The Labor Employer and Business Responsibilities in Spanish Labor Law

The Labor Employer and Business Responsibilities: Scope of Application

According to Article 1 of the Estatuto de los Trabajadores (ET), the concept of the employer is defined for the purpose of labor law. For the application of this law, employers include all physical persons, legal entities, or communities of assets (Comunidades de Bienes) that receive the provision of services from workers. This definition also extends to persons hired to be assigned to user companies by legally constituted Temporary Employment Agencies (ETTs).

It is critical to distinguish between the concept of a labor employer and a mercantile employer. A mercantile employer is defined by their economic activity, specifically the production of goods and services. A labor employer, however, exists whenever a person or entity hires another and receives the services of that hired worker on behalf of another (por cuenta ajena). For example, a community of neighbors hiring cleaning staff acts as a labor employer (responsible for Social Security and occupational risks) but is not a mercantile employer. Conversely, a self-employed person without employees is a mercantile employer but not a labor employer.

Legal entities acting as employers can be public (such as the State, EMT, or ITV) or private. Furthermore, and in line with Art 1.1 ET, the scope of application for this law covers workers who voluntarily provide paid services on behalf of someone else and within the organization and management of another person, whether physical or legal, termed the employer or owner.

Definitions of the Company, Workplace, and Autonomous Productive Unit

The term "company" can be used as a synonym for the employer or titleholder, representing the framework where organization and management take place. A company is formally defined as an organization of material and human resources directed by the employer and intended for a specific purpose.

Article 1.5 ET defines the workplace (centro de trabajo) as a productive unit with a specific organization that is registered as such before the labor authority. For work at sea, the ship is considered the workplace, located in the province where its base port is situated. Three precisions are necessary regarding this definition: first, for maritime work, the port where the vessel departs and arrives defines its location; second, a workplace must be registered with the labor authority, although this registration does not define the workplace itself as it depends on the employer's compliance; third, to constitute a workplace, there must be a specific organization within the general organization of the company. For example, every individual Mercadona supermarket is a workplace, while all of them together form the company.

An Autonomous Productive Unit (UPA) is defined by the Supreme Court (TS) as a functional organization rather than a geographic or special one. This refers to different sections within complex business structures that perform distinct functions. For instance, in a paper magazine company, one UPA may handle printing functions while another manages text creation. These units can be equal to, larger than, or smaller than specific workplaces.

Groups of Companies and the Imputation of Business Responsibilities

In economic reality, groups of companies often exist which are legally independent but share economic links. The general rule established by jurisprudence is independence and no communication of responsibilities; each employer is solely responsible for their workers, regardless of shared shareholders, unified management, or identical administrators. However, problems arise in labor law when determining if responsibilities—such as indemnity payments, Social Security, and wages—belong solely to the employer named in the contract or to all companies in the group.

When there are indications of fraud, the courts utilize the "Lifting the Veil" (Levantamiento del velo) doctrine to overlook the independent legal personality of group companies. Specific elements that trigger this include:

  1. Single Payroll/Staff Confusion (Plantilla única/confusión de plantilla): Workers provide services indistinctly to different companies within the group.
  2. Single Cashbox/Shared Assets (Caja única/patrimonio único): A high degree of confusion between social assets, such as one company not paying rent while another pays double, or Company B paying the Social Security for Company A.
  3. Apparent Employer (Empresario aparente): The group appears to third parties as a single company. This often involves creating a "Company B" with no economic activity where billing is directed, while "Company A" remains without funds to fire workers without paying salaries.
  4. Abusive Unitary Direction (Dirección unitaria abusiva): The dominant company makes decisions that intentionally harm other companies in the group.

If single payroll or single cashbox conditions are met, the consequence is the communication of solidary responsibility, treating the group as a single company for all labor purposes. If there is an apparent employer or abusive unitary direction, solidary responsibility is declared among the group companies.

Contracting and Subcontracting of Works and Services

Companies often decentralize parts of their production cycle by commissioning other companies to perform certain tasks (Company A as the principal/comitente and Company B as the contractor). While contracting and subcontracting are legal, Article 42 ET provides guarantees to protect workers. Solidary responsibility between the principal and contractor exists only for "core activities" (propia actividad).

