FACILITATOR: Christophe Vigneau
RAPPORTEUR: Richard Hobbs, Elsa Peskine; TEAM: Diamond Ashiagbor, Luca Calcaterra, Claire Kilpatrick, Elena Signorini, Charlotte Villiers
Special Thanks: Eva Kocher, Magda Nogueira Guastavino
1. REASONS FOR GROUP CORPORATE STRUCTURES
The development of a group corporate structure may be a response to
various commercial factors such as: business expansion and diversification
(e.g. Virgin has several subsidiary commercial activities – air travel,
trains, financial services and drinks among them); the need for specialisation
and efficient productive processes (e.g.. a car manufacturer may have a
network of subsidiary component manufacturers); the need to raise capital
finance; the need to reduce taxation liabilities and the need to develop
relationships with new business partners.
Therefore the avoidance of labour law protections is not necessarily
the primary motive for the development of a group corporate structure.
It must also be borne in mind that within the group corporate structure
each company is a legal entity within its own right. Corporate legal structures
should thus not be too easily disregarded so as to extend liabilities for
labour law protections from one separate legal entity to another. In other
words there must be strong overriding reasons to lift the veil of incorporation
that separates each of the legal entities within the group.
2. THE NEGATIVE EFFECT OF GROUP CORPORATE STRUCTURES FOR LABOUR LAW
However, the protections offered by labour law can be seriously impeded
by the existence of a group corporate structure. The most common definition
of the employer in our legal systems is "the other party to the employment
contract". However, none of our legal systems recognise corporate groups
as legal entities in such a way as they could become parties to the employment
contract. This creates difficulty in identifying the employer and enforcing
labour law rights against the most appropriate party.
Also, a threshold number of employees are required before some labour
law protections can be enforced against an employer. So, a group corporate
structure could be arranged to create several small entities, each of which
individually does not employ the threshold number of employees; labour
law protections could thus be avoided.
The law therefore has to strike a balance between the need to respect
corporate law structures and the need to enforce labour law protections.
We have identified two concepts that we believe underpin the legal solutions
to this problem. First, we have identified a concept of Economic
Unity. By this we mean that the law examines whether the separate
legal entities in reality form a common economic space. If so, liability
for labour law protections may extend may extend within that economic space
from one corporate entity to another. This concept is discussed more fully
in the first part of the report. In the second part of the report we discuss
the concept of Social Unity. By this we mean that the law
looks at the place of work as a social space. By virtue of entering this
social space workers are entitled to certain basic rights such as health
and safety and the right not to be discriminated against.
Using the concept of Economic Unity the law looks beyond the formal corporate law structure to the economic reality of corporate relationships, so as to establish links between the separate legal entities in a group corporate structure. It is evident that different kinds of economic relationships or linkages may be deemed to form a common economic space, within which labour law protections may be extended from one separate corporate entity to another. We will now discuss these different kinds of relationship in more detail.
1. FINANCIAL / CAPITAL RELTIONSHIPS
German law also recognises capital linkages between companies in a group.
The Aktiengesselscaft defines associated companies, ruling companies and
subsidiary companies on the basis of shareholdings. If a parent company
is able to take profits out of its subsidiary, and does this in a fraudulent
or abusive manner, the courts may lift the veil of incorporation where
employers have a financial claim against the subsidiary company. If the
subsidiary is unable to meet its liability, the employee can then call
upon the parent company for repayment of the debt. This may happen especially
in pensions cases, although such situations may be rare. However, this
is a very specific example; it must be emphasised that thresholds and comparators
for labour law rights are calculated on the basis of the enterprise.
French law provides a statutory definition of the Group based on the idea of a dominant shareholding for the purpose of establishing Group Works Councils.
Also, one notion of Economic Unity used in Spain is the juridical notion of "caja unica". Although two companies may be separate legal entities they will be deemed to be a unique economic box if one enterprise uses or shares in the capital or profits of the other. This is relevant to labour law because the capital could be "stolen" to avoid liabilities to workers. By establishing the unique economic box, the worker can claim against all the workers in a group, or just the richest one.
In some cases the Italian Supreme Court has maintained that if a worker is working at the same time for different members of the group and it is impossible to distinguish clearly who is the main employer, then the companies will be jointly liable (Solidarity) and the worker can decide against which company he wishes to enforce his claim.
In the UK there have been cases where individuals offer their services via shell companies that they have set up for that purpose. Courts have disregarded the corporate structure if they feel it is a sham arrangement, and have said that if the true relationship is that of employer and employee, simply putting a different, corporate, label on the relationship does not change this.
French law recognises the concept of the Joint Employer whereby two employers may be deemed to have authority over a worker. In this situation either or both employers may be found liable to the worker. This notion is especially relevant to unfair dismissal law.
It is important at this point to distinguish this labour relationship
from the concept of Social Unity that is discussed in the next part of
the report. The labour relationship is described here as an economic unity
because it views labour as a factor of production, and the labour relationship
is used to establish the link between the different enterprises in the
group. It is necessary to establish this link because the worker is trying
to shift his claim for labour law rights from the legal entity that is
formally his employer, to another legal entity in the group that may be
in a stronger financial position to satisfy the workers claim. In the concept
of Social Unity we say that certain rights exist because the worker has
entered the workplace, and he does not necessarily have to establish that
another legal entity in the group is his "real" employer before he can
claim these rights.
The law strikes a balance between corporate law and labour
law by examining the reality of economic relations between companies. There
is a greater tendency to pierce the veil of incorporation where there is
evidence of a sham arrangement deliberately designed to avoid labour law
It may be that collective labour law will provide a useful tool for dealing with group corporate structures. In Italy there are developments in collective agreements to consider the notion of the group as an economic entity (see especially the Banking Sector). At the European level, a good example of defining employment rights according to economic unity is the European Works Council Directive.