Spain's labour legislation has been evolving rapidly since the 2021 labour reform, and a further wave of employment regulation updates took effect in early 2025. Foreign employers operating through Spanish subsidiaries, branches, or posted worker arrangements face a set of tightened rules. Missing the compliance window carries direct financial exposure – labour inspectors in Spain have increased enforcement activity, and fines for procedural breaches can reach levels that materially affect operating costs.
Updated employment regulations in Spain introduce stricter rules on fixed-term employment contracts, collective agreement application, dismissal procedures, and social security obligations for foreign employers. Companies with even a single employee registered in Spain are affected. The compliance deadline for most measures tied to the 2025 reform cycle is immediate – obligations apply from the date the relevant provision entered into force, with no transitional grace period for ongoing arrangements.
This alert identifies the core regulatory changes, defines which business categories are affected, and sets out the immediate actions foreign employers must take to avoid enforcement exposure.
What changed – the 2025 regulatory developments and their scope
Spanish employment legislation has been amended across several dimensions. The changes affect how fixed-term employment contracts are classified, formed, and terminated. Temporary contracts that do not meet the strict causal justification requirements under the reformed labour code are now treated automatically as permanent contracts. This shift has significant consequences for foreign employers who replicated their home-country contracting practices in Spain without adapting to local requirements.
Collective agreement application rules have also been tightened. Every employer operating in Spain is required to identify the applicable collective agreement – the convenio colectivo (sector or company-level bargaining instrument) – and apply it in full. Failure to identify the correct collective agreement before hiring is now treated as a compliance failure in itself, independent of whether any individual employee has raised a grievance. Labour inspectors can initiate investigations on this basis without a complaint being filed.
Social security contribution bases have been recalibrated. The Seguridad Social (Spanish social security system) contribution rules now apply a broader definition of remuneration. Certain items previously treated as exempt – such as some categories of allowances and irregular bonuses – are now included in the contribution base. Foreign employers who calculate payroll outside Spain and simply transfer figures to local payroll providers are at particular risk of undercontributing without realising it.
Dismissal notice and termination procedure requirements have been clarified by the Tribunal Supremo (Supreme Court of Spain). The court has reinforced that substantive and procedural requirements for dismissal are cumulative, not alternative. An employer who follows the correct written procedure but lacks adequate substantive grounds will face a finding of unfair dismissal – and vice versa. The cost of unfair dismissal in Spain includes reinstatement rights or statutory compensation calculated on length of service and salary, which can reach a considerable sum for long-tenured employees.
For companies structured as a Sociedad Anónima (SA, Spanish public limited company) or Sociedad de Responsabilidad Limitada (SL. Spanish private limited company), the corporate structure itself does not insulate directors from employment law liability where they exercise operational control over workers. This point has particular relevance for foreign group structures that appoint local directors while retaining substantive HR decision-making at group level.
To receive an expert assessment of your employment law exposure in Spain, contact us at info@ferrazwhitmore.com.
Who is affected and what to do now
The regulations apply to any entity that employs – or is deemed to employ – workers in Spain. This includes foreign companies with a registered branch, those operating through a Sociedad Anónima or SL subsidiary, employers with posted workers present in Spain for more than the threshold period under EU posting rules. Additionally. Platforms or digital service providers with workers classified as employees under Spain's Ley Rider (the platform worker legislation). Companies with no formal Spanish entity but with workers habitually performing their duties from Spanish territory are also within scope.
The threshold criteria that determine the intensity of obligations include: workforce size (companies above 50 employees face additional obligations around equality plans and workforce representation). the sector of activity (which determines the applicable collective agreement and sector-specific minimum conditions). and the nature of the work arrangement (direct employment. Posted assignment, or platform engagement).
The following immediate action items apply to foreign employers in all categories:
- Audit all existing fixed-term employment contracts in Spain and assess whether each meets the causal justification requirement under current Spanish employment legislation. Convert any contract that does not qualify to permanent status before a labour inspector does it for you.
- Identify the applicable collective agreement for each category of worker and cross-check current pay, working time, and leave conditions against the collective agreement minimums. Deficits must be corrected prospectively – and potentially retrospectively.
- Review the social security contribution base with your Spanish payroll provider. Ensure that all remuneration items – including irregular payments and benefits in kind – are included in the declared base.
- Verify that any dismissal or termination procedure initiated or planned follows both the substantive grounds and the procedural steps required under Spanish employment legislation, including the required written carta de despido (dismissal letter).
- Where the company is registered at the Registro Mercantil (Spanish Commercial Registry) and holds a corporate structure involving a Notario (Spanish notary) – executed set of corporate documents, confirm that internal HR governance aligns with the employment obligations flowing from that structure, particularly on director liability.
Companies operating across both Spain and Portugal should note that parallel employment law developments are under way in Portugal. For an overview of those changes, see our alert on 2025 employment regulations in Portugal.
Foreign employers who rely on their home-country HR teams to manage Spanish employment matters face a specific risk. Spanish employment legislation operates within a mandatory minimum system: the rules cannot be contracted out of, and ignorance of the applicable collective agreement is not a defence. Engaging a lawyer in Spain with specialist employment law experience is the most direct way to identify gaps before an inspection occurs.
For companies whose Spanish operations involve corporate restructuring, shareholder changes, or changes to the legal form of the employing entity, employment law consequences are immediate. Share transfers, mergers, and changes of control all trigger obligations under Spanish employment legislation regarding workforce consultation and continuity of employment terms. Our corporate law practice in Spain works alongside the employment team to manage these intersecting obligations.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. As an international law firm in Spain with deep employment law experience, our team helps foreign employers manage employment contract compliance, collective agreement obligations, dismissal notice requirements, and social security exposure across Spanish operations. We combine Portuguese civil law expertise with English common law tradition to deliver practical, cross-border employment law counsel. The firm's employment practice covers both contentious matters – including proceedings before Spanish labour courts – and advisory work on workforce structuring, posted worker compliance, and termination procedures. Our attorneys have advised multinational groups on Spanish employment regulation across both civil law and common law systems, with particular experience in matters involving corporate restructuring and cross-border workforce transitions. To discuss how Spain's updated employment regulations affect your business, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.