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Plural Employer: “Group Company” and “Employment Corporate Group”

| Publications | Employment Law and Social Security

The Labour Chamber of the Supreme Court recently passed a judgement for doctrine unification resolving a termination of employment contract due to objective reasons (economic) with a favourable outcome for the complainant employee. 

The Labour Chamber of the Supreme Court recently passed a judgement for doctrine unification resolving a termination of employment contract due to objective reasons (economic) with a favourable outcome for the complainant employee. It was based on the premise of the existence of a corporate group as the employer of the claimant, for the indistinct and simultaneous provision of services for the parent company (the one dismissing and with which the claimant was registered) and for the subsidiary company, and due to the overall economic situation of the group not being accredited, no just cause was determined for the termination of the contract, thus concluding the inapplicability of the objective dismissal with the subsequent joint liability of the two co-defendant companies.

One must stress the significance and great practical interest of this judgement passed on 27 June 2017 (Lupo Morenete matter; RCUD 1471/2015), given that regardless of the traditional figure of the pathological employment corporate group, it underlines another equally existent reality in the evolution of business relationships, which is the possibility of the technical consideration of employer being assumed by the Corporate Group solely for one employee and not for the rest of the workforce.

The Labour Chamber no. 7 of Barcelona initially justified the petitioning party, in the understanding that the working relationship was held by the Group and not by the formal employer (parent company), yet this criterion was corrected by the Labour Chamber of the Supreme Court of Catalonia which declared the objective dismissal as being fair, due to excluding the existence of the Corporate Group, hence having accredited the concurrence of the economic cause within the company issuing the contract, this became the origin of the objective dismissal.

However, the Supreme Court revoked the judgement of the Territorial Court by declaring the inadmissibility of the contractual termination, thus confirming the judgement of the Labour Chamber. It is of interest to note the facts declared as firmly proven (HDP) of this procedure to understand and appreciate the consequences that arise from this relevant Supreme Court judgement:

 HDP 1.- The employee, registered as working for the company Lupo Morenete S.L., dedicated to manufacturing and selling leather and travel goods, has provided services for the aforementioned company and for the co-defendant Lupo Shops S.L., with an employment contract dating back to 16 November 2009, with a professional category of Administrative Director, heading the financial department and providing administrative and financial support to the group companies, supervising all the sales channels…, conforming the employment relationship by virtue of the indefinite employment contract for the provision of services as Head of Administration.

 HDP 2.- Lupo Morenete S.L. is the parent company of the Lupo Group, which does not present consolidated annual accounts due to not being obliged to do so pursuant to the current legal regulations.

HDP 3.- Lupo Shops S.L. is a subsidiary company, as is Lupo Japan S.L., and one of the sales channels of its products.

HDP 6.- The companies share the same corporate domicile and work centre.

HDP 7.- By means of letter dated 24 July 2013, with effect as of 8 August, the company (Lupo Morenete S.L.) notified the claimant of her dismissal due to objective reasons, due to the drop in sales in 2012 and the drop in net profit since 2008, by 80%.

It must previously be noted that for employment purposes, the term group of companies or employment corporate group has been used for mentioning those pathological assumptions that tend to be diagnosed in social jurisdiction and that beneath the appearance of different corporate realities (allegedly differentiated) actually constitute a single employer.

Well then, the analysed judgement recalls the current judicial doctrine in relation to the so-called “Corporate Groups”, for synthesising it in the following points:

a) That for employment purposes, the innocuous “Corporate Groups” are perfectly distinguishable from the transcendent responsibility of “Group Companies”.

b) That for the existence of the second -companies/group- it is not sufficient that two or more companies belong to the same corporate group to derive for this mere fact a jointly liability in respect of the obligations assumed by one of these towards its own employees, it is also necessary to ensure the presence of additional elements, because in principle the components of the group have their own scope of responsibility as the independent legal entities they are.

c) That the listing, in a cumulative manner of the additional elements that determine the responsibility of the different group companies could be: 1) the unitary operation of the work organisations within group companies, reflected in the indistinct provision of work, simultaneously or successively, in favour of several companies comprising the group; 2) the mixing of assets; 3) the cash unit; 4) the fraudulent use of the legal status, with the creation of the “apparent” company; and 5) the abusive/abnormal use of the unitary management, with prejudice to the rights of the workers.

d) That the concept of “employment corporate group” and, especially, the determination of the extent of the liability of the group companies depends on each of the specific situations deriving from the evidence that has in each case been manifested and assessed, without allowing to carry out a numerical list of the closed requirements in order to consider the existence of extended responsibility.

In this order of things, it is known that if the company or companies that initiate a procedure for collective dismissal or termination of employment contracts due to economic, technical, organisational or productive reasons, is integrated into a Trade Group, the workforce to be considered is that of each company, and not the sum of all of them.

But this solution is not valid for those belonging to an Employment Corporate Group or which provide services indistinctly to several companies within the Group (Group Companies), as in that case the true employer is the group as a whole, and the total number of workers employed shall be taken into consideration.

