On the Provision of Services Between Companies and the Assignment of Employees, Regarding the Recent Judgment of the CJEU

The recent judgment of the Seventh Chamber of the Court of Justice of the European Union (CJEU), issued on October 24 (Case C-441/23), concerning the provision of services between companies and the assignment of employees, has triggered some hasty and alarmist interpretations. Some have perceived this ruling as a challenge to service contracts between companies, equating them to cases of employee assignment through temporary work agencies, thereby applying the requirements of Directive 2008/104/EC of November 19, 2008, concerning temporary agency work, as well as national regulations (Law 14/1994 of June 1, which governs temporary work agencies), particularly regarding the principle of equality in essential working conditions (not limited to remuneration).

Nothing could be further from the truth. The preliminary question raised by the Madrid High Court of Justice was probably unnecessary and was poorly formulated. Evidence of this is that two of the questions referred to the CJEU, which were fundamental to resolving the litigation in question, did not even pass the relevance test (despite the presumption of relevance that preliminary questions enjoy, as noted in paragraph 74 of the judgment) and were therefore not considered or addressed by the court. In the dispute before the Spanish courts, the fundamental issue was to determine whether the case involved a lawful provision of services between companies or an illegal assignment of employees, with the respective consequences in each scenario. This is a purely factual matter, as highlighted by the CJEU, falling within the jurisdiction of national courts, which can find appropriate responses within Spanish law without requiring any interpretation of applicable European regulations. As the CJEU states (paragraph 50 of the judgment), "it is for the national court to verify whether an employee performs their duties under the direction and control of the user company or the employer who hired them and entered into a service provision contract with the latter."

This means determining whether there is a service provision contract between companies or an employee assignment (which, if not carried out by a temporary employment agency (TEA), constitutes illegal assignment, with the application in such cases of the provisions of Article 43 of the Workers’ Statute – WS-). Essentially, the Madrid High Court is questioning whether, upon finding an assignment of employees, the regulations concerning temporary work agencies must apply, even if the assigning company is not a TEA, either because it is not formally constituted as such or lacks the required administrative authorization. This overlooks the fact that, in this scenario, Article 43 of the WS sufficiently addresses the interpretative question raised.

Indeed, the crux of the judgment is its assertion that the regulations (both European and national) concerning the activity of temporary employment agencies must apply whenever the factual circumstances characterizing TEAs and their activities are present, regardless of whether the company assigning the employee to another is formally constituted as a TEA or possesses the administrative authorization required by national law to act as such. According to the ruling, the Directive "applies to any natural or legal person who enters into an employment contract or establishes an employment relationship with an employee for the purpose of assigning them to a user company to work there temporarily under its direction and control, and who makes that employee available to said company, even if that person is not recognized by domestic law as a temporary work agency because they lack administrative authorization as such."

Whenever a company hires employees to assign them temporarily to another under the latter's control and direction, it constitutes a temporary work agency, and the corresponding regulations apply. The key is to ensure that the employment relationship between employees and the assigning company is not "substantially different from what would bind them to a company that had obtained the prior administrative authorization required under national law" (paragraph 42 of the judgment). This involves determining whether there is an illegal assignment of employees.

To summarize, the CJEU states that this is a factual issue: legitimate service provisions between companies must be distinguished from employee assignments to other companies where they perform their activities under the latter's direction and control (paragraphs 52 and 53).

The issue, then, lies in determining whether we are dealing with a provision of services between companies or a transfer of employees. This matter falls under the jurisdiction of national courts. What the CJEU clarifies is that, if it is concluded that a transfer of employees exists, the regulations on temporary employment agencies apply, even if the transferring company is not formally established as a TEA or does not have the administrative authorization that national laws may require.

What needs to be decided, therefore, is whether we are facing a transfer of workforce or a provision of services between companies. The fundamental factual element for this determination is identifying where the direction and control of the labor activity resides. In the case of a transfer of employees, the direction and control of their labor activity lie with the user or transferee company. In the case of a provision of services between companies, these remain with the service-providing company. Situations involving the provision of services between companies remain entirely lawful and cannot be equated with the transfer of employees. As the CJEU points out, “it is not enough for a company to make some of its employees, or occasionally part of its workforce, available to another company. Such situations constitute the provision of services from one company to another and not the provision of work carried out by transferred employees” (paragraph 52).

It is, we emphasize, a factual matter to be assessed in each specific case “based on the set of elements and circumstances that characterize the relationships between the parties,” and this assessment must be carried out by national judicial bodies. The CJEU recalls that, in the case of a transfer, the employees are "under the direction and control" of the user company, which determines the tasks they must perform, the manner in which they must be carried out, compliance with its internal instructions and rules, and oversees how the employees perform their duties (paragraph 62).

And if a transfer of workforce does exist, it will only be lawful under our legal framework if carried out through a temporary employment agency, under the conditions and with the consequences regulated for such cases. If it is carried out through a workforce-transferring company (even if it is ostensibly providing services to other companies) not established as an TEA, it will be considered an illegal transfer, with the provisions of Article 43 of the Workers' Statute (WS) applying. The relative novelty (because this could already be inferred from a reasonable interpretation of Article 43 of the WS) of the CJEU ruling is that it declares that, in this latter case, the regulations concerning TEAs and their activities also apply, requiring that the essential working conditions applicable to the transferred employees must be equivalent to those in force at the user company.