Liability of a parent company in Spain for employee claims

As it is known, during these recent years of economic crisis, many Spanish companies have experienced grave economic difficulties, which have led them to becoming insolvent: a situation that, in some cases, does not affect the solvency of its foreign parent company. In this situation, it has been common for Spanish subsidiaries workers, specifically cases where their labour contracts have been terminated, to sue in court; claiming severance pay (and where appropriate: unpaid wages) against, not only their employer (the Spanish subsidiary), but also against the foreign parent company whom is jointly liable for the employees’ claims. Thus, the question arises whether the parent company must effectively be held jointly liable with its subsidiary regarding the rights claimed by the subsidiary’s workers.

This responsibility exists if a Spanish Court considers a parent company and a subsidiary as a group of companies for labour purposes, a concept which is to be differentiated from the traditional commercial concept of a group of companies (and nothing else). In the latter case, the courts allow the independence and lack of communication of liability between the companies incorporated in a group of companies, finding that the shareholding or management links do not affect the character of autonomous entities, as each company has its own legal personality.

However, such independence of liability does not exist when the court esteems that a mixture of assets has occurred between a parent company and its subsidiary or when the workers have provided an undifferentiated service to either the parent company or the subsidiary. In these cases, the court will find that there is a group of companies for labour purposes and will extend the liability of the Spanish subsidiary to its parent company.

Hence, there is importance for foreign parent companies to take the necessary measures in order to prevent the risk of assuming the labour debts of its Spanish subsidiaries.

This article is not considered as legal advice

Mariano Jiménez is managing partner of the firm and holds a Law degree. He specializes in litigation and arbitration in commercial, labour and civil matters. Working languages: Spanish, English, German and French. For any query Contact Mariano Jiménez