Contracting involves an agreement between two companies or entities under which one of such companies or entities undertakes to perform work or provide a specific service to the other. In this regard and, due to the structure of our legal system, there is a great deal of labor conflict when a company decides to take over the services or work provided by the other.

The main problem arises when determining whether or not the legal situation of a transfer of undertakings exists and, therefore, if the company taking over the services is required to subrogate the position of the contracted company, become the employer of its workers and respect their working conditions. This is important, given that if the transfer proceeds and the company does not take on the workers, it may be liable for unjustified dismissal. Furthermore, on the other hand, if a transfer of undertakings does not exist, termination of the workers by their former employer could be also be deemed as unjustified dismissal.

In this scenario, a new option arises: the possibility of a worker’s tacit resignation. This may be applicable when an employee finishes working with the previous company and continues to provide services for his/her new employer, which takes on the work or services.

It is increasingly more common, once the change of company is known, for the new company to contact the workers that have until then been assigned to provide the services and negotiate the possibility of being hired under new working conditions, with the aim of maintaining the quality of the services and taking advantage of their training and experience. At the same time, the contractor company notifies its employees of the possibility of a transfer of undertakings and, therefore, of them being hired by the ongoing company. In this context, there is a possibility of the workers, even after having initiated a new labor relationship, filing a claim against both companies for dismissal, either based on the consideration that their new employer should have maintained their previous labor relationship and the relevant working conditions, thus defending a transfer of undertakings, or that there has not been a transfer of undertakings and their dismissal by the former company should be deemed as unjustified.

In light of the above, we should bear in mind that there have been court judgments dismissing worker claims against their former employers when a transfer of undertakings does not exist. The courts have considered that, in this situation, what has taken place is voluntary resignation by the employee from his/her previous company in order to join the new company.

When declaring the existence of voluntary resignation, the Courts have based their decision on certain conclusive acts performed by the worker, such as: whether or not he/she had previously negotiated new working conditions or signed a pre-employment agreement with the new employer, while still being employed by the former company; the worker continues providing services to the new employer; and did not attend work at the former company on the first day of the change of service, as his/her new labor relationship had commenced.

These cases require a detailed analysis of the circumstances in order to determine whether, in the event a transfer of undertakings does not actually exist (which would exonerate the new employer from liability) there has been unjustified dismissal by the former company or resignation by the worker, which would not require payment of severance compensation.

Julián García Paya

Garrigues Labor and Employment Law Department