Employees’ Rights in Case of a Transfer of Undertaking

Article 63 of the Labour Code establishes that the transfer of a company, a branch or an agency thereof, or the transfer of another worker to another company, transmits all the privileges and obligations resulting from the employment contracts that apply to the employee assigned or transferred.

Article 64 of the Labour Code provides, for its part, that the new employer is responsible, together with the precedent employer, for the obligations derived from the employment contracts and the rights arising before the date of the replacement.

Article 96 of the current Labour Code establishes that when a worker is transferred from one company to another, if the transfer is made for fraudulent purposes, both the predecessor and the successor are jointly responsible for compliance with the employee’s labour obligations. The law further establishes that fraud is presumed, which means that companies must prove that the employee’s transfer was made according to applicable law.

In the case of a legal business transfer, employees are transferred by law. The employee’s consent is not required, and notification is only needed in order to not be considered a fraudulent transfer. The new employer must maintain the employee’s job category, benefits, rights, wages and seniority acquired with the previous employer. The employment conditions may be modified, but only to the employee’s benefit. All obligations of the employees included are automatically transferred to the new employer.

The working conditions for employees must not be reduced or adversely affected by a business transfer. Employers cannot make detrimental changes to the employment conditions of the employees, regardless of whether they have previously consented to the change. Due to the concept of labour succession, the new owner of a company or business will be held responsible for all labour rights and obligations.

Requirements for Predecessor and Successor Parties

Both the predecessor (former employer) and successor (new employer) will be responsible for the labour and social security debts derived from the employment relationship, before the transfer date. The new employer becomes solely responsible for the debts generated after the transfer. For the transfer not to be considered fraudulent, it must be reported to the Ministry of Labour, the union and also the workers.

The first aspect that must be considered, is the main effect that results from the transfer of companies. In this sense, Article 63 of the Labour Code establishes that the transfer of a company, branch, dependency, or the simple “transfer” of a worker to a new company, will transmit to the acquirer, all the prerogatives and obligations resulting from the contract of work originally agreed with the collaborator.

The rule mentioned above, further states that past claims and pending judgments before a judicial authority will fall within the obligations. Similarly, the article is clear when determining that the transfer of the company will not extinguish the acquired rights of the workers.

Another article that employers must consider when being part of a transfer process, is number 64 of the Labour Code. The new employer will be jointly liable with the replaced employer regarding the obligations assumed with their workers, either by the employment contract or by law.

Regarding Articles 63 and 64 of the Labour Code, reference is primarily made to cases where the company’s transfer is partial or total. Consequently, there has been a transfer of ownership of the company, which is why the predecessor and the successor become jointly and severally liable for the rights that correspond to the workers.

In the case provided for in Article 96 of the current Labour Code, this rule prescribes that both the predecessor and the successor are jointly and severally liable for compliance with labour obligations, when the worker is transferred from one company to another.

The same article indicates that fraud will be presumed. As such, the worker will not have to prove it. In any case, the interested company may extinguish this presumption by providing evidence showing that no fraudulent omissions have been incurred, nor actions aimed at evading the obligations derived either from the law, the employment contract or the collective agreement.