Changes to the Supreme Court doctrine in cases of conventional succession of companies

Written on 21 Feb 2019

The Supreme Court, in its ruling on 27 September 2018, changed its approach regarding the legal framework applicable to succession of companies' cases with companies that carry out activity sustained exclusively by the workforce. With this judgement, the Supreme Court rectifies the existing doctrine and brings it in line with the interpretation made by the Supreme Court of Justice of the European Union in the Somoza Hermo case (C-60/17).

Until now, judgements were uniform in considering that in the event of a succession of companies involving companies where the workforce makes up the main part of the economic activity (for example, contact centre services, cleaning or security companies), the responsibility lay with the incoming contractor to take over the existing personnel (those of the outgoing contractor). This was made by mandatory by the applicable collective agreement, and not because there was a case of succession of companies as outlined in Article 44 of the Statute of the Workers (hereinafter “SW”).

This interpretation implies that the succession of companies is strictly conventional and, as such, it is the collective agreement itself that establishes the legal arrangements, including the applicable limits and extensions. All this is entirely independent from the provisions found in Article 44 of the SW which governs succession of companies. In terms of contracting – which is where companies whose activity relies on labour mainly operate – there is a distinction between the general regulation in Art. 44 SW and that of collective agreements. In cases of succession of companies these agreements provide for the establishment of a more flexible regime of obligations than that imposed by Art. 44 SW. Examples of this increased flexibility include the fact that the duty to subrogate only affects a section of the workforce (in contrast with the duty to retain the totality of the workforce outlined in Art. 44 SW). In addition, the new contractor does not assume any responsibility of debts incurred by the outgoing contractor (whereas Art. 44 establishes three years of joint and several liability) or even the non-maintenance of the subrogated workers. This relaxation of conditions is justified by the fact that in the field of dematerialised activities there are cases in which a part of the workforce is subrogated, but an autonomous productive unit is not transferred and, therefore, if the mandate of the collective agreement did not exist there would be no succession of companies either.

In accordance with the Supreme Court’s new interpretation, a succession of companies in terms of Article 44 SW occurs when, in the dematerialised activities and as a consequence of the collective agreement mandate, the new contractor assumes a portion of the previous workforce. In this way, in those cases where the application of the provisions held in the collective agreement brings about a succession of staff, the obligations of Article 44 must be applied without limitation. These include, amongst others, the total subrogation of the personnel, the maintaining of pre-existing rights and the responsibility for both labour and Social Security debts. Consequently, the traditional clauses that limited these obligations become null and void.

The change in the Supreme Court’s approach has its origins in a claim filed by a worker at a cleaning services company. Her company owed her wages. Subsequently, and without the payment of the wages owed, the worker started providing services to the incoming contractor by virtue of the collective agreement that obliged the incoming contractor to subrogate the workers. The unpaid wages were accrued prior to the finalisation of the outgoing contactor’s contract, who declared voluntary bankruptcy one month before the change of contractor. Faced with this situation, the worker filed claims against both companies, asking that they declare themselves jointly and severally liable for the owing sums. Finally, the controversy arrived at the Supreme Court, which ruled in favour of the worker and declared both contractors to be so liable.

This interpretation had already been put forward by the CJEU in the Somoza Hermo case (C-60/17), in which the court declared the law on successions of companies is also applicable when the subrogation of labour contracts occurs by imperative of what is agreed in the collective agreement. However, the Supreme Court subtly nuanced this interpretation by establishing that the subrogation referred to in Article 44 SW will only apply when the incoming company retains an essential part of the workforce (qualitative or quantitative). In contrast with the CJEU’s interpretation, the Supreme Court considers that subrogation is not “automatic and unconditional”, it is instead a question of evaluating each case on its concurrent facts. In fact, Article 44 is expected to be applied except in cases where it can be proved not applicable, in this way the burden of proof lies with the party claiming that there has not been an assumption of a sufficiently relevant workforce.

From a company perspective, this judgement has a direct impact on contracting as it brings in new obligations in both a labour and social security context. In light of this, it is advisable to seek adequate advice with an in depth knowledge of the legal regime established in Article 44 SW.