in a previous statement of 14 April 2018.

The Supreme Court has recently tackled the question of whether or not the payment of rent for the dwelling of the worker posted abroad, within the framework of an international mobility contract, is included the concept of salary, and as a result, if it should be taken into account to calculate the severance payment. In two judgments, 14 of April and 19 July 2018, the High Court concluded that this concept has salary nature, and as such, must be included in the aforementioned calculation.

The factual assumption of both cases is as follows: the plaintiff employee had been rendering services for the defendant company and, at a specific moment in their employment relationship, signed an international mobility contract to start to provide services abroad. In the aforementioned contact, apart from the salary, it included amongst others “conditions associated with expatriation” the payment of the rent of a home adequate to the living conditions of the country of destination.

Both judgements start from the fact that according to article 26 of the Workers’ Statute, it is to be presumed that all the amounts that the company pays the employee for the provision of their services have a salary nature, unless it is proven that they obey the payment of:

  • compensation or supplies for expenses incurred as a result of labour activity;
  • Social Security benefits and compensation;
  • or compensation corresponding to transfers, suspensions or dismissals.

Starting from the earlier case, each ruling elaborates its own reasoning to reach the same conclusion.

For the judgement of the 16 of April, the relevant fact to determine the nature of the payment is whether the change of location of provision of services was voluntary. It will only be classified as compensation for posting, when we are facing a change of work centre unilaterally imposed by the company, which obliges the employee to change residence, as this is the legal concept of transfer provided in Article 40 of the Workers’ Statute. In this case, the employee is not obliged by the company to transfer to another work centre, but both parties have agreed, signing a contract to that effect, the new place of provision of services, so that the payment of the rent does not have the nature of compensation for the posting.

Following this reasoning, it cannot be considered as compensation or supplementation for expenses incurred to the employee due to the work activity. We are not facing compensation for an extraordinary disbursement or additional cost caused to the employee because of their work, but the company has compensated an ordinary cost of the everyday life of every citizen, as is the housing that must have in place the provision of services that both parties have set in the employment contract.

For its part, the judgement of 19 July reaches an identical conclusion, but using a slightly different reasoning.

According to this ruling, the first issue to assess is whether we are facing an “ex novo” contract to provide services abroad, or whether addressing a case in which the change of location occurs while the employment relationship is already in force.

In the first of the cases it is undoubted that it is a salary concept, because if an initial work contract is signed to provide services in a specific place, it is accepted from the beginning by the employee who will have to pay for his / her home, this being a habitual expense that, if assumed by the company, would be for the employee an undeniable salary increase.

In the second case, the issue is not as clear and we must assess the concurrent circumstances in the specific case. The High Court understands that, whether it is an imposed posting, or freely agreed between the parties, we move in the geographical mobility field, being irrelevant to determine the nature of the various retributive components, the play of the will of the parties (departing at this point from the previous sentence).

The salary will have a compensatory nature, exclusively, when compensating an additional expense for the employee caused by the specific geographic mobility, that is to say, when the expense would be non-existent if the change in the workplace had not occurred; and conversely, it will be a salary, when the only alteration in the employee’s essential housing expense is the place of its disbursement (Spain or abroad). To determine whether we are in one case or the other, the duration, actual or planned, of the posting is considered as a determinable element. This is so, according to the ruling, because it is logical to think that there will only be an additional expense for housing, when due to the short duration of the trip, it is reasonable for the employee to keep his house in Spain and face, in addition, the payment of a house in the new place of destination. In this case, the payment of the rent by the company will have a compensatory or supplementary nature of this extraordinary expense. On the contrary, if we are in the presence of an indefinite posting, it is to be assumed, unless there is proof to the contrary, that there is no additional expense for the employee, since in this case it would be economically incomprehensible for the employee to keep the rental of their home in Spain, so he will simply maintain that habitual housing expense, which he already had in Spain, only that he will begin to pay it in his new place of work.

The High Court concluded their judgement warning that, in every specific case, there can be different variables that, duly argued by the parties, may force to qualify this criteria. For example, would the solution be the same if the employee owns a home in Spain? And if it is proven that the cost of housing in the place of destination is notoriously higher than the employee had in Spain? This final reflection of the judgement seems to suggest that the solution is not intended as a general criterion to apply in any case. Only time and the next legal pronouncements will confirm whether these two judgments are only a response to the analysis of a specific case in specific circumstances or, if on the contrary it has been established as a general criterion to resolve this question, the time factor or duration of the posting.