Settlement Agreement for Dismissal: The Requirements STS 532/2026 Sets for It to Be Effective

A dismissal letter. A settlement agreement for dismissal signed that very same day. Twenty thousand euros to close the dispute and avoid court. It looked settled. It wasn’t.

The employee later refused to ratify the agreement at the conciliation hearing, challenged his dismissal, and obtained a favourable judgment. The result: the dismissal was declared unfair, and the severance payment was set at €64,267.03 — although the €20,000 the company had already paid had to be deducted.

Supreme Court Judgment 532/2026, of 10 June, makes that outcome final and offers a particularly useful lesson for employers: a settlement agreement for dismissal is not effective because it uses solemn wording, or because it contains a general waiver of claims. It is effective when the whole process — negotiation, consent, drafting and payment — shows that the parties genuinely intended to close the dispute.

STS 532/2026: the facts behind the settlement agreement for dismissal

The employee had been with the company since 2006. He had started as a salesman and, after several promotions, held the position of area manager. His reference salary was €3,396.95 gross per month.

On 14 September 2021, he received a letter of disciplinary dismissal with immediate effect. The company attributed to him failings relating to business development, customer service and team management. But the meeting did not end with the handing over of the letter.

That same day, the company and the employee signed a document called a “settlement agreement for dismissal.” The company acknowledged that the dismissal was unfair and offered two amounts:

– €20,000 net as severance payment.

– €2,395.34 net for final settlement of outstanding amounts.

The document expressly noted that the €20,000 was lower than the severance payment corresponding to an unfair dismissal. Under the wording of the agreement, the employee accepted that figure in order to avoid court proceedings.

So far, nothing necessarily irregular. A company can negotiate a severance payment lower than the statutory amount. In fact, that is the essence of many settlements: both sides give something up to remove a risk. The company pays without waiting for a judgment; the employee receives a certain sum and avoids the possibility that the dismissal is declared fair.

The problem was not how much had been agreed. The problem was how.

In one of its clauses, the settlement agreement for dismissal stated that it was not subject to any condition precedent. It also stated that the termination and the payment commitment took full effect from the moment of signing. Other provisions, however, contradicted that wording: the employee undertook to file a conciliation application, and it would be at that hearing that the company would formally acknowledge the dismissal was unfair and, provided the employee remained in agreement with the termination, where the agreement reached would be recorded and the €20,000 agreed would be paid.

That was the crack in the agreement.

On one hand, the document said everything was closed from the moment of signing. On the other, it appeared to reserve for the conciliation hearing a fresh expression of the employee’s agreement, and it delayed payment of the severance amount until then.

Was the SMAC a mere formality of the settlement agreement for dismissal? Or was it the moment at which the agreement had to be completed? The answer was not clear, and when an agreement seeks to extinguish employment rights and close off the judicial route, ambiguity works in favour of the employee, under the principle of in dubio pro reo.

The day of the administrative hearing arrived. The employee refused to ratify the agreement. The company argued that this refusal was irrelevant. In its view, the employment relationship had already been terminated, the settlement agreement for dismissal was valid from the moment of signing, and the employee had expressly waived his right to claim. The Labour Court initially accepted that argument and dismissed the claim, but the High Court of Justice of Catalonia first, and then the Supreme Court after it, reached the opposite conclusion.

The Chamber held that the document’s effectiveness had been made conditional on the subsequent conciliation hearing. If what had been agreed was not ratified there, the waiver of claims could not be regarded as having taken full effect.

The dismissal was declared unfair, and the company was required to choose between reinstating the employee, paying him the corresponding back pay, or definitively terminating the relationship through a severance payment of €64,267.03. In the latter case, the €20,000 already paid could be deducted.

The arrangement designed to close off the risk for €20,000 therefore left a severance gap of more than €44,000 open. To that must be added the time spent on the proceedings, the cost of legal defence, and the uncertainty accumulated over the years.

The six tests a settlement agreement for dismissal must pass

1. The document has to be understood at first read. It is not enough to include expressions such as “final settlement,” “waiver of claims,” “res judicata” or “final and binding effect.”

The agreement must identify the dispute, the ground for termination, the items being settled, and the amounts assigned to each. It must also clearly separate the severance payment for dismissal from wages, holiday pay, bonus payments, or other amounts outstanding.

If one clause states that the agreement is final, and another suggests it remains subject to future ratification, the document starts to unravel from within.

2. Payment must be real, specific, and identifiable. The company must pay or, at the very least, take on an unambiguous payment obligation.

The more payment is delayed, or the more conditions are attached, the easier it becomes to dispute whether the settlement was ever actually perfected. A payment promise made subject to future events does not carry the same force as an immediate, enforceable obligation.

3. Time matters. A great deal. For a genuine settlement to exist, there must be some margin between notice of dismissal and the signing of the agreement. The Supreme Court considers that this timeframe is not, in principle, compatible with absolute simultaneity.

Why? Because receiving a dismissal letter is one thing. Grasping, in that same instant, the full economic and legal scope of a waiver of claims is quite another.

A standard clause stating that the employee “has been able to seek appropriate advice” does not, on its own, prove that he actually had a genuine opportunity to do so.

In the case analysed, everything happened on the same day. There was no evidence that any real time had been given to think it over, seek advice, or compare the offer against the statutory severance payment. For the Supreme Court, that contractual reference to advice having been sought amounted to nothing more than ritual wording.

4. Consent must be capable of being reconstructed. The employee must understand what he is signing, what he is receiving, and what he is giving up.

It should not be enough simply to insert a paragraph declaring that he is acting freely and without coercion. That is useful, certainly. But it does not replace the actual circumstances of the negotiation.

The presence of an employee representative or an adviser can strengthen the validity of the agreement. So can providing a draft in advance, allowing a reasonable period of time, or evidence of genuine back-and-forth negotiation.

5. A lower severance payment can be valid. The Supreme Court does not require every settlement to match the maximum severance payment corresponding to an unfair dismissal.

That reduction, however, must be the conscious trade-off of a genuine negotiation over a disputed or uncertain right. The employee must know what amount he could claim, what risk he is taking on, and what advantage he gains by accepting a lower figure.

6. Attending the SMAC does not invalidate the agreement, unless the agreement itself makes it a condition. A private agreement can take full effect from the moment it is signed and be formalised afterwards before the mediation and conciliation service.

The employee’s later refusal to reproduce it at the SMAC does not, on its own, undo a deal that had already been perfected. But to achieve that outcome, the drafting must be consistent

The document must make clear that:

– The agreement terminates the employment relationship from the moment of signing.

– The conciliation hearing is merely a formalisation step.

– No fresh acceptance is required.

– Payment does not depend on the employee expressing his agreement again.

– What has been agreed remains effective regardless of the outcome of the administrative hearing.

The Supreme Court sums up the doctrine clearly: a genuine, discharging settlement exists when the agreement identifies the dispute, incorporates reciprocal concessions, expresses unambiguous acceptance, seeks to avoid litigation, and is not made subject to any later ratification.

At Devesa, we advise companies on structuring and negotiating employment terminations, settlement agreements for dismissal, and conciliation proceedings. The goal is not merely to reach an agreement, but to tie up every one of its possible loose ends.

Do you need advice? Explore our practice areas covering the analysis of settlement agreements for dismissal and employment terminations:

Labour Law

Litigation