What happens to the employment contract when the employee is promoted to senior management?

Two things can happen: either the senior management contract replaces the initial employment contract, or the latter is suspended. This is a fairly frequent scenario:  an employee has spent several years as the director of the human resources department in their company under a standard employment contract, for instance, and the company carries out an internal promotion process, elevating them to a senior management position. To fully understand this type of contract, you must be familiar with the special senior management relationship and what it entails. As employment lawyers experts in senior executive contracts, we will walk you through all the details. 

What happens to the employment contract?

As an employee of the company, you will have had an employment contract, and when you transition to a senior executive, the relationship changes because it turns into a special senior management relationship with specific regulations. In these cases, it must be specified what will happen to the employment contract, and several scenarios can occur: 

• That the replacement of one contract by another is agreed upon. In this scenario, there is an agreement between the employee and the company for the new senior management contract to replace the previous one. In this case, during the following two years, the senior executive will have the option to return to their standard employment relationship if the senior management contract is terminated by the will of either the company or the executive. Once those first two years have elapsed, the senior executive will not be able to return to their old position.
• That the suspension of the employment contract is agreed upon. In this case, the worker can return to the previous employment relationship and collect the corresponding severance pay regarding their dismissal as a senior executive, unless it involves a dismissal for cause. 
• That nothing is agreed upon. If the senior management contract does not regulate what happens to the previous employment contract, the employment relationship is considered to have been suspended.  

How do you know if a contract is for senior management?

For a contract to be considered a senior management contract, several requirements must be met, which are the following: 

• That the worker exercises powers inherent to the legal ownership of the company and the general objectives of the entity. 
• That, in the exercise of such powers, they act with autonomy and full responsibility, limited only by direct instructions from the person or governing body of the entity. 

In other words, it is not enough to hold a senior position in the company, such as the Chief Financial Officer or the HR Director; it is essential that the requirements we have seen are met and that the person holds general responsibility over the company and not just over a single department. 

What limitations do you have as a senior executive? 

There are several limitations that senior management personnel face, and they are the following: 

• Although they have autonomy, as we have seen, they must follow the instructions of the company owners. 
• They cannot sign an employment contract with another company, unless there is authorization from the employer or an agreement that permits it. 
• They cannot participate in the company's representative bodies, meaning they cannot be staff delegates or be part of a works council. 

What is the content of a senior management contract? 

At a minimum, a senior management contract must contain: 

• The identification of the parties, meaning the full details of the worker and the company. 
• The object of the contract, meaning that it is a senior management contract and specifically outlining the functions the worker will have.
• The agreed remuneration. The different items must be specified, along with whether they are paid in cash or in kind. 
• The duration of the contract. 
• The remaining clauses established by the regulations for this type of contract:
  • Working time regarding working hours, schedules, holidays, and leave. 
  • Non-compete clause, meaning that the worker cannot contract with another company unless authorized by the employer. 
  • Stay agreement (retention clause). If the senior executive has received specific training at the expense of the company, it may be agreed that the employer is entitled to damages if the worker leaves the job within a specific timeframe. 
  • If the worker was already an employee of the company, it must be specified what happens to their employment contract, as we have previously seen. 

What happens if you are dismissed and you are a senior executive? 

The senior management contract can be terminated by the will of the employer, who must notify the worker in writing with a notice period that can be up to 6 months. In this case, the senior executive is entitled to the severance pay agreed upon in the contract, and if nothing has been agreed, the severance pay will be equivalent to 7 days of cash salary per year of service, capped at 6 monthly payments. 

If the employer breaches the notice period, the senior executive is entitled to severance pay equivalent to the salaries corresponding to the duration of the breached period. 

On the other hand, the contract can be terminated by a dismissal due to a serious and culpable breach by the senior executive, as regulated by the Workers' Statute. If the dismissal is declared unfair, the guarantees agreed upon in the contract will apply; if nothing has been agreed, the severance pay will be 20 days of cash salary per year of service, up to a maximum of twelve monthly payments. 

If the dismissal is declared unfair or void, the employer and the executive will agree on whether reinstatement is carried out or if the economic compensation established in the regulations is paid. 

In short, being an employee and becoming a senior executive involves having a different employment framework that must be understood to know what rights and obligations exist. 

In the event that you are a senior executive and have doubts about your contract, contact our team of employment lawyers experts in senior executive contracts so they can study your case and advise you on your rights and responsibilities.