Spain: Contractors/subcontractors and collective bargaining following the labor reform

One of the subjects that sparked the greatest interest in the recent labor form, apart from the rules on types of contract, was how the rules on contractors and subcontractors would be defined, especially regarding the applicable collective labor agreement at those companies. Contrary to the expectations that had been built, and contrary also to a few opinions that had already been expressed, any changes in this respect have been minimal. In subarticles 1 through 5, 7 and 8 of article 42 of the Workers’ Statute, there are actually no further changes than the substitution of “empresa”, i.e. “company”, for “empresario”, i.e. employer, and “workers” becoming “working persons”. The new addition to the law is the inclusion of subarticle 6 on collective bargaining. Therefore, the options for contracting out activities or services, which are protected by free enterprise, remain the same as they were under the previous legislation. There is no restriction on these practices, contrary to the announcements heard in the early stages of the reform process.

Subarticle 6 now tells us that “the applicable collective labor agreement for contractors and subcontractors shall be that for the industry of the activity conducted at the contractor or subcontractor, regardless of their corporate purpose or legal form”, although this is “unless another applicable industry collective labor agreement exists, as determined in title III”.

A first conclusion to be drawn is that the collective labor agreement applicable to contractors will be that relating to the activity conducted at each contractor, not that relating to the principal company’s activity. The principle that the collective labor agreement applicable to the company is the one that includes the activities conducted by the company in its functional scope remains unaltered. The lawmakers have not accepted the arguments put forward during the negotiation process for the reform that contractors should have to apply the industry collective labor agreement for the principal company, not to mention its company specific agreement. And it is important to underline that the exception where, under title III, another industry agreement is applicable, does not invalidate that conclusion. It is impossible to see how any industry collective labor agreement, other than that relating to the activity conducted by the contractor, may be applicable under title III. And there is no way that the exception could be interpreted to mean that an industry collective labor agreement may provide that it is applicable to any contractors providing services to the companies included in the scope of application of the agreement, whatever their activity and even if they do not fall within their functional scope. Clauses of this type, of which there have been examples in Spanish collective bargaining processes, are, in my opinion, clearly illegal: a company not falling within its scope of application cannot be expected to be bound by a collective labor agreement. And the definition of its scope cannot be arbitrary or fall outside the representative authority held by the bargaining parties. It is a different matter where the industry collective labor agreement contains the obligation, for the companies falling within its scope, to require the observance of certain working conditions by the companies to which they contract or subcontract out any activities or services. Although this would an obligation for the principal companies not for the contractors or subcontractors. The exception, therefore, may only be raised in events where, due to the nature or characteristics of the contractor, a specific “multifunctional” industry collective labor agreement, so to speak, is applicable which may happen with special employment centers or temporary  employment companies.

However, if the company has its own collective labor agreement, “it shall be applied, as determined in article 84”. There has not therefore been any alteration to the rules on determining the applicable collective labor agreement as contained in title III. It is not being said that contractors have to apply the industry agreement for their activities, instead that, if an industry agreement is applicable, under the rules in that title III, this will be the agreement for the activity conducted by the contractor. Although if the company has its own collective labor agreement, the rules in article 84 of the Workers’ Statute apply.

What are these rules? Bear in mind especially that the law refers to article 84, not to subarticle 84.2. Therefore, the rule in subarticle 84.1 applies first and foremost, which sets out the principle of the “sovereignty” of every collective labor agreement, without any type of hierarchy existing among them (aside from the options of coordinating bargaining scopes under article 83.2 of the Workers’ Statute), and their scope of application depends on what “the parties agree” (article 83.1 of the Workers’ Statute). This principle leads to application, as determined by the courts, of the prior in tempore rule whereby there may be a company agreement that takes precedence over any industry agreement that potentially includes the company in its scope. In this case, the company agreement is fully applicable and is not subject to the provisions in the industry agreement. If the company agreement benefits from this right to take precedence as a result of being signed at an earlier date (or as a result of a change of bargaining unit occurring after the term of the industry collective labor agreement has expired; judgment by the Supreme Court, Labor Chamber, of October 5, 2021, appeal 4815/2018), it is not conditioned, in any respect, by the provisions in the industry collective agreement.

It is when no company agreement that takes precedence exists, and only then, that we have the event in article 84.2, which defines, as an exception to the untouchability of collective labor agreements during their term, the possibility that the rules in a company collective labor agreement coexisting with another industry agreement may take precedence over the industry agreement in relation to a number of matters, from which pay has now been excluded. The previously existing rules have not therefore been altered in any substantive way. The new provisions have simply excluded, through the new wording of subarticle 84.2, the ability of a company collective labor agreement coexisting with another industry agreement negotiated while it was in force to take precedence over that industry agreement in relation to determining  base salary and pay supplement amounts.

This has not been properly understood in a few commentaries on the reform, which have argued that company agreements are always subject to the pay rules in industry agreements, and that, in relation to contractors, the industry collective agreement for the contractor's activity must apply, without any further options for the company than using the provision in article 84.2 of the Workers’ Statute. To the contrary, applying the rules contained in article 42.6 and article 84 of the Workers’ Statute leads us to the following conclusions:

• If a company (contractor) has its own collective labor agreement which takes precedence, that agreement will apply fully, and not be subject, in relation to any point, to the rules in any industry agreement potentially applicable to the company.
• If the company (contractor) does not have its own collective labor  agreement, the industry agreement that includes the company's activity in its functional scope will apply.
• If the company (contractor) is subject to the industry collective labor agreement, it will be able to negotiate its own collective labor agreement which, as an exception to the rule in 84.1, may affect the industry collective agreement, by taking precedence over that agreement as regards the rules on the matters mentioned in article 84.2 (which contains that exception), and now, after the reform, determining base salary and pay supplements have been excluded from those matters.

The rules, therefore, continue to be fundamentally the same. The structure of collective bargaining as enshrined in title III of the Workers’ Statute has not been altered, and therefore, there is no unconditional obligation for contractors to apply the industry agreement for their activity nor are company collective labor agreements subject in every case to industry agreements in relation to determining pay.