58 th UIA CONGRESS Florence / Italy October 29 November 2, 2014 LABOUR LAW COMMISSION OUTSOURCING, SUBCONTRACTING AND STAFF LEASING

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1 58 th UIA CONGRESS Florence / Italy October 29 November 2, 2014 LABOUR LAW COMMISSION Saturday, November 1, 2014 OUTSOURCING, SUBCONTRACTING AND STAFF LEASING OUTSOURCING IN PORTUGAL Acácio Pita Negrão (PLEN Sociedade de Advogados, RL), Rua Castilho n.º 59, 4º Dt.º Lisboa, Portugal (Tel: / Fax: ) acacio.negrao@plen.pt UIA

2 OUTSOURCING IN PORTUGAL I INTRODUCTION Although not being a completely new phenomenon, outsourcing was merely outspread in the 1990 s and only formally identified as a business strategy in 1989 (Mullin, 1996). Until that date, the model was that companies owned, managed and directly controlled all their assets, including the work force needed to pursue their businesses. This was the Fordits concept of the employer and employee. There were, of course, some exceptions in some specific fields, in which companies had already came to the conclusion that they were not totally self-sufficient (eg., cleaning and security). As a result of the specialization trend of economy, companies started to become conscious that they often failed to fully integrate all stages of their production process. They started, therefore, to outsource functions for which they had no internal competence. At the beginning of it s expansion, outsourcing only involved skills not related to the companies core business. However, nowadays, bearing in mind the advantages of such business strategy (eg., reduction and control of operating costs, access to worldclass capabilities, sharing of risks, improvement of company focus, etc.), companies no longer see the outsourcing of such core skills as an anathema. In Portugal, outsourcing is well established. Although there are no official statistics relating to the contribution of outsourcing for Portuguese economy, the country is among the 13 more developed countries for the outsourcing services in the IT area and in business processes (please see Gartner). Outsourcing is not directly regulated by Portuguese Labour Law and there is no legal definition of outsourcing. It is generally understood as the contracting out of a business process to a third-party. It is commonly associated to a simple subcontracting, but it can involve special forms, such as the transfer of a business activity, or other realities, such as temporary work. In this text, we shall analyse the above identified most common methods of externalization of a business activity, in Portugal, i.e., the simple subcontracting, the transfer of a business activity and temporary work. Such brief analysis will, essentially, focus on the most relevant aspects of the legal regime of the said methods. In the end, we will try to underline some challenges due, in part, to the development of outsourcing in the labour market. II THE MAIN OUTSOURCING METHODS IN PORTUGAL II. A) SIMPLE SUBCONTRACTING Simple subcontracting is the most common way of outsourcing a business process to a third party. To subcontract someone or some entity to provide a service for a company would normally involve the entering into a service agreement with such person or entity. According to article 1154 if the Portuguese Civil Code, a service agreement is a contract whereby one of the parties (the service provider) undertakes in relation to the other (the service beneficiary) the obligation to achieve a certain result through his or her intellectual or manual work and upon or without payment. Subcontracting is, without any doubt, an opportunity for companies to take advantage of the flexibility offered by a service agreement, in contrast with Labour Law rigidity and labour costs. Moreover, subcontracting a company or a person is the most adequate way to obtain the provision of a certain task. If the latter can be performed autonomously, without any legal subordination to the beneficiary of the service, there would be no reason to enter into a labour law relationship. 2

