Business Succession and Subcontracting Liability Under Spanish Law

Business Succession and Article 44

Article 44 states: "There shall be regarded as business succession when the transmission affects an economic entity which retains its identity, meaning an organized grouping of resources to carry out an economic activity, essential or ancillary." Essentially, what determines the applicability of this article is the transmission of a set (more or less, total or partial) of elements organized for production and productivity.

Causes of Business Transmission

The cause of transmission is indifferent. Article 44 speaks in very broad terms of a "change of ownership of whatever cause or motive." It may, therefore, be a sale, assignment, exchange, or corporate merger.

Effects of Transmission on Workers

The new employer is subrogated to the employment rights and obligations of the previous employer, including pension commitments and general obligations of complementary social protection that the transferor had acquired. Therefore, the working conditions that workers enjoyed remain, whether of conventional origin, individual, or unilaterally introduced improvements by the previous owner. Acquired rights, such as seniority, are also preserved. As a general rule, the collective agreement in force at the time of the transmission should continue to govern, unless there is an enterprise agreement to the contrary.

Liability in Subcontracting (Article 42)

Barring exoneration, Article 42 provides for joint responsibility among entrepreneurs contracting or subcontracting works or services relating to their main activity: "The employer shall be jointly liable for the wage obligations contracted by contractors and subcontractors with their workers, as well as those related to Social Security during the term of the contract." (Is this a chain responsibility?)

Scope of Joint and Several Liability

Joint and several liability reaches, on one hand, the payment of obligations of a wage nature in the strict sense, and on the other hand, obligations relating to Social Security. This joint liability of the employer has certain limits:

• The employer is only liable for the contractor's workers engaged in the contract and during its lifetime.
• Responsibility is only demandable during the year following the termination of the contract.

Exclusions from Joint Liability

Joint liability is excluded when the outsourced activities relate to construction or repair work that a homeowner might undertake on their own property. A homeowner (who is not an employer) is not the owner of a work or industry and does not hire its realization on behalf of a business.