Florence October 29 November 2, 2014 LABOUR LAW COMMISSION OUTSOURCING, SUBCONTRACTING AND STAFF LEASING

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58 th UIA CONGRESS Florence October 29 November 2, 2014 LABOUR LAW COMMISSION Saturday, 1 November 2014 OUTSOURCING, SUBCONTRACTING AND STAFF LEASING

1 58 th UIA CONGRESS Florence October 29 November 2, 2014 LABOUR LAW COMMISSION Saturday, 1 November 2014 OUTSOURCING, SUBCONTRACTING AND STAFF LEASING Hervé Duval - KGA Avocats 44, avenue des Champs-Elysées Paris, France Ph. +33 (0) / fax +33 (0) h.duval@kga.fr UIA

2 Providing workforce meets the growing needs of companies in terms of flexibility, headcounts or shortage of skills. As outsourcing, subcontracting or staff leasing may put workers in a precarious situation, providing workforce is strictly regulated in France. French law distinguishes between the loan of labor to make profit and the loan of labor without profit. Operations whose sole purpose is to loan labor for profit are strictly prohibited in France subject to the exceptions expressly provided by law (I). Therefore, when the loan of labor is not the sole purpose of the economic operation but a simple means used to deliver much broader services, it does not fall under the prohibition fore-mentioned. However, it must be noted that judges operate a strict control over the exact purpose of subcontracting or outsourcing contracts and on the conditions of delivering the agreed services. (II) The loan of labor made without profit is not prohibited under French law but uncertainties resulting from strict precedents did not allow to perceive precisely the requirements for using it without legal risks. The law of 28 July 2011 clarified these requirements in order to facilitate employees mobility and to secure the secondment or assignment of employees.(iii) Providing or using prohibited loan of labor is a criminal offence that can also be sanctioned as an offence of illegal trading when it causes damages to an employee. (IV) I. USING THE LOAN OF LABOUR WITH A SOLE PROFIT PURPOSE French law prohibits the use of loan of labor with a sole profit purpose except when carried out within the framework of the various schemes provided by law. These schemes are briefly presented below. It should already be noted that in general: - The use of such schemes requires prior notification to the employee representative bodies of the user companies. - Situations in which it is possible to resort to these schemes are strictly defined by law. - The terms and conditions of loaning employees (including the remuneration and working conditions) must meet the requirements set by the law. - Contracts concluded within the legal framework must include legal notices. - The violation of the above obligations exposes the contracting parties to a penal sanctions (fine of 3,750 euros and for recidivism a fine of 7,500 and six months imprisonment). 2

3 1. Temporary work agency The law does not define temporary work as such but it defines business activity of temporary work. The business activity of temporary work is one whose sole activity is to put at the disposal of the user companies temporary workers that he recruits and pays to this end based on an agreed qualifications (article L of the labor Code). The exercise of this activity is regulated and subject to prior formalities. The use of temporary work is strictly limited to situations referred to in Articles L L of the Labour Code and in particular to replace an employee who is temporarily absent, to handle a temporary increase of activities or to fill seasonal positions. The use of temporary workers may have neither the purpose nor the effect of permanently filling positions relating to the normal and ongoing activities of the user company. Moreover, with some exceptions, it is not allowed to use temporary work: - Within a period of 6 months following a redundancy - To replace an employee who is on strike - To perform hazardous work The total duration of the temporary worker s assignment is normally limited to 18 months, including renewal(s). Beyond this period, the user company is required to observe a waiting period before filling the position left vacant by the temporary worker through a new temporary work contract or a fixed term contract. The duration of this waiting period is determined under the provisions of Article L Labour Code. In terms of compensation, the temporary worker enjoys the same rights as the employee of the user company. In particular, his wages cannot be lower than the wages of a similarly qualified employee occupied in the same or similar position. For the duration of the assignment, the user company is responsible for enforcing and observing the provisions set by the law or collective agreements in terms of working conditions such as duration and hours of work, health and safety, labor of women, children and young workers. When the user company continues to use the temporary worker beyond the term of the contract or when it does not comply with the legal requirements set for using temporary work, the temporary worker will be considered as an employee of the user company under a permanent employment contract. The termination of such employment contract must comply with dismissal law. In addition, the user company may be exposed to penal sanctions (fine of 3,750 euros or if recidivism a fine of and 6 months imprisonment) when: - The use of temporary work has for purpose or effect to sustainably fill jobs related to its normal and ongoing business activities - The specific situations where temporary work is permitted (replacement of a sick employee for example) or banned (replacement of a striking employee for example) are not respected. 3

