In our modern era, the world is more interconnected than ever, and as a result, changes in ownership of companies, workplaces and economic units are becoming increasingly frequent. Spain has enacted regulations to protect workers impacted by these changes of ownership. Employers must be mindful of these regulations to prevent unforeseen difficulties and uphold the rights and well-being of their employees throughout this process.
Depending on the type of business transfer transaction, business succession may or may not occur. Our focus here is on business succession within the sale and purchase of assets.
Business succession through asset sales and purchases occurs when a company purchases the assets of another company to continue its business operations.
In Spain, Article 44 of the Workers’ Statute outlines the legal protections for workers affected by such transactions.
Companies engaging in asset transactions must understand these regulations and safeguard the rights and interests of the employees involved. Complying with the provisions outlined in the Workers’ Statute, companies ensure a smooth and fair transition when transferring business assets.
In case of changes in business ownership resulting from asset sales, this article stipulates that all existing contracts in force before the production unit transfer will remain valid post-transaction. As a result, employee contracts will remain unaffected by the change in ownership.
Requirements for business succession within the context of asset sales
- The transfer of a self-sufficient and independent economic unit that can continue its economic activity autonomously and effectively
- The provision of necessary material and human resources to ensure the continuation of the activity and services
- A change in business ownership, whereby the production unit moves from one company to another.
Obligations for buyer and seller in business succession
The sale and purchase of assets in business succession carry commitments for both the buyer and seller.
- The new employer assumes responsibility for the employment and social security obligations, including honouring pension commitments. The same collective bargaining agreement will continue to govern the employees, and they will keep their current working conditions and rights
- The buyer and seller must inform employees about the transaction and how it will affect their working conditions
- The buyer and seller share joint and several liabilities for any outstanding employment obligations that arose before the asset transfer for three years after the transfer date.
A thorough analysis of all circumstances and characteristics of the transaction will determine if the sale of assets meets the requirements of business succession. The mere sale and purchase of assets may not constitute a transfer of an autonomous economic entity and thus may not always result in business succession.
The definition of business succession in the sale and purchase of assets is broad and subject to varying interpretations. In addition, it is indispensable to consider recent rulings by Spanish courts. Seeking specialized advice can help the parties involved in the transaction make informed decisions, avoid penalties or legal contingencies in the future, and ensure a successful transaction.
By carefully assessing the unique features of the transaction and consulting with legal experts, companies can identify potential risks and opportunities, comply with legal requirements, and maximize the benefits of business succession in the sale and purchase of assets.
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This article is not considered legal advice