Restorative dismissal will transform the workplace

Spain is facing new pressures from European authorities on its unfair dismissal rules. The European Committee of Social Rights, CEDS, has called on the Spanish government to introduce a “despido restorativo” system (restorative dismissal), which is designed to compensate dismissed workers for the actual harm that they have suffered instead of a fixed severance. This move was made after unions claimed that Spain’s current indemnity regulations were inadequate and failed to comply with European Social Charter. As a result, workers are not adequately protected.

The ruling, which affects millions across various sectors, highlights the gap that could exist between Spanish labour laws and European standards for social rights. It also raises questions about how Spain’s courts and legislators will respond to the pressure, and whether the reform could reshape employer–employee relations in the country.

What ‘Despido Restaurativo’ Means

Customized Compensation for Workers

The Spanish system currently compensates unfairly terminated employees with a fixed compensation: 33 days of salary per year worked. This maximum is 24 months. Despido restaurativo proposes a personalised approach, including lost wages, emotional damage, and social disruption. In some cases the court could order readmission for the worker instead of just monetary compensation.

It is important to ensure that employees are treated fairly and provide them with adequate compensation.

European Pressure and Union Complaints

CEDS Rulings and Union Action

In 2022, the union Unión General de Trabajadoras y Trabajadores (UGT) filed a collective complaint to CEDS, arguing Spain’s severance rules were inadequate. In March 2024, the European body ruled that Spain had violated Article 24, of the European Social Charter. This article guarantees workers a fair compensation or other remedies in case of unfair dismissal.

The complaint was reaffirmed by the CCOO in June 2025. The CEDS reaffirmed that Spanish legislation is too rigidIt does not dissuade unfair employers and compensates only a fraction of the actual damages.

Courts Still Limited despite Parliamentary Proposal

A non-binding proposal from the parliamentary committee in September 2025 urged reforms to implement despido restorativo. However, it is not yet law. The courts continue to enforce their current indemnity of 33 days per year. Even the Supreme Court confirmed, in July 2025: Judges cannot award compensation exceeding this statutory maximum.

The government has acknowledged There is an urgent need for reform in Europe, but no concrete changes have yet been made.

Labour Relations: Implications

The Potential Impact of Adoption

If Spain implements despido restaurativoUnfair dismissal becomes more costly and rare. Employees receive compensation for actual losses such as lost earnings and emotional injury. Employers could adopt more stable employment policies, reduce the reliance on temporary contracts, and improve workplace conditions.

CEDS has highlighted the need for reform to bring Spanish law in line with European standards. Workers are still in a grey area until the legislation changes. In theory, they should be protected under European rulings. However, their rights under Spanish law are limited.

The impact on residents and expats in Spain

What it means for foreign workers

The reform may provide expats with much-needed assurance. In Spain, foreign employees often experience uncertainty about contract types, temporary employment, and unfamiliar labor laws. Despido restaurativo would ensure that both Spanish nationals and non-nationals could receive fair, personalised compensation in cases of unjust termination.

Expats, in particular those with fixed-term contracts and those working for international companies, could benefit from legal remedies that are more specific to their circumstances. A readmission option or compensation tailored to the individual reduces financial instability after dismissal. This could make Spain more attractive to skilled foreign workers by demonstrating alignment with European Labour Standards and reinforcing the confidence in employment protections.

What workers and employers should know

• CEDS ruled Spain’s unfair dismissal system violates the European Social Charter.
• Current indemnity (33 days × years worked, capped at 24 months) is insufficient to cover real damage.
• Despido restaurativo aims to provide personalised compensation and, in some cases, readmission.
• Legislation has not been passed, but there are non-binding legislative proposals.
• In practice, courts continue to apply the current fixed indemnities.

Looking Forward

Spain: A turning point for workers

The next few months will be crucial. The adoption of despido restorativo would position Spain as an European leader when it comes to worker protection. This could ensure a fairer treatment for both expats, and residents. Failure to act will prolong the deficiencies that have been criticised both by European authorities as well as unions. This leaves workers exposed in the current rigid indemnity systems.