4 - The contract between the company of temporary work and the user company is not concluded within the deadline set by the law or does not provide the temporary worker s remuneration in the manner prescribed by law. 2. «Umbrella company» (portage salarial) The portage salarial scheme is a set of organized contractual relationships between an umbrella company, an individual (the worker) and a client (the user company), enabling the individual who works as self-employed for the client to be paid by the umbrella company as an employee and as such, to benefit from the employees social security scheme. (Article L of the Labor Code). The said individual prospects and negotiates with his own customers the terms and conditions of the services he will provide (specifications, deadlines, remuneration ). Once the terms and conditions of the services to be provided have been defined, two separate contracts are concluded: - A service contract between the umbrella company and the client with a maximum duration of 3 years - An employment contract (fixed term or permanent) between the umbrella company and the individual Umbrella companies must exclusively be dedicated to the loan of employees. The professional collective agreement dated 24 th of June 2010 lays down the rules for the triangular relationship between the umbrella company, the employee and the client. The use of an Umbrella Company is restricted to occasional duties outside the normal and ongoing scope of the clients activities or to specific tasks requiring an expertise that is not available internally. The assignment of the umbrella company s employee to the client company cannot normally exceed a period of three years. 3. Working time sharing company The working time sharing companies make available qualified employees to their clients that the latter cannot recruit themselves because of their insufficient size or means (Article L of the Labour Code). An employment contract is concluded between the working time sharing company and the employee in accordance with Articles L L of the Labor Code. This employment contract is deemed to be permanent (L of the Labour Code). The working time sharing company must provide financial guarantees in case of default on payment of salaries and social security contributions. 4

5 The remuneration paid to the employee put at the disposal of the user company cannot be lower than the salary paid by the latter to its own employees with equivalent professional qualification or similar functions (Article L of the Labour Code). Likewise, the employee put at the disposal of the end user company benefits from the working conditions determined by laws and agreements applicable to the workplace. 4. Association of employers This scheme enables several employers to join together in the form of an association or a cooperative society in order to hire employees that it makes available to its members. The Association of employers is regulated by Articles L to L of the Labour Code. It should mainly be remembered that: - Such association of employers can be established between employers operating under the same or different collective agreement as long as the employers operating under different collective agreements agree on the collective agreement that will apply to their association and have informed the labour inspector who will exercise control over their choice. - Employment contract between the association and its employees must ensure equal treatment between the latter and the employees of the end user companies (the association members). - The situation of the employees of the association is comparable to the situation of the temporary workers. - The Labour inspector and the employees representatives bodies of each company that is becoming member of an association of employers must be informed. II. SUBCONTRACTING AND PROVISION OF SERVICES Subcontracting and provision of services are used by companies to outsource those of their activities which do not belong to their core business. Outsourcing leads to the conclusion of commercial agreements that cover activities such as catering, security, housekeeping, and information technology maintenance services. It is usually concealed behind the legal appearance of such commercial agreements that illegal practices of loan of labour are organized. The Courts have therefore extended their control over any outsourcing or subcontracting practices that involve putting employees at the disposal of an end user. It is in this context that case-law has laid down interpretive criteria, the accumulation of which determines whether the outsourcing operation involving a loan of workforce is or is not legal. The main criteria are: 5

6 - The tasks to be performed by the loaned workers have been clearly and precisely defined - The loaned workers perform their duties with a real autonomy. They do not report to the management of the end user company. The providing company determines their working conditions (such as working hours for example) and provides the means, equipment or tools required to perform their work. - The commercial agreement fixes the remuneration of the services delivered by the provider as a lump sum. The services provided are seen as a whole and cannot be invoiced with regard to the time spent by the loaned workers in the premises of the end user. - The outsourced activity involves high or technical skills that do not exist within the end user company. The Courts will thus examine whether the workers provided have a specific expertise or savoir faire in comparison with the level of qualification of the end user s employees. - The commercial agreement provides binding clauses for the provider, such as the expected level of performance or results, professional insurance against defects. III. THE LOAN OF WORKFORCE WITHOUT PROFIT The loan of workforce without profit involves the act of providing workforce without the intent to make profit or a pecuniary gain either for the providing company or for the end user company. It is carried out without causing any prejudice to the employees put at the disposal of the end user. The law of 28 July 2011 completed article L of the Labour Code to define the operation without profit as follows: The act of providing workforce is made without profit when the provider invoices the end user with the wages, social contributions and professional expenses paid to the employee for his assignment to the end user These new provisions endorse secondment practices of staff between different companies or between companies of the same group, subject however, to the reality of the non-profit nature of these secondments. Otherwise, the companies involved can be prosecuted for illegal loan of labour. To be considered as loan of labour without profit, the home company must only cross charge the wages, social contributions and professional expenses related to the secondee s assignment to the host company. Any additional costs such as administrative costs are born entirely by the home company. Article L paragraphs 3 to 6 of the Labour Code provides that the loan of labour without profit implies in order to be lawful: - The consent of the employee assigned to the host company 6