The courts define core activity using the "Inherence to the Purpose of the Company" (inherencia al fin de la empresa) criterion. A contract is considered core activity if it belongs to the production cycle and is incorporated into the final product of the principal company. Examples include: identity of activities (a construction company hiring a construction contractor), relationship of genus to species (construction and plumbing), proximity/continuity (a topographer and a road constructor), and essential/nuclear complementary activities (ambulance services for a hospital). Conversely, a university hiring a cleaning service does not meet the inherence criterion. The Supreme Court has specified that there is no core activity between a real estate developer (promotora) and a construction firm.

Under Art 42.2 ET, the principal employer is solidarily liable for Social Security obligations contracted by contractors and subcontractors during the term of the contract and for 33 years following its termination. Regarding wage-related obligations, the principal is solidarily liable for 11 year after the completion of the task, provided the debt is not prescribed under Art 59 ET. This excludes extra-salary items like per diems, distance bonuses, transport bonuses, or indemnities. There is a "chain of responsibility," meaning the principal is responsible for all subsequent subcontractors. In the construction sector, Law 32/2006 limits subcontracting to a maximum of 33 levels.

Solidary responsibility (Art 1144 CC) allows a worker to claim against any of the debtors. However, this responsibility is excluded if the work refers to construction or repairs for a private individual's home or when the work is not for a business activity. Furthermore, under LISOS and LPRL, solidary administrative responsibilities (such as fines) apply when health and safety regulations are breached or when contractors employ pensioners or individuals receiving incompatible Social Security benefits without proper registration.

Exoneration and Duties of Information in Subcontracting

To be exonerated from Social Security liability, the principal employer must verify that the contractor is current with payments. They must request in writing a negative certification of defaults from the General Social Security Treasury (TGSS). The TGSS must issue this within an unextendable term of 3030 days. Failure to perform this check does not result in a direct fine but prevents the employer from being exonerated from liability.

Both the principal and contractor have duties to inform workers' representatives. The principal employer must provide: the identity of the contractor (name, address, NIF), the object, duration, and execution location of the contract, the number of workers assigned, and the coordination measures for Prevention of Occupational Risks (PRL). The contractor must provide the same details regarding the principal employer to their own representatives and inform the TGSS of the principal's identity.

Regarding the applicable Collective Agreement (CC), Art 42.6 ET states that as a general rule, the CC of the sector of the activity developed in the contract applies, regardless of the contractor's legal form. For example, cleaners at a hotel must be governed by the cleaning sector CC, even though the hotel belongs to the hospitality sector. If the contractor has its own corporate CC, that applies instead.

The Illegal Assignment of Workers

Article 43 ET prohibits hiring workers for the purpose of temporarily assigning them to another company, except through authorized Temporary Employment Agencies (ETTs). Illegal assignment involves an apparent employer (cedente) interposing between the worker and the real employer (cesionario). This often takes the form of "pseudo-contracts," where a company pretends to be a contractor but merely provides labor.

Judicial criteria to identify an illegal assignment include whether the contractor lacks its own infrastructure (headquarters, staff, etc.), allows the principal company to provide direct management and control, lacks business risk (e.g., the principal pays the salaries directly), or fails to differentiate its activity from the principal's. Illegal assignment can occur even between two organized companies if one merely provides labor without risking its organizational structure.

Consequences of illegal assignment (Art 43.3 and 43.4 ET) include:

  1. Solidary responsibility for both wage and extra-wage obligations and Social Security.
  2. The worker's right to become a permanent employee (fijo) at their choice in either the transferring or receiving company. This choice must be made while the illegal assignment lasts. If they choose the receiving company, they gain the same rights as equivalent workers, and seniority is backdated to the start of the assignment.
  3. Both employers commit a "very serious" administrative infraction.
  4. Criminal liability may apply under Article 312.1 of the Penal Code for the illegal trafficking of labor, punishable by prison and fines.

