According to the Workers' Statute, the change of ownership of a company, a workplace or an autonomous production unit will not in itself extinguish the employment relationship, with the new employer being subrogated to the labor and Social Security rights and obligations of the previous one, including pension commitments, under the terms provided for in its specific regulations, and, in general, when obligations in matters of complementary social protection have been acquired by the "transferor".
As you may already know, a change in company ownership can have a significant impact on employees and their working conditions. The transfer of one company to another, whether through merger, acquisition, or any other reason, involves the transfer of the business and raises important labor issues that we need to be aware of.
The change of ownership of a company is regulated by article 44 of the Workers' Statute (ET), which establishes the rights and obligations of workers in these cases.
CHANGE OF OWNERSHIP
The change of ownership of a company, a workplace or an autonomous production unit will not in itself extinguish the employment relationship, with the new employer being subrogated to the labor and Social Security rights and obligations of the previous one, including pension commitments, under the terms provided in its specific regulations, and, in general, when obligations in matters of complementary social protection have been acquired by the transferor.
Specifically, we cannot forget that:
- The rights and obligations arising from the workers who are to be transferred will be transferred to the new employer as a result of the transfer of the company, the workplace or an autonomous production unit.
- Subrogation is a legal concept that cannot be overridden by any agreements between third parties. This means that any settlement agreements signed with the transferring employer are invalid. The new employer is responsible for all prior seniority for the purposes of severance pay in cases of dismissal (Spanish Supreme Court Judgments 9-2-2011; 30-4-2007).
- The new employer finds himself in the same situation as the previous one (STS 12-5-2010).
- The basic requirement for business subrogation to operate is that the employment relationships have not been terminated prior to the transfer.
- The subrogation is total, encompassing any of the working conditions, whether of legal, regulatory, collective agreement, employment contract, acquired rights, including the calculation of previous services for both economic and compensation purposes (SSTS 14-2-2011; 14-3-2005).
- The transfer of employment also extends to any existing employment contracts until their nullity has been formally declared. The new company is responsible for the consequences of fraudulent employment contracts granted by its predecessor (STS 15-12-1997).
- The new employer must assume the pension obligations of the workers in accordance with their specific regulations, as well as the various forms of supplementary social protection that they had recognized (civil liability, life, work accident, temporary disability policies, aid, etc.)
CONCEPTUALIZATION OF BUSINESS SUCCESSION
A transfer of business will be considered to exist when the transfer affects an economic entity that maintains its identity, understood as a set of organized means in order to carry out an economic activity, essential or accessory.
In other words, an organized set of material and human resources (not isolated components) must be transferred for the consequences of Article 44 of the Workers' Statute to apply; this could be the entire company, just one workplace, or even a part of it. Therefore, the mere transfer of business premises, company assets, or unexploited products cannot trigger the consequences of Article 44 of the Workers' Statute, as in such cases a productive organization is not involved.
For a business succession to occur, it is required that a set of assets be transferred that are capable of independent economic exploitation and able to offer goods and services to the market.
Transfer through inter vivos acts can be effected through any legal transaction, be it a sale, lease of a business, acquisition at public auction, usufruct, transfer, donation, reversion, merger or acquisition, transfer by public bodies, etc. The important thing is that the same business activity continues, so that there will be subrogation, even if formally everything appears as if the old company had ceased operations and the new one had nothing to do with it.
JOINT LIABILITY OF BOTH BUSINESS OWNERS
In transfers that take place through "inter vivos" acts, the transferor and the transferee will be jointly and severally liable for 3 years for labor obligations arising prior to the transfer and which have not been satisfied.
Compliance with obligations incurred prior to a change of ownership is reinforced to prevent workers' rights from being circumvented by the convenient mechanism of transferring the company to a third party who may be insolvent. The new employer who assumes the debts of the previous one can seek recourse against the latter through civil proceedings.