3 However, sometimes, in particular, when the service provider is an individual, it is very difficult to determine if the relevant contractual relationship shall be qualified as a service contract or a labour contract. Such difficulty also occurs when the choice of autonomous work instead of subordinated work results of an unlawful or fraudulent conduct (eg., the employer forces the individual to act under a vehicle created only for the purpose of avoiding the qualification of the relevant relationship as a labour contract). In order to avoid such difficulties or fraudulent situations, article 12 of the Portuguese Labour Code establishes a presumption of existence of a labour contract whenever the relationship between the individual providing an activity to another individual or to a company includes any of the following characteristics: a) The activity is carried out in a place owned by the beneficiary of the activity or indicated by the latter; b) The equipment and work tools used are owned by the beneficiary of such activity; c) The provider of the activity is subject to a timetable determined by the beneficiary; d) The provider is paid a fixed amount, at fixed intervals, as a compensation for his activity; e) The provider performs functions of management of leadership in the organizational structure of the undertaking. If, by means of such presumption, a Portuguese Labour Court or the Portuguese Labour Authority comes to the conclusion that the employer has been receiving an apparently autonomous activity that corresponds to a real labour relationship, such behaviour of the employer will constitute a very serious infraction and, as a consequence, he will be subject to a fine, which amount varies according to several items, notably, the culpability of the employer (negligence or wilful misconduct), the annual turnover of the employer and the number of employees affected. From a labour standpoint, outsourcing (if understood as subcontract) represents a threat, contributing to work force instability, as it causes the lack of protection of an increasingly large number of individuals who provide work on an autonomous manner, but economically depend on the entities to which they work. Bearing in mind such reality, Portuguese legislation, in relation to certain specific and (until the present date still) exceptional situations, started to approach or, even, assimilate labour work and autonomous work (i.e., work performed by individuals without any legal subordination to the beneficiary of the activity). This is the case, for example, of: a) Article 10 of the Portuguese Labour Code, according to which the general rules of the said Labour Code related to personality rights, equality, non-discrimination, health, safety and hygiene at work, shall apply to individual service providers, whenever such providers are considered in situation of economic dependency of the beneficiary of the activity. Portuguese Labour Law does not define the concept of economically dependent autonomous worker and, therefore, the integration of any autonomous worker in such concept shall be analysed on a case by case basis by the Portuguese Court or Portuguese Labour Authority; b) Law nr. 101/20009, of September 8, which establishes, the legal framework for work performed at home without legal subordination but with economic dependence, providing special rights and duties to the parties, namely, in what concerns remuneration and termination of the contract. Once again, there is no legal definition of the concept of economically dependent autonomous worker; c) Article 143 of the Portuguese Labour Code, which, in relation to successive fixed-term labour contracts, states that the termination of a fixed-term contract for reasons not attributable to the employee, prevents the employer from hiring a worker under another term agreement or temporary work contract for the same position or, even, an autonomous service provider with the same scope. This limitation lasts for at least a period equal to one third of the length of the term contract, including renewals; 3

4 d) Article 143 of the Portuguese Labour Code, which rules the calculation of the duration of fixed-term contracts, and states that the maximum duration thereof is of three years, including renewals, and that any previous service contracts entered into between the employer and the employee for the same activity are taken into consideration in such calculation; e) Article 140 of the Portuguese Social Security Contributions Regime, which determines that if a worker receives, in the same year, at least 80% of his total work income from the same entity, the latter is responsible for the payment of 5% of the Social Security contribution of such service provider (the social security contribution of self-employed individuals is of 29,6%). On the other hand, the complexity of modern business organizations, sometimes, forces employers to assume responsibilities towards the employees of other companies. This normally happens when there is a service agreement between two companies and the company benefiting from the service of the other, also benefits, in its premises, from the respective work power. According to article 16º of Law nr. 102/2009, of September 10, when several companies develop simultaneously or successively activities with their work force in the same workplace, each employer is, as a general rule, responsible to ensure health and safety protection to their employees, but all of them are responsible for cooperation in this field. Notwithstanding such responsibility of each employer, some of them are responsible to ensure health and safety protection to all the employees working in the same workplace. Such global responsibility is assumed by the following employers: a) The user company, in case of temporary workers (see II.C) below); b) The assignee employer, in case of occasional assignment of employees; c) The company whose facilities are being used by other workers under a provision of service contract; d) Inter alia, the winner of a concession. The latter must guarantee not only that both facilities and equipment used in the concession do not constitute a risk for health and safety, but must also ensure the coordination of the other employers, by organizing the activities related to safety and health at work. Simple subcontracting is not subject to any requirements related to the consultation or negotiation with unions or works councils and is not subject to any legal special procedures. II. B) TRANSFER OF BUSINESS ACTIVITY Sometimes the line between outsourcing, as simple subcontracting, and a true transfer of a business activity arising from outsourcing is not easy to establish. In such cases, because outsourcing is followed by a transfer to the contractor of some items that were previously allocated to the subcontractor s activity, in order to circumscribe the two different cases, it is necessary to analyse if those transferred items still constitute, together, an economic unit. Whenever it occurs, the transfer of such items will only be considered as a transfer of business activity if the respective economic unit is maintained as such. According to Portuguese Supreme Court jurisprudence, the economic unit is maintained as such, mainly, if (i) there is a transfer of assets from the subcontractor to the contractor, (ii) there is a transfer of know-how, (iii) the unit maintains a similar activity after the transfer. Whenever there is an actual transfer of business activity, by any title (i.e., an assignment, split-off or reversion), arising from outsourcing, it is necessary to take into consideration the Acquired Rights Directive 2001/23/EC, transposed to the Portuguese legislation, by means of incorporation into the Portuguese Labour Code (article 285 and subsequent articles of the Portuguese Labour Code). In compliance with the said Acquired Rights Directive, article 285 of Portuguese Labour Code stipulates that any employees will be transferred automatically on the same terms as before, in the event of a transfer of the undertaking. Therefore, the transferor is bound to the contractual and Labour Law 4

