In line with international commitments on disability, Law 2/2025 introduces a major reform in the regime for termination of contract due to permanent disability. As of 1 May 2025, the declaration of total, absolute or major disability Permanent Incapacity (PI) no longer automatically implies the termination of the contract, thus breaking with the traditional criterion that allowed companies to terminate the employment relationship directly in these cases.

The new regulation responds to the mandate of harmonisation with the principles set out in the UN Convention on the Rights of Persons with Disabilities, as well as with the consolidated case law of the Court of Justice of the European Union (Judgment of 18 January 2024, case C-631/22), reinforcing the mechanisms of employment protection and the right to effective labour integration of persons with disabilities.

The reform eliminates the automatic termination of the employment contract due to permanent incapacity and makes it subject, firstly, to the worker’s willingness to continue working for the company and, secondly, to the real possibility of adapting the post or relocating to a vacancy compatible with his or her new functional conditions. Only when these options prove to be unfeasible or involve an excessive burden for the company, duly justified, may the employment relationship be lawfully terminated.

This new regulatory model also has important implications for the system of temporary incapacity benefits and the transition to permanent incapacity, directly affecting employers’ obligations, the maintenance of contributions and the compatibility of pensions with work.

The following is a structured and practical overview of the main legislative innovations introduced by this reform:

1. Key changes to the Workers’ Statute: towards an employment preservation model

Law 2/2025 introduces substantial modifications to the Consolidated Version of the Workers’ Statute (ET) that configure a new framework of action for companies and workers in situations of permanent incapacity.

• Firstly, article 48.2 ET is amended to strengthen the protection of the employment relationship in cases of permanent disability. From now on, when the declaration of total, absolute or severe permanent disability is subject to review due to improvement -according to the criteria of the qualifying body- and there is the possibility of returning to work, the suspension of the contract will continue with job reservation for a period of up to two years, counting from the date of the decision declaring the disability.

Furthermore, it is expressly recognised that, in the cases regulated in the new article 49.1.n) ET, the suspension with job reservation will also be maintained for the time necessary to carry out the reasonable adjustments or the relocation of the worker to a vacant post that is suitable for his or her new functional conditions. This provision introduces an intermediate phase of employment protection, which obliges companies to exhaust the possibilities of adaptation before considering termination of the contract.

• Secondly, the previous letter e) of Article 49.1 ET is repealed, eliminating the automatic cause of termination due to recognition of permanent disability. In its place, a new letter n) is incorporated, which regulates the conditional termination of the contract, allowing it only if there are objective and justified circumstances that make it impossible to maintain the relationship.

Specifically, termination may only take place if it is proven that: (i) it is impossible to make reasonable adjustments without placing an excessive burden on the company; (ii) there are no vacant positions suitable for the employee’s new functional situation, nor is it possible to adapt the current position; or (iii) the employee explicitly rejects the adaptation or relocation measures proposed in a reasonable manner.

The law also provides specific criteria for assessing when an accommodation can be considered an excessive burden.

In the case of companies with fewer than 25 employees, such a burden is presumed to exist when the cost exceeds the amount of compensation for unfair dismissal or is equivalent to more than six months of the employee’s salary.

For larger companies, factors such as size, turnover, financial resources, economic situation and the availability of public subsidies that could mitigate the economic impact of adaptation should be considered.

2. Procedure, deadlines and guarantees

The new regulation establishes a procedure with safeguards, structured in several key moments.

The worker has 10 calendar days from the notification of the decision of permanent incapacity to communicate in writing his or her wish to continue working at the company. Only if he/she expresses this intention does the employer’s obligation to analyse the feasibility of adaptation or relocation come into play.

Thereafter, the Company has a maximum of three months from the date of notification of the decision to declare the permanent incapacity to make reasonable adjustments, offer a compatible position or provide documentary evidence of the impossibility of both.

If the adjustments are not feasible or if there is no suitable vacancy, the Company may terminate the contract within the same period, giving the employee written notice of termination and stating the reasons.

During this process, the intervention of the occupational risk prevention services is mandatory, which must issue a technical report on the worker’s state of health, the feasibility of the adaptation and the existence of suitable vacancies. The participation of the workers’ legal representatives is also required, guaranteeing a transparent and participatory procedure.

Any termination decision taken outside this framework, or without observing these guarantees, runs the risk of being null and void on the grounds of discrimination on the basis of disability.

3. Coordination with the Social Security system: new rules on the transition between TI and PI

Law 2/2025 also amends the General Social Security Law (LGSS), introducing relevant adjustments in the management of benefits and their coordination with the new labour regime.

Article 174.5 LGSS is updated, which guarantees the continuity of the financial benefit for temporary incapacity while the qualification of permanent incapacity is being processed, even beyond the ordinary period of duration of the TI.

At the same time, Article 198 provides that if the worker returns to work as a result of an adaptation or outplacement, the permanent incapacity pension is suspended for the duration of the employment relationship. In the event of subsequent termination of the contract, the pension is automatically reactivated, with retroactive effect from the day following the end of the TI.

Likewise, the company’s contribution obligation is maintained throughout the process, even if the final decision does not recognise the situation of permanent incapacity, until the legal limit of 545 calendar days of sick leave has been exhausted.

4. Judicial reinforcement: procedural preference and enhanced guardianship

From a procedural perspective, the reform incorporates an amendment to the Law Regulating Social Jurisdiction (LRJS). Specifically, a new section 2 is added to Article 120, giving urgent and preferential nature to legal proceedings related to the termination of the contract due to permanent disability in accordance with the new Article 49.1.n) of the ET.

This procedural priority reinforces effective judicial protection and allows situations that, due to their personal and economic impact, require a rapid response to be resolved more quickly.

5. Looking to the future: compatibility between employment and pensions

Finally, the second final provision stipulates that the Government must approve, within six months, a specific regulation on the compatibility between work   and the receipt of a permanent disability pension, a key issue that will mark the future development of this matter. This provision is in line with the recommendations of the Toledo Pact and with the need to articulate a more flexible system adapted to non-linear employment paths.

6. Practical considerations for companies: prevention, documentation and advice

Given this new regulatory framework, it is essential that companies urgently review their protocols for managing situations of incapacity. It is a priority to establish internal procedures that guarantee the individual assessment of each case, the involvement of the prevention services from the outset, and the documentary traceability of all actions undertaken.

Job retention is now the rule rather than the exception. Therefore, any termination decision must be solidly grounded and supported by technical reports and adequate documentation.

In short, Law 2/2025 introduces a paradigm shift in company management of situations of permanent disability, where the focus shifts from the termination of the contract to the obligation to preserve employment by acting proactively, diligently and with respect for the fundamental rights of the worker.