The termination of an executive or manager represents one of the most sensitive moments in a senior executive’s career, with financial implications that can amount to hundreds of thousands of euros depending on length of service, compensation, and contractually agreed-upon terms. The difference between properly handling a termination and mishandling it can mean the loss of severance pay, bonuses, stock options, and other high-value compensation components.
This article identifies the five most common and costly mistakes that executives and managers make when facing termination, and provides practical guidelines for avoiding them and maximizing the protection of their financial and professional rights.
Mistake 1: Signing the settlement agreement without specialized legal review
The most serious and common mistake is signing the severance agreement or termination letter without first having it reviewed by an attorney specializing in senior management. The pressure of the moment, the desire to quickly resolve an uncomfortable situation, or trust in the company lead many executives to sign documents that contain implicit waivers of highly valuable financial rights.
Financial Consequences: Signing a severance agreement that includes phrases such as “the employment relationship is hereby terminated” or “the employee waives any future claims” may prevent you from later claiming higher severance pay, outstanding bonuses, unvested stock options, or compensation under non-compete clauses. In extreme cases, you may lose the right to claim the difference between the minimum statutory severance pay and the amount agreed upon in the contract.
How to avoid it: Never sign any documents at the time of termination. Request 24–48 hours to review them with a specialized attorney. If the company pressures you, that’s a red flag confirming the need for immediate legal advice.
Mistake 2: Failing to Claim Variable Pay and Wage Supplements
Many executives focus their claims solely on severance pay, overlooking supplementary compensation items that can amount to very significant sums: accrued but unpaid annual bonuses, commissions or incentives for meeting targets, profit-sharing for the fiscal year, vested but unexercised stock options, unused vacation time for which no monetary compensation has been provided, outstanding entertainment expenses, or insurance and employee benefits whose cost must be included in the severance pay.
Economic impact: For top-level executives with significant bonuses, the omission of these items can result in losses ranging from 50,000 to 200,000 euros or more. Annual bonuses typically represent between 30% and 100% of the base salary, and their exclusion from the claim constitutes a significant financial loss.
How to avoid this: Work with your attorney to draw up a comprehensive list of all compensation items in the contract, including fixed and variable components. Request a detailed statement from the company regarding bonuses, stock options, and other outstanding items. Explicitly include all these items in the complaint, along with detailed calculations.
Mistake 3: Letting deadlines pass without taking action
The statute of limitations for challenging a dismissal of a senior executive is one year from the date of termination, according to Royal Decree 1382/1985. Once this period has elapsed, the right to file a claim is permanently forfeited, with no possibility of extension or exception.
Many executives, especially after accepting a seemingly satisfactory mutually agreed-upon separation, discover months later that certain items have been omitted or that the severance pay they received is less than what was contractually agreed upon. If more than 12 months have passed since their termination, the claim is inadmissible.
Financial loss: Absolute. Any financial entitlement arising from termination is permanently forfeited if not claimed within the prescribed time limit. In cases involving severance packages equivalent to several years’ salary, this can result in losses of 200,000–500,000 euros or more.
How to avoid this: Contact a specialized attorney immediately after termination, even if you have signed a settlement agreement. The attorney should review the agreement and verify that it includes all applicable items. If any omissions or unfair terms are found, file a lawsuit within one year, even if you have signed a settlement agreement.
Mistake 4: Accepting disciplinary terminations without challenging them when they are unjustified
When a company issues a disciplinary dismissal, many executives accept it passively—either because they are unaware of their rights, because they fear damaging their professional reputation, or because of psychological pressure at a time of vulnerability.
However, case law sets very high standards for the validity of disciplinary dismissals of executives. Rigorous proof of serious and culpable misconduct is required, and mere strategic disagreements or business management errors do not justify disciplinary dismissal. In practice, many dismissals presented as disciplinary are ruled unjustified by the courts.
Cost of not contesting: If a disciplinary dismissal is accepted, no severance pay is received. If the dismissal is contested and ruled unjustified, the company must pay the statutory severance pay (a minimum of 7 days’ pay per year worked, capped at 6 months’ pay) or, if there is a severance clause, the agreed-upon severance pay, which may amount to 12–36 months’ pay or more.
How to avoid it: Always challenge any disciplinary dismissal, unless there is objective and indisputable evidence of serious misconduct. The burden of proof lies with the company, which must substantiate the alleged facts. Challenging the dismissal does not harm the executive’s professional reputation and is a legitimate right of defense.
Mistake 5: Failing to properly document performance and contractual compliance
In the course of their duties, many executives fail to maintain systematic documentation of their performance, achievements, fulfillment of objectives, and relevant communications with the company. When they are terminated, they lack documentary evidence to prove their proper performance or to justify claims for bonuses or met objectives.
This shortcoming is particularly serious when the company alleges violations that justify disciplinary termination or when there is a dispute over the achievement of objectives that determine bonus payments. Without documentation to support the executive’s account, the defense in legal proceedings is significantly weakened.
Consequences: Difficulty in refuting allegations of noncompliance in disciplinary dismissals, inability to prove achievement of objectives that determine bonuses or stock options, lack of proof of unilateral modifications to contractual terms, and lack of evidence of requests or complaints prior to dismissal that may be procedurally relevant.
How to avoid this: Maintain a systematic record of performance evaluations, relevant emails regarding achievements and the fulfillment of objectives, communications regarding the fulfillment of business or financial goals, formal company recognition, and receipts for travel, expenses, and professional activities. In the event of any discrepancy or unilateral change, document your disagreement in writing.
Frequently Asked Questions About Executive Layoffs
Can I challenge a termination even if I’ve signed the severance agreement?
Yes, if the settlement agreement contains waivers of rights that cannot be waived, or if it was signed under duress, due to a mistake, or as a result of a defect in consent. A specialized attorney should review the document to assess the feasibility of challenging it within the one-year deadline.
How long do I have to file a claim regarding the termination of a senior executive?
One year from the date of termination. This is a statute of limitations, not a statute of prescription, which means that it cannot be extended and, once it expires, the right is permanently extinguished.
Are bonuses included in the calculation of severance pay?
Yes, bonuses and recurring variable compensation must be included in the calculation basis for severance pay. Case law is clear that regular variable compensation is part of the calculable salary.
What happens to my stock options if I’m fired?
It depends on the type of termination and the terms of the plan. Vested options are not forfeited but may have short exercise periods. Unvested options are forfeited in cases of valid disciplinary terminations, but in cases of objective or unjustified terminations, their value may be claimed.
Should I hire a specialized attorney, or is a general practitioner sufficient?
A lawyer specializing in senior management is essential. The termination of executives involves procedural and substantive nuances that a general labor lawyer may not fully understand, especially regarding issues such as severance clauses, stock options, complex bonuses, or non-compete agreements.
Do you need legal advice on this matter? At ACL Boutique Legal, we offer a personalized analysis of your situation and a legal solution tailored to your case. You can contact us via email at info@aclboutiquelegal.com, or by phone at 931 820 179 or at 671 377 204 (WhatsApp). Our offices are located at Carrer del Tenor Viñas, 4–6, 3rd floor, apt. 2, Sant Gervasi–Turó Parc, 08021 Barcelona, and we also offer appointments in Sabadell.