Aspects to take into account in a senior management contract

Senior management contracts, i.e. those intended for people who are going to occupy positions of great importance within the management team of companies, have a series of intrinsic characteristics that differentiate them from the rest. In fact, these are very specific and concrete and are detailed in Royal Decree 1382/1985 of 1 August.

But do you know what requirements differentiate a senior management contract from an ordinary employee contract? We, as expert lawyers in employment law, will explain them in detail.

What is senior management?

First of all, we would like to clarify what is meant by the concept of senior management from an employment point of view.

Specifically, the legislation refers to personnel who exercise powers similar to those of legal ownership of the company for which they work. Furthermore, it defines that they must have full responsibility and autonomy over their actions and decisions, which will affect the organisation of the company itself. For their part, they may only receive orders from the senior management bodies of the entity in question.

The main problem encountered by lawyers and, in general, by workers, is that it is very difficult to differentiate between senior management personnel and employees with powers of attorney. There is only a thin line between the two.

However, it is always assumed that the employee's powers of attorney can never be organisational. In any case, each situation must be examined separately in order to determine to which category the employee belongs.

What are the main characteristics of the senior management contract?

As mentioned above, senior management contracts must contain all the requirements specified in Royal Decree 1382/1985. Specifically, they are as follows:

1. Identification, by name and surname or, failing this, by company name, of the parties to the contract. 
2. The purpose for which the employment contract is drawn up and signed. 
3. Remuneration agreed by the parties. The different items that make up the remuneration and whether it is to be paid in cash or in kind must be clearly specified. 
4. Total duration of the contract or, failing this, its indefinite nature. 

Is there a probationary period for senior management contracts?

The answer is yes. Specifically, the Royal Decree referred to above specifies the manner in which it is to be carried out. 

Firstly, it determines that the probationary period may not, under any circumstances, exceed nine months. Moreover, this limit is only contemplated in the event that the contract is of indefinite duration. If the contract is temporary, it is reduced to six months. 

On the other hand, if the trial period established in the contract elapses without the company demonstrating its withdrawal from the employment relationship established with the worker, the document will become fully effective. This means that their services rendered and their seniority within the company's senior management system will begin to be counted. 

What is the non-competition and permanence pact?

This pact is also included in Royal Decree 1382/1985 and, specifically, it establishes the following guidelines:

1. A person who is considered to be part of the senior management personnel does not have the right to enter into employment contracts with other companies. This is the case unless the employer who has hired him or her authorises this in writing. Furthermore, such authorisation can only be issued when the employee's connection with the new company is public and there is no exclusion specified in the contract.

2. The employer may be entitled, after agreement with the employee, to compensation for damages in the event that the employee leaves his or her post before the end of the term of the contract. This is only applicable if the senior manager has received professional specialisation for a specific period of time during his or her stay in the company.

3. This non-competition agreement becomes invalid two calendar years after the termination of the employment contract. Furthermore, it is only valid if the senior manager is remunerated with appropriate financial compensation and if the employer has a special commercial or industrial interest.

How can an employer terminate an employee's senior management employment contract?

Of course, current legislation provides for the possibility of unilateral termination of the employment contract of senior management staff by the employer. However, this must be done under very specific conditions. 

Firstly, a written notice must be sent to the employee so that he/she is aware that he/she has decided to terminate the employment relationship between the two in accordance with the terms set out in article 10.1 of Royal Decree 1382/1985. 

The employee shall be entitled, in this case, to receive the severance pay agreed in the contract. In the event that these were not signed at the time, the law establishes that, in the absence of an agreement, the employee will be paid the equivalent of seven days' salary per year of service with a maximum limit of six monthly payments. 

In the event that the employer fails to comply with its obligations regarding notice, the senior manager may request compensation covering the salaries corresponding to the time of the contract that has not been fulfilled. 

On the other hand, the senior management contract may also be terminated when the dismissal is based on a serious breach attributable to the employee's malpractice. In this case, in order to find the various cases contemplated, it is necessary to resort to Article 55 of the Workers' Statute. 

The senior manager will only receive compensation in this case if the dismissal is declared unfair by a judge. In that case, he/she will be entitled to receive up to 20 days' salary per year worked with a maximum of 12 months. 

Both parties may also agree, in the event that a judge establishes that the dismissal was unfair or null and void, to reinstate the worker to his or her former duties without prejudice. However, the employer will have to pay the unpaid monthly payments corresponding to the time during which the worker has not been able to perform his or her duties in the company. 

Some conclusions

We hope we have helped you to better understand what a senior management contract is and which legislative texts govern it, as well as its intrinsic characteristics and the possible ways to terminate it. It is undoubtedly a special type of contract that has many peculiarities that you should be aware of if you are going to sign one that falls within its scope. Contact us to resolve any doubts you may have about these contracts.