7 - A written contract between the home and the host company that lays down the terms and conditions of the secondment (duration of the secondment, identity and professional qualifications of the secondee, method of calculation of the wages, social contributions and professional expenses to be cross charged to the host company) - An amendment of the employment contract signed by the employee and the home company that defines the terms and conditions of assignment, his / her working hours and working place and the main features of his / her position in the host company. In addition, the home company shall consult the employees representative bodies on the secondment before its commencing date. The host company shall also inform its employees representative bodies on the reasons why it had to use the loan of workforce without profit during the past year and the reasons why it may have to use it again during the coming year. IV THE OFFENCES RELATED TO ILLEGAL SUBCONTRACTING The illegal loan of labour Any loan of labour whose purpose is to put a worker at the disposal of an end user to carry out, against payment, duties that belong to the normal and ongoing activities of the latter without contracting with a temporary work agency is illegal. The business activity of providing labour for profit is legal when it is performed within the legal schemes (of temporary work agencies, umbrella companies, working time sharing companies and association of employers) and when it complies with the provisions regulating these schemes. Failing to comply with these legal requirements would be seen as a criminal offence of illegal loan of labour. This offence is punishable by - For individuals, a fine up to and/or up to two years imprisonment (article L of the Labour Code) In addition the Judge may ban the individual from carrying out the loan of labour activity for a period of 2 to 10 years and/or order the publication of the Court decision in a newspaper - For legal entity, a fine up to In addition, the Judge may order the dissolution of the company and/or ban the company from providing workforce. He may also put the company under judicial supervision and/or order the temporary or permanent closure of its premises and/or order the publication the court decision in a newspaper. 7

8 The Offence of illegal trading of workforce It follows from Article L of the Labour Code that any operation of providing workers for-profit which causes a prejudice to an employee or to elude the application of legal or contractual provisions is prohibited. Violation of such prohibition constitutes an offence of illegal trading of workforce, punishable by the same sanctions as for the illegal loan of labour. Unlike the illegal loan of labor which requires that the service provider does only provide workforce without broader services such as delivery of tools equipment or materials, the illegal trading of workforce can be constituted even a broader service is provided. Article L of the Labour Code prohibits therefore under the offence of illegal trading of workforce: - Providing workforce for profit exclusively or with a broader range of services - A prejudice for the employee that can result from a financial loss or the loss of a right provided by the law or a collective agreement Cumulating the offences It results from the combination of Articles L and L of the Labour Code, that an individual or a legal entity can be punished for committing both offences, illegal loan of labour and illegal trading of labour. The intention of the employer is not required for the offences to be constituted. As a result, a temporary work agency may be sanctioned: - Firstly under the specific provisions related to the temporary work activities - Secondly and under the general provisions prohibiting the illegal loan of labour and / or the general provisions prohibiting illegal trading of labour. It should be noted that the criminal provisions aims to only sanction the supplier of illegal loan of labour and / or of illegal trading of labour. However the Courts have held that the end user of the workforce unlawfully put at his disposal shall also be prosecuted as a co offender. V. THE CIVIL PENALTIES When the loan of labour is unlawful, the commercial contract between the provider and the end user is void. Therefore, the company found guilty of illegal loan labor / illegal trading of labor is not entitled to claim payment for the services stated in this contract. In addition, employees unlawfully put at the disposal of the end user are entitled to claim that a permanent employment contract is binding the end user since they worked under its supervision (that is to say when the end user gave instructions, controlled the work performed and sanctioned breaches 8

9 if any). This civil sanction is expressly provided by the Labour Code for the violation of the legal provisions on temporary work. It has been extended by the case-law to all the situation where workforce is provided unlawfully. When the Court recognizes the existence of an employment contract binding the end user to the provided employee, this employment contract is superposed on the existing contract binding the employee and the workforce provider. Most of the time an employee claims the existence of a permanent employment contract binding the end user at the time his / her assigment comes to an end. Indeed, whenever a permanent employment contract exists it can only be terminated in accordance to the dismissal law which provides specific financial compensation and damages. In addition, if the act of putting an employee unlawfully at the disposal of the end user caused a prejudice to the employee, the latter can be plaintiff in criminal or civil proceedings to obtain damages. A trade union is also entitled to become plaintiff in criminal or civil proceedings in order to claim that the offence caused a specific prejudice to the profession they represent. 9

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

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