Linking Theory. When is a contract ordinary labor? When is a contract Senior Management? When is it commercial? Evolution in time of crisis.

Senior Management Contracts.

Regarding the Termination of Senior Management Contracts, a relevant practical question arises given that they do not have the written form “ad solemnitaten” but “ad probationem” (since the relationship can be accredited, whether there is a written contract or not) and it is often necessary to delimit when we are dealing with a common employment relationship, or a Senior Management personnel relationship, or a member of the Board of Directors.

There are times when there is a concurrence of tasks in which a senior executive holds an administrative position. The problem is in the different employment regime they have, since na administrator has a commercial relationship and a senior executive has a special employment regime. The consequence of this is that having a different employment regime, he or she would have to pay taxes in a self-employed regime.

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Functional Theory and Linking Theory

This problem has been solved in different ways throughout history. The 4th Chamber of the Supreme Court (TS) in its ruling of September 29th, 1988, the so-called Huarte ruling, had established the “functional theory”: the most relevant function performed, when several functions concur, had to be analysed case by case, or as the ruling stated;

“It must be insisted, therefore, that the basis of the exclusion from the labor field is not in the type of functions performed by the subject, but in the nature of the link by virtue of which he performs these functions. Or, to put it this way, for the special labor relationship mentioned to exist, it is not enough that the activity carried out is that of the high position, as defined by the regulatory precept. It has to be carried out by a worker, as the same precept mentions, and not by a director in the performance of his position”.

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What is a managers duty of loyalty?

The Companies Act imposes a number of obligations on company directors. Among them is the duty of loyalty, regulated in Article 227 LSC.

Link Theory

At present, the thesis followed is the so-called “linking theory” in such a way that it is completely incompatible to be a senior manager and a member of the Board of Directors of a company at the same time. Therefore, the commercial bond held by the administrator absorbs the employment bond that the senior manager (who is also an administrator) may have. STS (Fourth Chamber) December 9th, 2009.

There are statutes that anticipate this situation, differentiating between the two areas, and even rulings that admit this double bond (Superior Court of Justice of Catalonia of July 7th, 2005, Superior Court of Justice of Madrid of June 17th, 2005, Superior Court of Justice of Asturias of December 23rd, 2004, Superior Court of Justice of Castile and León (Valladolid) of April 29th, 2003, Superior Court of Justice of the Basque Country of July 18th, 2006 and Superior Court of Justice of Madrid of June 6th, 2006 rulings…)

Superior Court of Justice of Madrid Ruling (STSJ Madrid), December 19th, 2012.

According to the very recent decision of the mentioned Court which reads as follows:

“The judgment of this Chamber of 9 December 2009 (RJ 2010, 1182), appeal 1156/2009, has examined the situation that occurs when an employee, linked to the company by a special senior management relationship, becomes a member of the Board of Directors.

The ruling states: “As recalled in the ruling of 22-12-94 ( RJ 1994, 10221 ) (rec. 2889/1993 ), when interpreting art. 1.3. c) of the Workers’ Statute (RCL 1995, 997), “It should be borne in mind that the activities of directing, managing, administering and representing the company are the typical and specific activities of the administrative bodies of trading companies, whatever form they take, whether they are the Board of Directors, the sole administrator or any other form permitted by law (…).

Therefore, it is wrong and contrary to the true essence of the company’s administrative bodies to think that they should be limited to carrying out merely consultative or advisory functions, or to providing simple advice or guidance, since, on the contrary, they are responsible for direct and executive action, management, direction and representation of the company. Consequently, all these actions involve “the performance of inherent duties” in the status of administrators of the company, and fully fit in with the “performance of the duties of an administrator or member of the administrative bodies in enterprises having the legal form of a company”, hence they fall under the above-mentioned Article 1.3.c.

Ordinary Labour or Senior Management.

With regard to the distinction between Managers (common employment relationship) and Senior Management Personnel, Additional Provision 27 of the LGSS that uses as a parameter the effective control of the company and understands that a person holds it, when he or she holds half of the share capital without proof to the contrary (iuris et de iure). On the contrary, there will be a iuris tantum presumption when his family holds 50% or he holds 33%, or 25% and he also holds management functions.

Ruling of the Superior Court of Justice of Catalonia of December 18, 2012

“The ruling of this Chamber of July 5th, 2012 (JUR 2012, 297073), which brilliantly reviews the jurisprudence in cases similar to the one we are dealing with here, states that: “A constant jurisprudential doctrine has been sanctioning the lack of labour characteristics in the relationship between the shareholders of a company who carry out tasks other than those inherent to their status as shareholders due to the lack of a note of working for others, and when that shareholder holds a decisive company share so that the work he or she may do is carried out as a contribution to the company. This case is understood to occur when the participation share exceeds 50% of the share capital ( STS 26/12/07 (RJ 2008, 1777) ).

But it can also be excluded, as this same doctrine points out, due to the lack of dependence on work (…) But this, as the Supreme Court has been able to reiterate and we have already indicated, “would only be possible for carrying out work that could be qualified as common or ordinary; not so when it is a question of carrying out both the director and senior management work (Manager, General Manager, etc.). ), since in such cases the double bond or link has the sole purpose of the supreme management and administration of the company. That is to say, the position of administrator or director includes by itself the functions of senior management'(…)

The role of the administrators.

The Supreme Court recalls in this regard that the administrative bodies of commercial companies “have as their essential and characteristic function or mission the performance of those activities, which are essentially carried out by those bodies, (and) it is therefore wrong and contrary to the true essence of the company’s administrative bodies to understand that they should be limited to carrying out merely consultative or advisory functions, or merely to providing advice or guidance, since, on the contrary, they are responsible for direct and executive action, management, direction and representation of the company”.

Simultaneous performance of activities

All these actions, as it is said, “fit fully into the “performance of the duties of an administrator or a member of the administrative bodies in enterprises with the legal form of a company”, hence they fall under the aforementioned Article 1.3.c of the Workers’ Statute (RCL 1995, 997)” ( STS 22/12/94 (RJ 1994, 10221) ).

The conclusion is, therefore, unequivocal and requires the understanding that in such cases of simultaneous performance of these activities “what determines the classification of the relationship as commercial or labor, is not the content of the functions but the nature of the link, so that if there is a relationship of organic integration, in the field of the company’s administration, whose powers are exercised directly or through internal delegation, the relationship is not an employment one but a commercial one, which means that, as a general rule, only in cases of employment relationships, under a dependent regime,and that are not able to be qualified as senior management, but rather as common, the simultaneous holding of administrative positions in the Company and a relationship of an employment nature could be admitted” (STS 2007 cited)”.