The principle of freedom of enterprise enshrined in Article 38 of the Spanish Constitution allows a company to be divided, split into several entities, transferred, and so on.
Written by Josep Conesa
Employment and insolvency lawyer
The Workers' Statute expressly addresses and regulates business succession, specifying that a business succession occurs when a transfer affects an economic entity that retains its identity, understood as an organised set of resources intended to carry out an economic activity, whether principal or ancillary.
A change in the ownership of a company, a workplace, or an autonomous productive unit does not in itself terminate the employment relationship. The new employer is subrogated to all employment and Social Security rights and obligations of the previous employer.
This includes pension commitments, on the terms set out in the applicable specific regulations, and, in general, all supplementary social protection obligations previously assumed by the transferor.
FORMS OF BUSINESS SUCCESSION:
A change in the ownership of a company may arise in two situations:
A) Succession on death (mortis causa): The death of an employer does not in itself terminate the employment contract, as the heir may continue to operate the company, unless they expressly and unequivocally declare their intention not to do so, in which case the contract will be terminated. This scenario also covers the termination of employment relationships upon the winding-up of a commercial company.
B) Succession by act between living parties (inter vivos): In the case of the sale of a company to a new employer, the new employer is subrogated to the employment rights and obligations of the previous one.
LIABILITY REGIME:
The Workers' Statute provides that, in transfers carried out by acts between living parties ('inter vivos'), the transferor and the transferee shall be jointly and severally liable for a period of three years, without prejudice to applicable Social Security legislation, for any employment obligations arising prior to the transfer that remain unsatisfied.
The transferor and the transferee shall also be jointly and severally liable for obligations arising after the transfer where the transfer has been declared a criminal offence.
The Spanish Criminal Code provides that the following conduct shall be punishable by imprisonment of between six months and three years, together with a fine of between six and twelve months:
1. Anyone who, through deception or by exploiting a situation of necessity, imposes on workers in their employ working conditions or Social Security conditions that are detrimental to, suppress, or restrict rights recognised under legal provisions, collective agreements, or individual contracts.
2. Anyone who, in the event of a business transfer, with knowledge of the conduct described in the preceding paragraph, maintains those conditions as imposed by another party.
3. The penalties shall be more severe where the conduct described above is carried out with violence or intimidation.
APPLICATION OF THE collective bargaining agreement:
The collective bargaining agreement in force at the time of the transfer must continue to apply to the affected employees in relation to the company, workplace, or autonomous productive unit transferred, unless otherwise agreed, such agreement being reached after the transfer has taken effect, by way of a company-level agreement between the transferee and employee representatives. This application continues until the original collective bargaining agreement expires or until a new collective bargaining agreement applicable to the transferred economic entity enters into force.
EMPLOYEE REPRESENTATION:
Where the company, workplace, or productive unit being transferred retains its autonomy, a change in the identity of the employer does not in itself terminate the mandate of employees' legal representatives, who continue to carry out their functions under the same conditions as previously applied.
It is expressly noted that among their powers is the right to receive information regarding the transfer, which in turn gives rise to a corresponding obligation on the part of both the transferor and the transferee to provide that information.
Where there are no employee representatives, the transferor and the transferee must provide this information directly to the workers who may be affected by the transfer.
This obligation on the part of the transferor and the transferee specifically entails a duty to inform on the following aspects of the transfer: the planned date, the reasons, and the legal, economic and social consequences for the workers, together with any measures envisaged in relation to them.
As regards the timing of this information:
- the transferor is required to provide it with sufficient advance notice, before the transfer takes place;
- the transferee is required to communicate this information with sufficient advance notice and, in any event, before its employees are affected in their employment and working conditions.
In cases of company mergers and demergers, both parties must provide the above information, in any event, at the time of publication of the notice convening the general meetings at which the relevant resolutions are to be adopted.
OPENING OF A CONSULTATION PERIOD:
The transferor or the transferee who intends to take employment measures in connection with the transfer, in relation to their workers, must initiate a consultation period with the workers' legal representatives concerning the measures envisaged and their consequences for the workers.
The consultations must be held with sufficient advance notice, before the measures are implemented. During this period, the parties must negotiate in good faith with a view to reaching an agreement. Where the measures envisaged consist of collective relocations or substantial collective changes to working conditions, the procedure must comply with the provisions set out in Articles 40.2 and 41.4 of the Workers' Statute, which govern geographical mobility and substantial amendments to working conditions.
These information and consultation obligations apply regardless of whether the decision to proceed with the transfer was taken by the transferor and transferee employers themselves or by the companies exercising control over them. Any justification put forward by those parties on the grounds that the company that took the decision failed to provide them with the necessary information cannot be taken into account for this purpose.
RIGHTS AND OBLIGATIONS OF EMPLOYEES:
In cases of inter vivos business transfers, the law requires continuity of contracts and employer subrogation by operation of law. As such, the employee is obliged to accept the change, but is entitled to have the contract maintained without any variation in its terms and conditions.
Changes to working conditions are governed by Articles 39 (functional mobility), 40 (geographical mobility) and 41 (substantial modifications to working conditions) of the Workers' Statute:
Functional mobility refers to the employer's decision to change the duties performed by the employee. Any such change must respect: the employee's academic or professional qualifications; their classification within the relevant professional group; and their right to dignity at work.
Geographical mobility occurs when the employee is transferred to another workplace of the same company located in a different area.
Substantial modification of working conditions covers changes to: working hours, work schedules, shift work arrangements, remuneration systems, work and performance systems, and job functions, where those changes exceed the limits set out for functional mobility under Article 39.
