The information contained in this Newsletter is of a general nature and does not constitute legal advice


November 2008

LABOUR LAW

 

1. Insolvency of the employer. Provisions to guarantee payment of employees’ outstanding claims

Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008, establishes new provisions in order to protect employees in the event of the employer’s insolvency and for such purposes repeals Directive 80/987/EECE of 20 October 1980. In this regard, new provisions are introduced in order to guarantee payment of the outstanding claims through the creation of guarantee institutions in each Member State, establishing as the objective, the liquidation of such claims in the shortest possible period. (More information)

 

2. Transfer of undertaking or mere assignment of employees

The mere assignment of an activity, without the transfer of other elements, will in no circumstances constitute the transfer of an undertaking. Decision of the Labour Chamber of the Supreme Court dated 29 May 2008. (More information)

 

3. Improper joinder of actions: claim for dismissal and length of service for an illegally transferred employee

In its decision of 12 February 2008 the Labour Chamber of the Supreme Court holds that in a claim for dismissal proceeding it is not possible to analyse, the existence and consequences of the illegal transfer of an employee among the companies against which a claim has been filed. It is only possible to analyse those issues which could affect the dismissal proceedings. (More information)

4. Transfer of undertaking. Continuity of workers’ representatives

In its decision of 30 June 2008, the High Court of Justice of Madrid has stated that the transferred employees will lose their status as representatives in those cases where as a result of the transfer of undertaking the company, activity centre or a part of these does not maintain its independence following the transfer. (More information)

 

5. Transfer of undertaking. Guidelines to determine if there has been a transfer of undertaking. Services companies

The decision of the High Court of Justice of Madrid dated 27 May 2008, stated that in the event of services companies, which activity is based essentially on the workforce, a group of employees which are permanently rendering a common activity, might be considered an economic unit that will maintain its identity even after the transfer if the new employer not only continues with the transferred activity, but also takes over an essential part - in terms of number and competences - of the personnel the predecessor engaged in performing said activity. (More information)

 

6. Collective dismissal procedure. Limits on the works council competences

The works council competences established in article 64 of the Statute of Workers do not include bearing the expenses for advice provided during the collective dismissal procedure. Decision of the High Court of Justice of Valencia dated 25 April 2008. (More information)
 


1. Insolvency of the employer. Provisions to guarantee payment of employees’ outstanding claims

Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 repeals Directive 80/897/EC of 20 October 1980 and introduces new provisions regarding the protection of employees in the event of their employer’s insolvency (Official Journal of the European Union of 28 October 2008)

Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008  (“Directive”), which repeals Directive 80/987/EEC of the same title (substantially amended on several occasions), establishes a new set of guidelines in order to provide protection to employees in the event of their employer’s insolvency and specifically, to guarantee payment of outstanding claims.

In this regard, the Directive will be applicable to employees outstanding claims arising from employment contracts or labour relations in the event of the employer’s insolvency. The Directive makes an important clarification in this regard, establishing that if a company carrying out activities in at least two different Member States becomes insolvent, the appropriate institution for payment of the outstanding claims will be that of the Member State in which the employees usually perform their duties.

Moreover, the Directive establishes that all Member States will adopt the necessary measures so that the guarantee institutions are able to ensure payment of such outstanding claims, including any severance payments due, under the domestic law. The forms of organisation, financing and operation of the guarantee institutions will be established by each Member State.

With regard to social security provisions, the Directive establishes that Member States must adopt the necessary measures to protect employees or any other individual when the insolvency takes place. This protection encompasses acquired rights, or rights in the process of being acquired, retirement pensions, including benefits for survivors, which derive from supplementary professional or inter-professional pension funds, and is independent from the social security regime.

 

2. Transfer of undertaking or mere assignment of employees

Decision of the Labour Chamber of the Supreme Court dated 29 May 2008

In this judgment, the Supreme Court analyses a possible transfer of undertaking between a foundation that decided to assign the cleaning service which it had performed until that moment, to another company which corporate purpose was to perform cleaning services in buildings and other commercial places, maintaining the employment relations in force with the transferor company and subrogating the new company in the rights and duties as established in article 44 of the Statute of Workers (“SW”).

