The classification of the labour group of companies for the purposes of collective dismissal in Spain

Since the labour reform of 2012, which revolutionised the legal framework of collective dismissal in Spain, the Supreme Court has made a very important task of interpreting the regulation of collective termination of employment contracts or ERES (expediente de regulación de empleo). In this sense, from 2013 until now, the Court has issued a valuable jurisprudence that clarifies many of the interpretative doubts that the legal operators had regarding the labour group of companies for the purpose of collective dismissal.

The subject of this article is the Supreme Court’s June 20th, 2018 decision, which we consider to be of great importance for those companies that belong to a group of companies, and which, being in a situation of economic and market crisis, have no choice but to go to an ERE. One noteworthy aspect of this Judgment is that it is issued unanimously by the Plenary of all the Magistrates that make up the Fourth Chamber of the Supreme Court, which entails generating a secure legal framework.

The group of companies is a legal phenomenon and has no impact on an ERE. On the contrary, the labour group of companies is a different phenomenon and has very significant repercussions in a process of collective dismissal. It can be summarised as follows:

  • The economic cause must be identified by all the companies in the group and not only by the company that makes the ERE
  • The delivery of documentation during the consultation period must also include that of the dominant company of the group
  • And, most importantly, if there is a labour group of companies, the Law determines a joint and several liability of the group for the labour obligations of the ERE.

When is a group of companies a labour group of companies?

The Supreme Court Decision specifies this concept precisely. It begins by differentiating the phenomenon that the Courts have called a pathological labour group from another working group assumption, which is that of group company. The pathological labour group is reserved for more exceptional cases, where there is abuse, fraud or concealment to third parties.

Characteristics of a labour group of companies

The characteristics that must be given for the existence of a work group of companies, be it a pathological group or simply a group company, are:

  • Confusion of staff: supposes a unit of provision of services performed by the worker for two or more companies of the group
  • Patrimonial confusion: supposes the indistinct use of the social patrimony (infrastructures, means of production, etc.); does not prevent when the transfer of said use is formalized
  • Unit of cash: supposes to take patrimonial confusion to the extreme. It is described as the promiscuity in economic management
  • Fraudulent use of personality: in the cases where a company screen is created
  • Abusive use of the unitary management: supposes an abnormal exercise of management that is detrimental to the detriment of the workers.

The Supreme Court analyses in this decision if the budgets are given so that there is a working group in the specific case of two companies that have a practically equal social purpose (same partners, administrators and proxy, and same registered office – all of which are insufficient data to qualify as labour group). There was no financial confusion of a patrimonial nature, regarding the cash unit or involving the fraudulent use of a unitary address. It points to the figure of a labour group, exclusively, a supposed confusion of staff, where it is alleged that three workers provided their services simultaneously for both companies; one for 19 days, the other for 16 days and the third for 53 days. In all three cases, each worker acted as a commercial agent.

The Supreme Court considers that, in this specific case, there is no labour group due to staff confusion. It was proved that the workers provided services simultaneously for the two companies, in the aforementioned dates, but not that it had been done in an undifferentiated way. Thus, it was accredited by the companies that the workers had signed a specific work contract for their role in the second company, having been reflected by a commission payment by the contractor. The workers thus received two payments that came from each contracting company.

The Supreme Court also adds an even more important factor. Although the services had been indistinct, without the formal separation discussed, they would still fail to qualify as a labour group. The Supreme Court bases this on the fact that there were only three workers (of a staff of 20 workers), that they only worked for short periods of time (considering that the workers had been working for more than ten years) and that the job was as specific as a commercial agent. The Supreme Court, by applying the doctrine of insignificance, defines this assumption as minimum labour intercommunication and determines that it has no relevance regarding the effects of the labour group.

This conclusion automatically implies that the documentation that the current and former employer company delivered during the ERE consultation period (which did not include the other group company) was sufficient. Interestingly, the decision adds that, as per accounting regulations, the SMEs have no obligation to prepare certain accounting documents (regardless of balance sheet, profit and loss account and memory) and that they cannot be required to prepare ad hoc documentation beyond the mandatory one for the ERE.

The Judgment concludes on the economic cause by affirming that the Court must limit itself in its control to exclude unreasonable dismissals, or those that are clearly disproportionate between the objective pursued and the sacrifice imposed on the workers. But it is not appropriate to make opportunistic judgments in terms of business management. Regarding the ruling’s specific case, there was a company that had to close due to sustained losses during its last nine months of activity, which could not be refinanced. Therefore, the company ended up in voluntary bankruptcy shortly after the ERE.

It can be concluded that the groups of companies that go through the difficulties of staff shortages and collective dismissal will be able to breathe more easily as long as they have previously been protected by being classified as a labour group of companies.

This article is not considered as legal advice

Ana Gómez

With both a degree in Law and a Master in Business Law, Ana Gómez specializes in Labour Law, Social Security Law and Litigation Law in labour and administrative matters. Working Languages: English and Spanish. For any further enquiries please Contact us