The temporary disability period, as is known very well, is granted for a maximum term of 365 days, which can be extended by a further 180 days when it is presumed that, during this time, the workers can be medically discharged due to being cured. 


In other words, the maximum temporary disability term can reach 545 days (12 months + 6 months)
 

What happens when the term of 545 days granted for temporary disability expires?
 

Once the aforementioned term of 545 days expires, the Spanish Social Security Institute, (hereinafter referred to by its initials in Spanish “INSS”), can choose one of the following options: 
 

  • As an exception, extend the categorisation of permanent disability for a further 6 months, (until such term reaches 720 days), in cases when it is considered that the worker could recover his/her working capacity. 
  • Open a file for permanent disability, which must be processed and decided within a maximum term of 3 months. 

In this second situation, the worker is in “limbo” in which (i) he/she has not been medically discharged even though the term for temporary disability has expired; (ii) he/she is not in a situation that the temporary disability has been extended and (iii) he/she has not been acknowledged as a beneficiary of permanent disability.
 

Many doubts have been raised about the worker’s situation during this term of 3 months when the INSS must decide whether to grant or refuse the permanent disability level.
 

During this period, the worker will continue receiving benefits for temporary disability, which will still be paid until the worker receives the decision adopted by the INSS.
 

However, even though the 545 days have expired, the worker will continue receiving the temporary disability benefits but, as of such time, the company is no longer obliged to pay contributions since the worker’s employment contract is in a situation of suspension, not termination.
 

But… what happens with the temporary disability allowance of the worker who had been receiving it?

The situation of suspension of the employment contract exonerates the reciprocal obligations to work and to remunerate the work.


This makes us think that, during the period of extraordinary extension of temporary disability, once the maximum term of 18 months has expired, the company’s obligation to pay private allowances or benefits, which could have been freely determined by collective or individual autonomy, would no longer be applicable, unless such extension were expressly included in the applicable collective bargaining agreement. 
 

However, the case law of Spanish courts has currently reversed this position by stipulating, in their latest rulings, that the obligation to pay an allowance for temporary disability is “extended for the whole period that the effects of the temporary disability continue to exist, including the extraordinary extension period once the term of 18 months has expired”, (judgement of the High Court of Justice of Catalonia of 20-10-23)
 

This was because it deemed that the temporary disability allowance has “the same structure and function of regular temporary aid or benefits as the basic benefits granted for such contingency…".
 

And what happens with holidays? Must they be settled at the time the labour relationship is suspended?
 

In this respect, common practice for years has been that, once the maximum term of 545 days for temporary disability has expired, companies settle the items owed to the worker before processing suspension of the contract.


Nevertheless, once again the Labour Divisions of the High Courts of Justice have been rectifying this practice by stipulating that the time for settlement of the holidays, among other items, is when the labour relationship is terminated. 
 

Article 38 of the Spanish Labour Relations Act states that the annual paid holiday periods cannot be compensated economically; hence, until the termination of the employment contract due to the worker being declared in a situation of permanent disability, he/she would not be entitled to effective compensation for not taking his/her holidays with a cash payment, which will be paid, in all cases, “at the time the labour relationship is terminated”, (judgement of the High Court of Justice of Andalusia of 3 June 2020). 
 

This is even more so, since Spanish courts have been sustaining that workers in a situation of temporary disability are granted holidays until they are declared in a situation of permanent disability, (judgement of the High Court of Justice of Andalusia of 24 May 2018), because we cannot know how many days have been accrued and that must be settled until the date of the decision adopted by the INSS
 

Moreover, if the workers do not take their holidays within 18 months after the end of the year they were granted, would they be forfeited?
 

As we have explained above, Article 38.3 of the Spanish Labour Relations Act states that if the holidays coincide with temporary disability making it impossible for the worker to either partially or fully take them during the relevant calendar year, they can take them once the temporary disability situation ends providing that a period of more than 18 months has not elapsed since the end of the year when they were granted.


It seems clear that once such period has elapsed and the workers have not taken their holidays, they would forfeit them. However, the judgement of the European Court of Justice of 22 September 2022 recently stated that, once the temporary disability has ended, the employer must encourage the worker to take his/her holidays by offering different possibilities and alternatives for the worker to take them so that if such intention of the employer is not proven, the employee might not forfeit them even though the aforementioned period of 18 months has elapsed, as specified in Article 38.3 of the Spanish Labour Relations Act. 
 

A different matter is payment for the holidays granted but not taken if the labour relationship is finally terminated due to the worker being declared in a situation of permanent disability. In such case, it can be understood from the regulations that under no circumstances would such holidays be forfeited, since the aforementioned Article 38.3 of the Spanish Labour Relations Act does not state anything about economic compensation for these holidays, which the worker can request after the final termination of his/her labour relationship. 
 

There are many issues to take into account when the maximum term of 545 days for temporary disability expires; therefore at RSM we are at your entire disposal to advise you and help you through this period of doubts and uncertainty fully related to the new case law trends of the Spanish courts.
 

Author: Yolanda Tejera, lawyer | Labour Law