In the complex field of senior management labour relations, the drafting and subsequent interpretation of contractual clauses is a fertile ground for controversy. Recently, the Supreme Court, in its Judgment 281/2026 [Sentencia 281/2026] of 16 March, has shed light on a matter of considerable practical importance: is a senior executive entitled to compensation for lack of notice when their dismissal is declared unfair, despite the fact that their contract exempted the employer from providing such notice in the event of ‘dismissal’? The High Court’s answer is in the affirmative and consolidates a doctrine that protects the executive against potential abuses of rights by the company.
Let us analyse the case in detail and the important conclusions that arise from it.
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Background to the Case: A Dismissal with Media Coverage
The dispute arose from the disciplinary dismissal of a senior official at the Official College of Pharmacists of Bizkaia (COFBI). The alleged facts, which received considerable media attention, were that the executive, whilst still part of the body that managed the pandemic measures (LABI), breached mobility restrictions for leisure purposes.
This dismissal was challenged and ultimately declared unfair by the courts, not because the facts were false, but because they were not considered serious enough to justify the maximum penalty. Following the declaration of unfair dismissal, the company opted to pay the corresponding compensation rather than reinstate the employee.
This is where the second dispute arises. The executive, in addition to the compensation for unfair dismissal, claimed a second payment, in this case for the failure to give the six-month notice period agreed in his contract.
The Contractual Clause: The Core of the Dispute
The senior management contract contained a specific clause on the termination of the employment relationship which essentially provided as follows:
- The company was required to give at least six months’ notice of termination.
- Alternatively, it could offer the employee additional compensation equivalent to six months’ salary.
- However, the clause contained a key exception: “No notice shall be required in cases of dismissal of the manager…”.
Relying on the literal wording of this exception, both the Court of First Instance, Social Section No. 1 of Bilbao, and the High Court of Justice of the Basque Country dismissed the executive’s claim. Their reasoning was based on the fact that, although the dismissal was unfair, there was a ‘genuine cause’ for it, unlike in other cases where the cause is a mere fabrication or ‘smoke screen’ to conceal a unilateral decision. As there was a dismissal with a real cause, albeit insufficient, they held that the exception was fully applicable and, therefore, no compensation was due for lack of notice.
The Supreme Court’s Doctrine: Protection Against Fraud of Law
The executive lodged an appeal for the unification of doctrine, and the Supreme Court, in a landmark ruling, upheld his case, quashing the appealed judgment and establishing a clear and consistent doctrine.
The High Court based its decision on the following arguments:
- Equivalence between Unfair Dismissal and Unilateral Termination: The Supreme Court reiterates its established doctrine: when a dismissal is declared unfair and the employer opts for compensation, the alleged ground for termination ceases to exist in the legal sphere. The termination of the contract does not occur due to the disciplinary cause, but rather by the mere will of the employer, who decides not to continue the employment relationship. This unilateral decision is, in practice, equivalent to a withdrawal, a situation for which notice is a fundamental guarantee.
- Finalist Interpretation of the Exception Clause: The most significant aspect of the judgment is its interpretation of the exception ‘in cases of dismissal of the manager’. The Supreme Court reasons that this clause can only be understood as referring to a dismissal declared to be fair.
- The Risk of Abuse of Rights and Fraud of Law: Accepting the contrary interpretation, as the lower courts did, would mean leaving the fulfilment of a contractual obligation (the notice period) to the discretion of one of the parties. The company could easily avoid paying compensation for failure to give notice simply by attributing a disciplinary cause, however ‘groundless’ or ‘untenable’ it might be, knowing that, in the worst-case scenario, it would be declared unfair. This, in the words of the Court, ‘would amount to accepting as legally valid a conduct that would constitute a clear abuse of rights and even a fraud of law’, conducts prohibited by Articles 7.2 and 6.4 of the Spanish Civil Code.
In short, the clause exempting the employer from giving notice in the event of dismissal is only effective when the company can demonstrate a genuine, sufficient and serious cause justifying a fair dismissal. If the dismissal is unfair, the cause is deemed null and void, and the termination is based on the employer’s decision, which fully triggers the obligation to give notice or, failing that, to pay compensation for its omission.
Conclusion and Practical Relevance
Supreme Court Judgment 281/2026 [Sentencia del Tribunal Supremo 281/2026] is of enormous importance for professionals who advise on senior management matters. It confirms that compensation for lack of notice and compensation for unfair dismissal are perfectly compatible and cumulative.
The main practical conclusions we can draw are:
- Drafting of Contracts: Clauses exempting the employer from the notice requirement in the event of ‘dismissal’ must be drafted with the utmost caution, and the parties must be aware that their effectiveness is limited, according to the Supreme Court’s interpretation, to cases where such dismissal is justified.
- Litigation Strategy: For senior executives, the possibility of claiming both types of compensation independently is reinforced. For the company, the risk of using a disciplinary dismissal without a solid ground as a means to circumvent the agreed notice period is highlighted, as such a strategy will not only fail to exempt the company from compensation for dismissal but also from compensation for failure to give notice.
- Legal Certainty: The judgment provides significant legal certainty by preventing the notice obligation—often agreed to protect the executive from abrupt dismissal—from being rendered meaningless by the mere invocation of a disciplinary ground that is subsequently found to be insufficient.
In summary, the Supreme Court reinforces the requirement for notice in senior management contracts, making any exception subject to the existence of a serious and culpable breach by the executive, duly proven and upheld in court.
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