Branch Closure: Judicial Review Standards in Spain (Employment Law Focus)

Scope note: In Spanish practice, "branch closure" most often means closing a workplace (centro de trabajo) or a branch of a company, which triggers dismissals. This note covers that situation (Estatuto de los Trabajadores, "ET", art. 51 collective dismissal, and art. 52(c) objective dismissal) and how Spanish courts review it. Section 8 briefly covers other meanings. This is general information, not legal advice; verify every citation on CENDOJ (poderjudicial.es) before relying on it.

1. Legal Framework

• Art. 51 ET and RD 1483/2012: Collective dismissal (despido colectivo) applies when, within 90 days, dismissals reach 10 workers (companies under 100 staff), 10% of staff (100 to 300 staff) or 30 workers (300+ staff). Total cessation of activity affecting more than five workers also qualifies. Closing a branch is often counted by "centro de trabajo" or by company-wide thresholds.
• Art. 52(c) ET: Individual objective dismissal for the same causes when the thresholds are not met (20 days per year of service, max 12 months, plus 15 days' notice).
• Art. 124 LRJS (Ley 36/2011): Special judicial procedure to challenge a collective dismissal (collective claim by workers' representatives; individual claims are suspended).
• Causes: economic (losses, drop in revenue or sales), technical, organisational, or production-related.
• Procedure: consultation period with workers' representatives (30 days; 15 days for firms under 50 staff), good-faith negotiation, written documentation, and notice to the labour authority.
• EU law: Directive 98/59/EC on collective redundancies; Directive 2001/23/EC if a transfer of undertaking is involved.
• Constitution: Art. 35 (right to work) and art. 38 (freedom of enterprise).

2. What the Court Reviews: Core Standard

Legality review, not business-judgment review. After the 2012 reform (Ley 3/2012) the courts check whether the stated cause exists and whether the documented facts support it. They do not substitute their own view on whether closing the branch was the best or most opportune management decision.

• Existence of the cause: The employer must prove the facts alleged (for example, sustained decline in revenue or recurring losses; the statute gives three consecutive quarters as the benchmark for falling income).
• Connection (nexus): The cause must be linked to the dismissals chosen. Closing a profitable branch with losses elsewhere in the group raises a causation and selection problem.
• Reasonableness and proportionality: Courts review whether the measure is reasonable in light of the cause and the aim of preserving competitiveness. Pre-2012 case law demanded a stricter "future viability" test; the post-2012 text refers to contributing to the company's competitive position, and the Supreme Court has applied a lighter reasonableness check.
• Procedure: Was the consultation real? Was the documentation complete? Was there good faith?
• Group of companies: Where the group acts as a single employment unit (labour group), the economic cause is assessed across the group; mere corporate grouping is not enough.
• Fraud, abuse of rights, discrimination, violation of fundamental rights: Always reviewable.

3. Outcomes of Judicial Review (Art. 124(11) LRJS)

• Fair (ajustado a derecho): The dismissals stand; workers keep statutory severance of 20 days per year (max 12 months).
• Unfair (no ajustado a derecho): Individual dismissals are treated as unfair; the employer must readmit workers or pay compensation of 33 days per year (max 24 months).
• Null (nulo): Applies where consultation, documentation, or the labour authority notice was not carried out, where there was fraud, or where fundamental rights were violated. Workers are entitled to reinstatement with back pay.

4. Constitutional Case Law

• STC 8/2015, of 22 January: The Constitutional Court upheld the 2012 reform of art. 51 ET against a constitutional challenge, confirming that economic causes and the administrative and judicial control framework respect arts. 35 and 38 CE.

5. Supreme Court (Tribunal Supremo, Sala de lo Social) Doctrine

The following principles are well established in the Supreme Court's collective dismissal case law since 2013 to 2014; confirm exact judgment numbers on CENDOJ before citing.

• Limited judicial review of management choices: Courts review legality, not the opportunity of the decision.
• Good faith in consultation: Failure to provide the economic documentation required by art. 51 ET and RD 1483/2012, or to negotiate genuinely, can lead to nullity of the dismissal.
• Documentation: Deficiencies that prevent representatives from knowing the real reasons are treated seriously; minor omissions that did not harm the negotiation are not.
• Selection criteria: The employer may choose which workers to dismiss, but arbitrary or discriminatory selection is reviewable; where all staff of a closed branch is dismissed, selection is largely moot.
• Labour group: Additional elements beyond belonging to a corporate group (joint operation, confusion of assets, unitary management) are required for group-wide liability or analysis.
• Later events: The cause is judged at the time of the decision; later improvement or worsening does not cure or create it.

6. CJEU (Court of Justice of the European Union) Case Law

• C-188/03 Junk (2005): The consultation duty arises when the employer is contemplating redundancies, and the dismissals themselves can be notified only after consultation ends.
• C-449/93 Rockfon (1995) and C-80/14 USDAW (2015): Define "establishment" for the thresholds; the unit to which workers are assigned to perform their duties, not necessarily each separate legal entity or the company as a whole.
• C-182/13 Lyttle (2015): Clarifies that the establishment, not the entire company, is the relevant unit for counting redundancies.
• C-422/14 Pujante Rivera (2015): Spanish case on whether terminations of contracts for reasons not inherent to the worker count toward the thresholds (they do).
• C-201/15 AGET Iraklis (2016): National rules giving authorities a veto on collective redundancies can be compatible with EU law only if proportionate and based on precise, objective criteria; the case confirms the balance between freedom of enterprise and worker protection.
• C-300/19 Marclean (2020): Spanish case on the reference unit (the establishment) for thresholds in the context of a branch closure.

7. Practical Checklist for Challenging or Defending a Branch Closure

• Employer: Gather audited accounts, quarterly sales and loss data, an expert report, and a documented link between the cause and the closure; run a real consultation with written minutes; respect timelines; document selection criteria.
• Workers' representatives: Test documentation for gaps; show that alternatives (redeployment, reduced hours, transfer to another branch) were not seriously explored; look for bad faith, group-level profitability, and subcontracting of the same work; raise nullity grounds.
• Evidence: Accounting expert testimony is typically decisive in art. 124 LRJS proceedings.

8. Other Meanings of Branch Closure

• Foreign company's branch (sucursal) in Spain: Closure is an administrative and registry process (Registro Mercantil), with creditors' protection and liquidation; courts review compliance with company and insolvency law (Ley Concursal) rather than labour standards, except for employees.
• Bank branch closures: Mostly regulatory and consumer-access questions (financial exclusion, Bank of Spain supervision); judicial review of the business decision itself is minimal.

9. Key Takeaway

Spanish courts check the existence and documentary proof of the cause, the connection between cause and dismissals, the quality of the consultation, and the absence of fraud or rights violations. They do not second-guess the commercial wisdom of closing the branch. Procedural failures are the most common route to nullity.