The Supreme Court held that in order to demonstrate the existence of a transfer of undertaking under the terms of article 44 SW, it is not sufficient to assign employees from one business organisation to a different company. It is also necessary to transfer the assets comprising the infrastructure and basic business organisation of the operation. In the case at issue there was no evidence of the transfer of assets to the transferee company to demonstrate the transfer of the activity and workforce.   

Moreover, the Supreme Court held that the company’s decision to transfer its workforce to another company was not equivalent to taking over the workforce, an event considered under the European Community doctrine to be a transfer of undertaking, provided it is effective, non-imposed and real. This was not the case here. The decision was made by the employer and was called into question by a large number of employees.

Therefore, the Supreme Court concluded that if there was no transfer of material elements and if there was no taking over of the workforce it could not be held that there was a transfer of undertaking under the terms of article 44 SW.

 

3. Improper joinder of actions: claim for dismissal and length of service for an illegally transferred employee

Decision of the Labour Chamber of the Supreme Court, dated 12 February 2008

In this decision, the Supreme Court analysed whether in a claim for dismissal proceeding it was possible to obtain a pronouncement on the illegal transfer of employees, or whether such request would be an improper joinder of actions as established in article 27.2 of the Labour Procedure Law (“LPL”).

The claimant argued that the judgment should contain, at least as far as the proven facts, the length of services since the beginning of the transfer, including the length of the illegal transfer as established in article 43.3 of the SW. On these grounds, the claimant requested the recognition of a benefit in consideration of the length of services.

In this regard, the Supreme Court analysed the clear and direct connection that might exist between a dismissal and an illegal transfer of employees. In the first case, when the employer is dismissed while the transfer is in force, the sole claim is that related to the dismissal, and even though a pronouncement on the transfer relationship is necessary, this does not mean an analysis of two different claims which would be contrary to article 27.2 of the LPL. On the other hand, in the event there was a dismissal by the transferor company following the end of the transfer relationship, the argument of illegal transfer could not prosper due to the lack of a direct link between the two claims. 

Moreover, the Supreme Court declared that in dismissal proceedings the analysis of the illegal transfer was a preliminary or “internal preliminary” issue, which according to article 4.2. LPL must be analysed in order to identify - for example - the identity of the real and effective employer who dismissed the employee, the consequences of the dismissal being established pursuant to the terms of articles 43 and 56 of SW. Nevertheless, the Supreme Court pointed out that this analysis should be limited to relevant issues concerning the judgment, such as the amount of the salary, the real length of services, the temporary or permanent status of the employment relationship, the existence of a previous concealed transfer of undertaking, or the existence of a group of companies, without this involving the filing of claims other than that of dismissal or an improper joinder to the dismissal claim.

The Supreme Court concluded that although it was possible to analyse the existence of an illegal transfer of employees and its consequences in a dismissal claim, such analysis should be limited to reviewing any matters relevant to the dismissal. The analysis should avoid unnecessary pronouncements which, even if they did arise from the illegal transfer of undertaking, are irrelevant to the dismissal judgment. In the case in question, the claim filed by the employee regarding the effective length of services and the recognition of the benefit, was not related to the dismissal claim.

 

4. Transfer of undertaking. Continuity of workers’ representatives

Decision of the Labour Chamber of the High Court of Justice of Madrid dated 30 June 2008

In this judgment, the High Court of Justice of Madrid (“HCJ”) analysed on appeal a judgment issued by the labour court, which partially upheld a claim filed by an employee, declaring that the dismissal was unfair and that because he was an employee representative the worker was offered the alternatives of being indemnified or reinstated to their post, as established in article 56.4 of the SW. The main ground was that the labour court declared that the employee was appointed as an employee representative prior to the date of transfer and therefore, in accordance to article 44.5 of the SW and Community Directive 2001/23, the transfer did not terminate the representative’s appointment.

