The Spanish Supreme Court has once again ruled on one of the most debated issues in labour law: how to calculate severance compensation for employees with a permanent discontinuous contract.
In its recent decision, STS 2396/2025 of 20 May, the Court resolved this controversy and established binding doctrine regarding how periods of service should be calculated for this purpose.
Following the 2022 labour reform—which introduced major changes to hiring practices, including the elimination of fixed-term contracts for specific projects—the number of employees hired under permanent discontinuous contracts has significantly increased in Spain. However, the wording of Article 16.6 of the Statute of Workers’ Rights (Estatuto de los Trabajadores) has created widespread uncertainty about how severance compensation should be calculated in such cases.
In the case in question, the Labour Court of Jaén held that severance pay should exclude periods of inactivity. By contrast, the High Court of Justice of Andalusia ruled that those periods should be included in the severance calculation.
However, the Supreme Court, consistent with its prior case law and in line with the case law of the Court of Justice of the European Union, has now clarified that severance compensation for employees with a permanent discontinuous contract must be based exclusively on periods of actual work performed.
The Court reasoned that severance compensation is intended to reflect only the time during which services were effectively provided; including inactive periods would distort the nature of such compensation and result in unjust enrichment of the worker.
The Court further emphasised that this interpretation is not discriminatory, since employees under this type of contract may work for other employers during their inactive periods.
Accordingly, this decision brings clarity and legal consistency to the treatment of these contracts and their associated severance entitlements, unifying judicial doctrine on a matter that has generated considerable litigation in recent years.