In other words, if the existence of the Employment Corporate Group or Group Company is noted, the non-existence of accredited economic cause in one or more companies within the group vitiates the justification of the cause alleged by the employer company and determines the joint liability of all the co-defendant companies. This is the circumstance appreciated by the Supreme Court judgement:

“(…) we are (…), before a unique employment relationship for which the responsible party is the group in its condition of true and effective subject of the unitary exploitation on account of which the workers provide their services, which cannot differentiate the company for which they perform their activity. These situations are referred to in the provisions of article 1.2. of the Workers’ Statute, which considers business owners to be the “individuals and legal entities” and also the “communities of goods” that “receive the provision of the services” performed by the salaried employees”.

(…) the relevant aspect is not the provision of the services for a group company with incidence on others, but whether this provision can be classified as "undifferentiated", that is, that the provision is performed for one or other company regardless of the company which the employee is actually employed by”.

For finally laying down the judgement that:

“(…) the petitioner “has provided services indistinctly for the aforementioned company and for the co-defendant Lupo Shops SL... managing the financial department and providing administrative and financial support to the group companies, supervising all the sales channels...”. “Indistinct” provision of services for both companies that configure it -AT LEAST FOR THE PLAINTIFF- as a “GROUP COMPANY” and the sole holder of the corporate powers and duties, aside from the exclusive formal employment of the complainant worker to the company “Lupo Morenete, SL”. A statement that is made with complete independence of the consideration that for mere trading purposes may be provided by the different links and relationships between both defendants, and that for such purposes the indicated simultaneous provision of services to both companies is or not relevant.

The doctrine established by the Labour Chamber of the Supreme Court is a construction that is inevitably destined to the determination of the true business owner in accordance with article 1 of the Workers’ Statute, given that in these cases of “indistinct” or “joint” provision of services to two or more corporate entities within a group we find ourselves before a single work relationships whose holders is the group in its condition of true and effective subject of the unitary exploitation on account of which the workers provide their services, and they cannot differentiate the company to which they provide these services. As mentioned in the Supreme Court judgement:

These situations are referred to in the provisions of article 1.2. of the Workers’ Statute, which considers business owners to be the “individuals and legal entities” and also the “communities of goods” that “receive the provision of the services” performed by the salaried employees”.

Thus, in a somewhat implicit manner, the judgement attempts to differentiate between two situations that are very similar yet different. In order for the undifferentiated provision of services being able to determine the existence of an Employment Corporate Group this must be generalised or must affect a significant group of workers, from a quantitative or qualitative point of view, because if it only affects a few specific workers this would be considered a Group Company with solidarity in the employment relationship of said specific workers, but not employment group in the strict sense of the term. Criterion framed in the well-known final judgement of the High Court dated 12 June 2014 (Coca-Cola; proceeding 79/2014).

In short, the condition of “Employment Corporate Group” employer can be asserted for all or most of the workforce (most common assumption), but also exceptional mention can be dedicated to the employer as “Group Company” when affecting one or more workers. As indicated by the aforementioned judgement, the relevance does not lie with the provision of services for a group company with incidence on another, but -here is the essence- on whether that provision can be classified as "undifferentiated", i.e. that the provision is rendered to one or other company regardless of the entity with which the worker is formally registered, that is, that from the sole employment position within a company services are provided indistinctly to this and other companies.

To conclude it is worth asking which consequences derive from belonging to an employment corporate group or, as in the analysed case, being employed by the Group? Three main consequences:

1. Very significantly, the “group privilege” that within the Workers’ Rights operates excluding the illegality of the assignment of workers between group companies, due to considering that because of the existence of a group these operate as a single company and not as two different ones between which there may be availability of workers. In this sense, the aforementioned High Court judgement dated 12 June 2014 (Coca-Cola; proceeding 79/14) and the Supreme Court judgement dated 26 November 1990 (RCIL 645/1990) issued their decisions, the doctrinal validity of which has been reiterated by the judgement dated 11 July 2012 (Xestion Urbanisticia de A Coruña; RCUD 1591/2011).

2. The joint responsibility of all companies affected in so far as the liability for the economic consequences derived from any corporate non-compliance.

3. The difficulties for undertaking a termination due to objective causes of an economic nature that should not only affect the theoretical formal employer, but all the companies comprising the group. As laid down by the judicial doctrine, if the scope of the economic cause within the pathological group must be that of group and the organisational and productive cause originates from the economic cause, a lack of proof of the first prevents proving the second when both are interrelated, as is often the case, as the economic and productive scopes are not fully independent organisational departments (by all, STSJ Castilla y León, Valladolid, 3-4-17; RS 2028/2016).

For your information and knowledge, you may refer to the following link for accessing the Supreme Court judgement of 27 June.

 

For further information, please contact:

Alfredo Aspra

alfredo.aspra@AndersenTaxLegal.es

 

José Antonio Sanfulgencio

jantonio.sanfulgencio@AndersenTaxLegal.es

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