5 obligations of the transferor and the involved employees do not have the right of opposition to the transfer (such right of opposition may, however, exist in case the transfer results in substantial and lasting changes in the working conditions). Failure to comply with such obligations constitutes a very serious infraction and, as a consequence, the transferor will be subject to a fine, which amount varies according to several items, namely, the culpability of the transferor (negligence or wilful misconduct), the annual turnover of the transferor and the number of employees affected). On the other hand, the transferor will be jointly and severally responsible for the obligations due on the date of transfer, until the end of the first year after the transfer. Also in compliance with the abovementioned Directive, dismissals in the contractor may not take place just because of the transfer. They can only be made for other reasons, such as just cause or economic, technical and organisational grounds. The transposition of the said Directive into the Portuguese jurisdiction has been made without any further additions. According to article 286 of the Portuguese Labour Code, whenever the transfer involves the assignment of employees, the transferor and the transferee of the business activity must inform the employee s representatives (i.e., the works council or, in the lack of such works council, trade union commission or, in the lack of the latter, to the inter-trade-union commission) or, in the lack of such representatives, the involved employees, of the date and reasons of the transfer and its legal, economic and social implications for the employees. Such information must be given prior to the transfer. Also before the transfer, the transferor and the transferee need to obtain prior opinion of the employees representatives, in other to obtain an agreement on the measures that are envisaged concerning the employees to be transferred. It is not mandatory to reach an agreement: the only obligation of the transferor and the transferee in this respect is to make their best efforts to reach such agreement. At the time of such consultation, the information mentioned in the previous paragraph must be in the possession of the said representatives for, at least, 10 days. The said consultation, if there are no employees representatives in the company, do not need to take place with employees individually. Non-compliance with these information and consultation duties constitutes a light infraction and, as a consequence, the non-complying entity will be subject to a fine. One must also take into consideration that there are special legal rules related to employees representatives and applicable collective bargaining agreements after the assignment. Indeed: a) If the assigned economic unit maintains its independence, the status and function of the employees representatives involved in the assignment shall remain unchanged; b) If the assigned economic unit is merged into the acquiring company and no employees representatives exist in the latter, then the employees representative structure of the said assigned economic unit shall remain in functions for a period of two months following the assignment or until the new elected employee s representative structure begins functions or for a further two months period if the election is declared null and void; c) The assigned economic unit will be bound to the collective bargaining agreement applicable to the assignor until the end of its respective duration period and, at least, 12 months following the assignment rules, unless, in the meantime, another collective bargaining agreement becomes applicable to the assignee. In addition to these legal regulations on the transfer of a business activity, there is a special provision in the collective bargaining agreement entered into between the Portuguese Association of Facility Services and the Federation of Services Workers (article 15 nr. 2) stating that the loss of a client by a facility service operator with the subsequent award of the service to another facility services operator 5

