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Does the significant increase of staff always constitute company succession?

| News | Employment Law and Social Security

Sergio Juárez y Teresa Juan analyse the Sentence of the Supreme Court of 26 October 2018 in Actualidad Jurídica Aranzadi

The Supreme Court ("SC"), in a recent Judgment dated October 26th, 2018 [Rec. 937/2018] has just addressed an important conceptual delimitation in relation to when article 44 of the Workers Statute ("ET") must be applied in those cases in which the requirements established in the precept were not strictly complied with.

In this case, the SC -revoking the Judgment issued by the Andalusia (Seville) Supreme Court of 21st January 2016 [Rec. 80/2015]- has understood that if it is a materialised activity, the fact that the company hired 6 of the 10 workers of the previous contractor would not per se determine the application of article 44 ET if it is not accompanied by the necessary and indispensable material means to be able to provide the service.

Indeed, the application of article 44 ET has not been peaceful in the judicial pronouncements of recent years. Hence, the reference of the High Court in Unification of Doctrine that clarifies what should be understood by materialized or dematerialized activity and its impact on the qualification of company succession by "staff succession" is of great relevance.

In order to be able to assess and understand whether or not Article 44 ET is applicable, it must be clarified beforehand whether it is a materialized activity, that is, whether it is an activity that has assets -whether tangible or intangible-, or whether, on the contrary, it is dematerialized; which would be defined as an activity whose main asset would be labour, in which there would be no relevant goods that could be transferred.

In this order, the SC begins by refreshing the constant Doctrine of the Chamber in relation to the particular case of succession of contracts or concessions with succession of templates, which would arise when an undertaking -incoming contractor or contractor for services succeeds another -outgoing- undertaking which previously performed them on behalf or in favour of a third party, incorporating into the performance of those services or activities which are the subject of the contract a significant part, qualitatively or quantitatively, of the workforce of the outgoing undertaking, that workforce also constituting the main asset for the performance of the contract.

That being the case, the Chamber also recalls that under Article 1(2)(b) of Council Directive 2011/23/EC of 12th March 2001 on the safeguarding of employees' rights in the event of transfers of undertakings or businesses, the transfer should relate to an economic entity which retains its identity after the change of owner. Identity, understood as a set of organised means, in order to carry out an economic activity, whether essential or ancillary.

To this end, it appeals both to the Doctrine of the ECJ and to its own Doctrine followed in the Judgment of September 19th 2017 [Rec. 2629/2016], considering that in order to determine whether the required identity is present, all the factual circumstances characteristic of the operation must be assessed, and very particularly the type of company or centre of activity, the possible transfer or not of material elements -buildings, movable property, etc.-, the value of the intangible elements at the time of the transfer, the assumption - or not - of the majority of the employees, the clientele, as well as the degree of analogy of the activities carried out before and after the transfer.

Applied this Doctrine to the specific case, the Court concludes that there has not been a succession of companies, making irrelevant the fact that the new successful bidder or incoming company had hired 60% of the workers who provided services in the contract for the outgoing company.

In other words, since the case under examination is not presented, on the one hand, as an activity essentially residing in the workforce, and, on the other hand, since there is no transmission of the essential material means -delimited as not marginal in the factual relationship of the Judgment- for the operation of the service entrusted, there would not have been the required transfer between outgoing and incoming of an entire organized set of personal and material elements of capital importance for the development of the activity, so that business succession could be declared.

There is no doubt that the aforementioned ruling is of special interest, since it endorses the criterion of studying and delimiting case by case, when it can be understood that there is or is not a succession of a company due to the significant assumption of staff, starting from whether the activity requires an essential infrastructure of material means to be able to provide the service.

However, we will have to wait for future pronouncements to assess the scope of this pronouncement and see how the concept of "relevant material means" evolves and is applied.

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