Temporary Employment Agencies (ETTs)

Under Law 14/1994, an ETT hires workers to temporarily assign them to a user company (EU) through a contract of provision (contrato de puesta a disposición / CPD). This creates a triangular relationship between the ETT (transferring employer), the EU (receiving employer), and the worker.

To operate, an ETT requires administrative authorization and must meet six requirements: infrastructure (minimum of 33 indefinite contracts for internal management), exclusive dedication to the activity, no fiscal or Social Security debts, a financial guarantee (25×SMI25 \times \text{SMI} in the first year; 10×annual salary mass10 \times \text{annual salary mass} in subsequent years), no prior suspension of activity twice or more, and the inclusion of "ETT" in its name.

The CPD between the ETT and EU must be in writing. It can only be used for the same temporary causes as a fixed-term contract under Art 15 ET or training contracts under Art 11 ET. If a worker continues in the EU after the CPD ends, they acquire permanent status. Clauses prohibiting the EU from hiring the worker permanently are void. Prohibited CPD scenarios include replacing strikers, performing especially dangerous work, or if the EU has abolished those positions through unfair dismissal or redundancy in the previous 1212 months.

The ETT is responsible for paying salaries, Social Security, and an indemnity of 1212 days of salary per year worked upon termination. It must also dedicate 1×percent1 \times \text{percent} of its salary mass to training and handle health surveillance. The EU holds the power of direction and control but does not have disciplinary power (it must report infractions to the ETT for sanctioning). The EU is subsidiarily liable for salaries and Social Security, but this becomes solidary if the assignment is found to be illegal. The worker has the right to use EU facilities (canteens, transport) and be informed of vacancies via public announcement.

Transmission and Succession of a Company

Article 44 ET dictates that a change in ownership of a company, workplace, or UPA does not extinguish the labor relationship. The new employer is legally subrogated into the position of the previous one. A transmission involves an economic entity that maintains its identity as a set of organized resources (patrimonial substrate or productive elements). The Court of Justice of the European Union (TJUE) adds that for labor-intensive activities, transmission occurs if the new employer takes over a fundamental part of the staff.

Transmission can occur through contracts (sale, donation), company mergers, or judicial sales. In the case of company leasing, multiple transmissions occur. In the succession of contractors, transmission generally does not happen unless there is a transfer of assets or if the Collective Agreement mandates "conventional subrogation" to ensure stability (common in the security sector).

Under Article 49.g ET, if an individual employer dies, retires, or is incapacitated, the worker is entitled to one month's salary. However, if the heirs decide to continue the business, Art 44 applies and contracts are not extinguished.

Effects of succession include:

  1. Maintainence of the same wage, seniority, and Collective Agreement (unless a contrary pact is agreed upon with representatives).
  2. Maintainence of the workers' representatives.
  3. Solidary responsibility for 33 years regarding obligations existing prior to the succession. This responsibility is joint, and insolvency is not required to claim.
  4. Fraudulent transmissions are declared null. Information must be provided to worker representatives (or directly to workers if there are no representatives); failure to do so is a serious infraction but does not invalidate the succession.

Questions & Discussion

If the workplace is registered by the employer, does that registration define what the workplace is? No. While registration is mandatory, it does not define the workplace because its fulfillment is at the discretion of the employer. The actual definition relies on the existence of a specific functional organization.

Can a community of neighbors be a mercantile employer? No. A community of neighbors does not have an economic activity aimed at producing goods and services for the market. However, they are considered labor employers if they hire staff such as cleaners.

What constitutes an "inherence to the purpose of the company" in subcontracting? It means the task belongs to the core production cycle of the company. For example, in a paper magazine, printing is core activity while cleaning the office is not. For a hospital, food in the kitchen for patients is core, but a cafeteria for visitors is not.

What happens if a worker is part of an illegal assignment? They can choose to become permanent at either the transferring company or the receiving company and will have their seniority recorded from the start of the illegal assignment. Both companies are solidarily liable for all debts.

Is there a limit on how many subcontractors can exist in the construction sector? Yes, Law 32/2006 limits it to a maximum of 33 levels of subcontractors.