The European Court of Justice (ECJ) has confirmed the existence of objective grounds which justify a difference in compensation paid on the termination of works contracts linked to specific service (ie, 12 days' salary) and the termination of permanent contracts (ie, 20 days' salary).
The ECJ's decision was in response to the Galicia High Court of Justice's request for a preliminary ruling on whether the difference between compensation received on termination of a service agreement and that paid to permanent employees is discriminatory.
Cobra entered into an agreement with Unión Fenosa, under which the latter hired the former to provide services pertaining to the reading of electricity meters, service orders and monthly gas readings within the A Coruna province. To perform these services, Cobra hired workers through service agreements. On 24 February 2015 Unión Fenosa informed Cobra that its agreement would be terminated on 31 March 2015. Thus, Cobra informed its employees of the decision and the fact that their contracts would also be terminated on conclusion of the services, after which they would receive the corresponding compensation.
Simultaneously, Cobra began a mass redundancy procedure for 72 permanent employees – who also performed tasks under the agreement with Unión Fenosa – based on their declining workload.
The employees – backed by Clause 4 of the master agreement and the judgment delivered in De Diego Porras (14 September 2016 (c-596/14)) – claimed the compensation for mass redundancy that is prescribed by Article 53(1)(b) of the Workers' Statute.
The Galician court ruled that the termination of the agreement which had brought an end to the employment relationship between Cobra and several of its fixed-term employees entitled those employees to compensation of 12 days' salary per year of service. However, the permanent employees were entitled to severance of 20 days' salary per year of service.
The court believed that although both sets of employees were dismissed for the same reason (ie, the termination of the agreement with Unión Fenosa), they were entitled to different levels of compensation because the contracts had been terminated on contrasting grounds. While the fixed-term contracts had been terminated due to reaching their time-bound conclusion, the permanent contracts had been terminated following a mass redundancy on objective grounds.
Thus, the ECJ ruled that the fixed-term employees had known when their employment relationship with the company would come to an end. In contrast, the permanent employees had been unaware that their contracts might be terminated and should therefore receive severance pay of 20 days' salary per year of service to compensate the abrupt and unforeseen termination of their employment.
Finally, the ECJ declared that there is no difference in treatment between temporary and permanent employees for the purposes of compensation when their contracts are terminated under Article 52 of the Workers' Statute. In this regard, the Galician court must now decide whether the early termination of a service agreement (and the employment contracts created for it) falls under Article 52 of the Workers' Statute and, therefore, whether the employees in question are entitled to receive compensation of 20 days' salary per year of service as opposed to 12 days'.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
