Business Succession: Employee Rights and Legal Aspects
Business Succession: Legal Aspects and Employee Rights
Legal Philosophy: The change of an employer by another is a legally accepted formula, expressly stated in Article 44 of the Statute of Workers. We can legally define the succession of a business as the transfer of legal ownership of an enterprise, employment center, or an independent production unit. The latter is understood as an organized group of persons and assets facilitating the exercise of economic activity.
Requirements for Corporate Succession
For corporate succession to occur, two requirements must be met:
- Subjective: A real replacement of one employer by another, either by contract between them or through a third party, constituting indirect business succession.
- Objective: The actual delivery of all essential business factors, likely to ensure the continuity of all its elements, both technical, organizational, and proprietary.
Business succession under the Act is mandatory, meaning the requirements are non-negotiable for the parties involved. Collective agreements may introduce additional requirements, such as more information for representatives or specific deadlines for carrying out the subrogation of workers.
In every business succession, the assignee is subrogated to all labor and Social Security rights and obligations of the previous employer, including pension commitments (as provided in specific legislation) and, in general, the complementary social protection obligations the transferor has acquired. The transferee and transferor are jointly liable for three years for work obligations arising before the transfer that have not been met. This responsibility extends to liabilities after the transfer if the assignment is declared a crime.
Employee Representatives’ Rights
Both the transferor and transferee must provide the legal representatives of their employees affected by the change of ownership with the following information:
- Expected date of transmission
- Reasons for the transmission
- The legal, economic, and social consequences of the transmission for workers
- Measures planned for workers
When the company, workplace, or production unit retains its autonomy after the transmission, the change in ownership of the employer does not automatically extinguish the mandate of the legal representatives of the workers. They will continue to serve on the same terms and under the same conditions as before.
Differences Between Business Succession and Transfer of Employment Contracts
The transfer of employment contracts from one company to another is a completely different concept from corporate succession and is not regulated by Art. 44 of the Statute of Workers.
In the assignment of contracts, there is no transfer of part or all of the business assets; instead, workers are transferred to operate some kind of service (a well-known case is Eurohandling Service). It is important not to confuse the assignment of contracts with the illegal transfer of workers, which requires other conditions, such as the apparent existence of a company and that the object of service contracts between companies is limited to merely making employees of the transferor undertaking available to the transferee. These requirements are not fulfilled in a transfer of employment contracts.
Following this explanation, the event of having an individualized assignment of contracts, for which the contractor or assignee is subrogated to the contract, requires the consent of the worker concerned. There is no possibility that such consent can be given by the legal representatives of the workers (art. 1205 CC). If workers refuse the contract assignment, the assignor must continue to assume its obligations as an employer or, as the case may be, proceed to the termination of the contract for one of the causes mentioned in art. 49 RDL 1/1995 of March 24.