The General Social Security Law (Article 168.2) establishes that the new employer will be jointly and severally liable with the previous employer or their heirs for the payment of benefits accrued before the succession. The General Collection Regulations also establish identical liability regarding compliance with the obligation to pay social security contributions for employees covered by any of the Social Security schemes.
APPLICABLE COLLECTIVE AGREEMENT
Unless otherwise agreed, established once the succession has been completed by means of a company agreement between the transferee and the representatives of the workers, the employment relations of the workers affected by the succession will continue to be governed by the collective agreement that at the time of the transfer was applicable in the company, workplace or autonomous production unit transferred.
This application will remain in effect until the expiration date of the original collective agreement or until the entry into force of another new collective agreement that is applicable to the transferred economic entity.
In this case, we must keep in mind that:
- In principle, the working conditions of the collective agreement that governed the transferred company at the time of the transfer are provisionally maintained for the affected workers.
- This provisional maintenance of working conditions is optional, meaning that an agreement to the contrary is possible, established once the succession has been completed through a company agreement between the transferee and the workers' representatives.
- The provisional maintenance of working conditions lasts until the expiration date of the original collective agreement, or the date of entry into force of another new collective agreement that is applicable to the transferred economic activity.
WORKERS' REPRESENTATIVES
When the company, workplace or production unit subject to the transfer retains its autonomy, the change of ownership of the employer will not in itself extinguish the mandate of the legal representatives of the workers, who will continue to perform their functions in the same terms and under the same conditions that governed previously.
The transferor and the transferee must inform the legal representatives of their respective employees affected by the change of ownership of the following points:
- Expected transmission date.
- Reasons for the transmission.
- Legal, economic and social consequences for workers of the transfer, and
- Measures planned with respect to workers.
Those affected by the transfer are not only those who change employers, but also those who, where applicable, were already providing services for the transferee or those who remain in the original company; therefore, both employers must inform their workers' representatives about the succession or change of ownership.
If there are no legal representatives of the workers, the transferor and the transferee must provide the aforementioned information to the workers who may be affected by the transfer.
ADVANCE NOTICE OF INFORMATION RIGHTS
The transferor is obligated to provide the aforementioned information sufficiently in advance of the transfer. The transferee is obligated to communicate this information sufficiently in advance and, in any case, before its employees are affected in their employment and working conditions by the transfer.
In cases of merger and division of companies, the transferor and the transferee must provide the indicated information, in any case, at the time of publishing the call for the general meetings that are to adopt the respective agreements.
CONSULTATION PERIOD WHEN LABOR MEASURES ARE PLANNED
When a company undergoing a change of ownership intends to implement labor-related measures, such as transfers, modifications to working conditions, or dismissals, the employer—whether the new or the old one—must initiate a consultation period with employee representatives regarding the planned measures and their consequences. The procedures to be followed during this period will be those stipulated in the relevant regulations governing the labor-related measures taken. This means that, depending on the specific measures, the procedures outlined in Articles 40, 41, 51, and 52 of the Workers' Statute may apply.
GROUP OF COMPANIES
The information and consultation obligations established in this article shall apply regardless of whether the decision regarding the transfer was made by the transferor and transferee businesses or by the companies that control them. Any justification by the transferor and transferee businesses based on the fact that the company that made the decision did not provide them with the necessary information shall not be taken into consideration for this purpose.
The regulations contain specific provisions regarding information and consultation obligations within corporate groups, stipulating that the fact that the transfer decision was made by the transferor and transferee employers, or by the companies that control them, cannot be used as a pretext for failing to inform or consult. In other words, the fact that the parent company controlling the affected company has not provided information about the transfer is not a valid justification for not informing or consulting. Ultimately, the entity appearing as the employer is responsible for fulfilling these obligations towards the workers or their representatives, and is responsible for carrying out the necessary procedures with the entity that actually holds the decision-making power for the purposes of the business transfer.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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