In sectors such as security, cleaning, maintenance, and support services, changes in contractors are common. However, improper management of the subrogation process can lead to unexpected wage claims and significant financial liabilities. Signing a new contract does not always mean starting from scratch. Under certain circumstances, the incoming company may be required to assume liability for labor-related debts incurred by the previous company.
For many service companies, being awarded a new contract represents a tremendous opportunity for growth. However, significant labor risks may lie hidden behind the signing of a new contract—risks that sometimes go unnoticed until a legal claim is filed. This is especially true in labor-intensive industries, where service continuity is often accompanied by the transfer of employees. Private security, cleaning, maintenance, support staff, institutional food services, and certain outsourced services are some common examples.
The question that frequently arises is simple: Is the company taking over the service also liable for the outgoing company’s outstanding labor-related debts? The answer is not always clear.
Subrogation is not merely a matter of taking on workers
In many sectors, the collective bargaining agreement requires the new contractor to take on some or all the workforce assigned to the service. The purpose is to preserve job stability and prevent each change in contractor from resulting in the automatic loss of a job. However, practical experience shows that not all subrogation processes proceed smoothly.
Sometimes there are disagreements regarding which employees should be taken on, what seniority should be recognized, what documentation must be provided, outstanding wage arrears, or which responsibilities fall to each company.
Accepting a contract without first reviewing the outgoing company’s employment records can lead to significant financial liabilities.
It is not always enough to simply assert that the previous company is liable
Traditionally, many companies believe that if the collective bargaining agreement imposed certain obligations on the outgoing company, the new contractor was automatically exempt from any prior claims. However, developments in case law are strengthening the protection of workers in certain cases, especially when the business relies primarily on its workforce and there is significant continuity in the workforce.
In these scenarios, the courts may find that a genuine business succession has occurred, with the consequences set forth in Article 44 of the Workers’ Statute (ET).
The successor company could be held jointly and severally liable for certain prior wage debts, even if it did not directly incur them.
Example. Let’s imagine an auxiliary services company that takes over the management of a logistics center. The previous contractor had 42 employees assigned to the service. The new contractor hires 35 employees and maintains the same operational structure. Months later, several employees claim unpaid wages, bonuses, and wage differences accrued during the previous company’s tenure, totaling 74,500 euros. The incoming company maintains that these amounts are the sole responsibility of the previous contractor. However, if it is determined that a business succession has occurred under the terms of Article 44 of the Workers’ Statute (ET), both companies could be jointly and severally liable for these amounts. The financial consequences could be very significant.
A preliminary analysis of the number of affected employees, the functions assumed, and the organization of the service is essential before formalizing the subrogation.
The burden of proof is becoming increasingly important
One of the issues giving rise to the most litigation is determining who must prove which workers have been taken on by the new company. The most recent judicial trend holds that, when a collective bargaining agreement mandates subrogation and the business is primarily labor-intensive, it is particularly incumbent upon the incoming company to provide documentary evidence of the actual scope of the workers’ transfer.
The reason is simple: the new contractor is typically the one that has the necessary information to prove:
- How many workers it has taken on.
- What duties do they perform.
- Which employees have not been transferred.
- The reasons for their non-transfer.
The lack of sufficient documentation can make it difficult for the company to defend itself in the event of legal proceedings.
What documentation should be reviewed before taking on a contract?
Before accepting a new contract, it is advisable to analyze at least the following aspects:
- A complete list of assigned employees.
- Length of service and salary conditions.
- Applicable collective bargaining agreement.
- Existence of pending legal proceedings.
- Wage or Social Security debts.
- Accrued and outstanding vacation time.
- Situations involving temporary disability, reduced work hours, or leaves of absence.
- Documentation required by the sector-specific collective bargaining agreement.
Proper preventive labor due diligence can prevent future conflicts and facilitate a smooth transition of services.
Does your company regularly take over or lose contracts?
If your organization operates in sectors where there are frequent changes in the contractor, it is advisable to periodically review your internal subrogation protocols.
Proper legal planning before taking over the new service allows you to:
- Reduce financial risks.
- Minimize litigation.
- Ensure compliance with contractual obligations.
- Properly document the succession.
- Protect the company’s position against future claims.
Because, when it comes to contract succession, the decisions made during the first few days often determine the outcome of any subsequent legal proceedings.
For more information, please contact our Labor Department.
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