6 determines the transfer to the latter of all employees allocated to the relevant workplace. Such employees will also be guaranteed the same labour conditions as in force prior to the transfer. II. C) TEMPORARY WORK Temporary work implies a triangular relationship comprising (i) a labour contract between a temporary work agency (assuming the position of employer) and an employee, (ii) a service contract between the temporary work agency and the entity that contracts the use of the employee and, finally, (iii) the legal relationship between the user of such services and the employee. This type of labour relationship constitutes an outsourcing of work force, as the user of such work force (the entity that contracts the temporary work agency) is not the employer of the relevant employees. This is an exception to the general labour law rule stating that the employee executes his functions directly for the employer. The employee is subject to the rules established by the user in what concerns health, safety at work, workplace, timetable and work instructions, but the disciplinary power and other employer s competencies (eg., the payment of the salary and the responsibilities before Tax Authorities and Social Security) remain on the agency, as the latter is legally regarded as the employer. Temporary work agencies must comply with several conditions to legally operate (eg., they must obtain a licence for operating, they need to get registered with a Public Registry, they must evidence that they do not have a criminal record, they need to submit a bank guarantee or a security bond, etc.). If an agency is not legally licenced, the relationship between such agency and the user of the work force will be considered null and void and, as a consequence, the employee will be deemed to have a permanent labour contract with the agency. The employee is entitled to receive, at least, the same salary of the employees of the user performing the same functions, however, if the salary applicable in the agency is higher, the employee will entitled to such salary. Without prejudice to the foregoing, after 60 days of activity at the service of the user, the employee is entitled to invoke the collective bargaining agreement applicable to the employees of the user who perform the same functions. Temporary contracts are only allowed for specific temporary needs, notably, some of the ones foreseen for term labour contracts, but also the need to fill a work post during the selection procedure, intermittent needs, restructuring of an undertaking and industrial repairs. The grounds for entering into such contracts must be indicated, both in the service contract entered into between the agency and the user and in the temporary labour contract. If the service contract or the temporary labour contract are entered without one of the grounds permitted by law or if such grounds are not indicated in those contracts, the same are considered null and void. If such invalidity only exists in the service contract, the employee will be deemed to have a permanent labour contract with the user. On the contrary, if the invalidity only exists in the temporary labour contract, the employee will be deemed to have a permanent labour contract with the agency. Finally, if such invalidity occurs in both contracts, the employee will be deemed to have a permanent labour contract with the user. Pursuant to the foregoing, there is a significant difference between temporary work and staff leasing. The latter is not permitted in Portugal, where temporary work is only allowed for special temporary or intermittent needs. III FINAL NOTES The standard or typical labour contract is gradually losing its historical importance to new and more flexible forms of work and, therefore, currently, there are different groups of employees: (i) the ones who are protected by a typical permanent labour law contract; (ii) the ones that, having still some Labour Law protection, are subject to term or temporary labour relationships; and (iii) those who supply their 6

7 work with legal autonomy, outside the scope of Labour Law, but with economic dependence on the beneficiaries of such work. In order to protect these more flexible forms of relationship, Labour Law must continue to extend the scope of its standards, applying them to these new realities, even if such realities are not qualified as pure labour relationships, due to the lack of legal subordination. In the foregoing, we have discussed certain rules of the Portuguese Labour Code concerning such new realities, but there may or shall be further legislative intervention, notably, in the field of health and safety at work, social security, etc.. On the other hand, it is also important to discuss the problems associated to the fact that all these more flexible forms of work contribute to a significant reduction of unionization and, therefore, to the weakening of the position of collective bargaining agreements. Accordingly, it is of crucial importance to discuss if independent workers shall have the right to enter into and/or be bound and/or be protected by collective bargaining agreements. Lisbon, 12 of September Acácio Pita Negrão PLEN Sociedade de Advogados, RL 7