The HCJ reversed the labour court’s judgment and held that the appointment as employee representative ended on the date of transfer and as a result, the dismissal would not lead to the consequences set out in article 56.4 SW.

In this regard, the HCJ declared that article 44.5 SW - which refers to the continuity of employee representatives in their role even if there is a change of employer when the workplace maintains its independence - implicitly states that the closure of the workplace means the end of the appointment as representative. In this scenario, the removal of the workplace in which the employee was rendering services prior to the transfer date led to the end of the appointment as representative as a member of the works council. The continuity of the appointment is accepted and imposed only if the transferred workplace or economic unit maintains its independence; otherwise, the appointment will end.

The judgment finally refers to the Community Directive which, in order to maintain employee representation in the event of a transfer of undertakings, obliges Member States to adopt the necessary measures to provide proper protection. In this regard, the HCJ stated that the purpose of this Directive was to ensure protection for transferred employees when their previous company lost its independence, the loss would not mean that the employee representatives of the former company or work centre maintained their appointment in both situations, that is, regardless of whether or not there are representative bodies at the transferee company. In both cases, the “disappearance” of the company has the same consequences for the representatives’ appointment from the effective date of the transfer. 

 

5. Transfer of undertaking. Guidelines to determine if there has been a transfer of undertaking. Services companies

Decision of the Labour Chamber of the High Court of Justice of Madrid dated 27 May 2008

In this judgment, the HCJ analysed whether an oil company (“main company”) should be obliged to take over a group of employees from a services company (“outsourcer”) which were performing electrical maintenance services for the main company. In this scenario, and after the main company decided to carry out the electrical maintenance services activity directly and thus, to terminate the services agreement, the outsourcer decided to terminate the labour relationship with its employees based on the termination of the outsourcing agreement.

The employees brought a claim against both companies (main company and outsourcer) seeking a declaration of unfair dismissal. For most of the employees, the labour court declared the dismissal unfair, exonerating the outsourcing company, and requesting the main company to decide between the reinstatement of the dismissed employees or the payment of the severance payment due. In this case, the labour court found that the main company had committed fraud in law by using several outsourcing agreements in order to carry out permanent activities.

Moreover, the labour court stated that for services companies, which mainly focus on workforce activity, a group of employees that are permanently rendering a common activity might be considered an economic unit which would preserve its identity even after the transfer, if the new employer not only continued the transferred activity, but also took over an essential part - in terms of number and competences - of the personnel the predecessor was using in order to perform this activity.

In this case, the labour court held that there was no transfer of undertaking under the terms of article 44 of the SW and considered that the workforce itself (the employees) should not be considered an economic unit: this is understood to be a group of people and elements that enable the performance of an economic activity with a specific objective. The fact that the electrical maintenance services were now performed by the main company did not represent a transfer of said entity.

 

6. Collective dismissal procedure. Limits on the works council competences

Decision of the Labour Chamber of the High Court of Justice of Valencia dated 25 April 2008

In this judgment, the Tribunal analysed whether the works council’s decision regarding the recruitment of attorneys who were providing legal and technical advice during a collective dismissal procedure obliged the employees to consider them as their representative during the negotiation period of the collective dismissal procedure.  

In this case, the agreement approved by the works council was reached in order to cover the expenses incurred for advice during the negotiation period of the collective dismissal procedure. A discount on the amount exceeding that of the legal severance payment was agreed. This discount was variable and depended on the employees’ trade union membership.       

The Court stated that this decision was not representative or indicative of the employees’ acceptance, since the decision was beneficial to the majority (trade union members). Moreover, the Court declared that the decision would lead to a type of “compulsory financing” of trade union organisations by employees who were not trade union members, and that this situation would require the express authorisation of the employees affected according to article 11 of the Freedom of Association Law.  

In this regard, the Court held that article 64 of the SW provides the duties of the works council. Among these, nothing was provided in relation to expenses for advice during a collective dismissal procedure.

The information contained in this Newsletter is of a general nature and does not constitute legal advice