In order to determine whether a real estate acquisition involves some employment issue, it is necessary to analyse if the real estate transfer also implies the transfer of employment relationships, i.e. if there is an economic activity that is being carried out on the property that will be continued by the buyer.
It is mandatory to determine whether or not the transaction is a “transfer of business” according to Article 44 of the Spanish Statute of Workers. According to this provision, a transfer of business takes place when the transfer involves an economic entity which maintains its identity as a means of carrying on the economic activity.
Spanish case-law has required, in particular, two elements to constitute a transfer of business. First, the new employer must obtain effective ownership of the undertaking, business or part of the undertaking or business. Secondly, except in some specific cases, there must be a transfer of tangible assets, such as buildings and movable property that are necessary to carry out the activity.
The principal aim of Article 44 is the protection of employees in order to guarantee the maintenance of their employment and their rights after the transfer. Consequently, the new employer is subrogated to the old employer in respect of employment and social security rights and obligations, including pension arrangements. For this reason, a transfer cannot be a ground for a dismissal and the employment contracts are assumed by the transferee which becomes the new employer.
The buyer is obliged to take over the employment contracts entered into between the transferred employees and the previous employer, so maintaining the employees’ working conditions.
According to Article 44.3 of the Spanish Labour Code, in the event of transfers that occur through “inter vivos” acts, the transferee and transferor are jointly and severally liable for a period of three years for unsatisfied labour obligations, which accrued before the transfer.
In relation to the formalities that must be respected if a transfer of business takes place, Article 44 establishes that the transferee and the transferor have the obligation to inform the employees’ representatives, sufficiently in advance, of the date of the transfer, the reasons and possible consequences and measures proposed in relation to the employees. In relevant cases consultation must take place with representatives of the employees.
If there has been no transmission of an organised group of resources in order to carry out a central or ancillary activity, but the transfer has been of a property only, then the transfer would not be bound by article 44 of the Workers Statute.
On the other hand, when the transfer of the property involves the elements needed to continue the business, it could be argued that there is business succession.
This question has to be addressed not only in transfers of property, but also in leases. Spanish Law distinguishes between the lease of a business (which could also include the lease of some premises, as well as all the organised group of resources needed to carry out the business activity) and the lease of premises. The latter is almost always preferable for the owner, in order to avoid a transfer of business at the date of the termination of the contract.
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