Business Succession in the Labor Law field. New Supreme Court criterion

The Doctrine recognizes that for a company to succeed in the labor field (staff succession), the following requirements must be met:

• A contractor or service provider (incoming company) succeeds the one who previously performed such services or activities (outgoing company) on behalf of or in favour of a third party (principal company or contracting entity),
• The succession of contracts or tenders is due to the fact that the principal has decided to terminate its contractual relationship with the outgoing company, entrusting to the incoming company services or activities which are substantially the same as those carried out by the previous contractor,
• The incoming company has incorporated a significant part, either qualitatively or quantitatively, of the outgoing company’s staff into the performance of the services or activities that are the object of the contract or tender; and
• The main asset for the performance of the services or activities contracted is organized labor or work organization.

In accordance with the law, the transfer must also involve a corporation that maintains its identity after the change of ownership.

In order to determine whether such an entity maintains its identity, all the factual circumstances that characterize the transaction in question must be taken into account.

Company succession: Circumstances that characterize the maintenance of the identity of the company

Among the circumstances that characterize this maintenance of identity are:

• The type of company or activity center concerned,
• Whether or not material elements such as buildings or personal property have been transferred,
• Value of transfered intangible assets at the time of transmission
• Whether or not the new employer takes over the majority of the workers,
• Whether or not the clientele has been passed on,
• The degree of analogy of the activities carried out before and after the transfer and the duration of any suspension of such activities.

The importance attributed to the several criteria varies according to the activity carried out. It also varies according to the production or operating methods used in the company, in the activity center or in the part of the activity center concerned.

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Company succession in the labor law field, after the Supreme Court Sentence of October 26, 2018.

The Supreme Court, Social Chamber, issued a ruling on October 26, 2018, in which analyzed the doctrinal evolution in the matter of staff succession, and concluded that it was far from any of the criteria described above.

They conclude (for the assumption they analyze) that the service under contract does not rely essentially on the workforce. And therefore there is no succession of staff.

On the contrary, despite  the fact that the incoming company hired 6 out of the 10 workers that were working in the outgoing company, that is, in spite of the fact that quantitatively the new company that was awarded with the contract incorporated to the performance of the services or activities that were the object of the contract or the awarding of the contract an important part of the workers of the outgoing company.

Specifically, the object of the subject lease describes the tasks to be carried out as the assistance to operations and anti-pollution intervention in the monobuoy of the company, activities of anti-pollution intervention, activities of inspection and maintenance of the marine facilities of the company, such as inspection of the marine facilities, maintenance of the surface facilities and maintenance of the submarine facilities and operations of mooring and unmooring, loading and unloading of ships.

The new business succession: Labor is not essential, if other specific material elements are required.

The Court considers that this activity cannot be qualified, by itself, as work in which manpower is the essential and determining element for its execution, since it requires specific material elements that not only complement but are presented as indispensable and necessary for the workers to be able to provide the service. The lease contract describes the elements that the contractor must provide in order to be able to provide the object of the lease (crew and divers, boats, means of security, transport, means of signaling, beacons, fences and all the others necessary for the execution of the work).

Based on this, it is considered that the personnel is not the only essential element in the contract, but it is a whole set of personal and material means that are revealed as elements of crucial importance for the realization of the contracted activity.

The Court concludes that there is no succession of companies, since there is no activity that essentially relies on labor, and it is not relevant that the company hired 6 out of 10 workers who provided services in the outgoing company because there was no transfer of the necessary material means for the exploitation between the outgoing and the incoming company.

The important thing, emphasizes the Court, is that an organized group of people and elements is present, which allows the development of the activity that is the object of the service hired.

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