Employment implications of business subrogation in Spain

The process of business subrogation or the change in ownership of a company, workplace or production unit is known as succession and consists of a negotiation between two entities or people, in order to transfer the activities from one to the other.

One must remember that generally, business succession consists of an assigned business owner, who receives a company by substituting in the position of the previous owner. Thus, the workers become dependent on the assigned business owner while maintaining their contracts. Another issue is if the worker does not want to continue with the new business owner, since the law does not oblige the continuation of the employment relationship.

In some cases, modifications to the employment relationship can be made, where it is advisable to have professional counselling:

Change of ownership

When a change of ownership occurs in a company, workplace or autonomous productive unit, the employment contracts are not terminated. The new business owner will subrogate the rights, employment, and Social Security obligations of the previous owner, including pension commitments.

Joint and several liability of both owners

In this case, the assignor and assignee will be severally liable for three years for the employment obligations made prior to the transmission (for example, debts from unpaid wages or debts with regard to Social Security).

Compliance with this obligation is enforced with the intention of avoiding a breach of workers´ rights by transferring property to a third insolvent owner. In the case that the previous owner does not take responsibility for the debts, the new business owner can initiate legal proceedings against the previous owner through civil proceedings.

Applicable collective agreement

Unless otherwise agreed, the employment relationship of the workers affected by the succession will continue to be governed by the collective agreement that was applicable to the transferred company, workplace or autonomous productive unit, at the time of transmission.

Workers’ representatives

When the company, workplace or productive unit retains its autonomy, it must keep the legal representatives of the workers under the same conditions and terms after the change of ownership.

In the case of business succession, professional advice on labour and business law can avoid making substantial modifications to the work contracts or even an important loss of rights in the case of wanting to carry out dismissals.

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