Ruling on business transfers and the application of collective agreements

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In December 1999, Portugal's Supreme Court of Justice issued an important ruling under the terms of which one of the companies that resulted from the break-up and privatisation of a publicly-owned joint stock company, itself a former state-run company, was ordered to abide by a collective agreement that had been entered into by that former state-run company. The issue of the continued validity of collective agreements following a business transfer has been a subject of legal debate for some years.

In 1986, Quimigal de Portugal EP- a publicly owned company resulting from the 1975 nationalisation of a business group in the chemicals sector - signed a company-wide collective agreement with the Portuguese Federation of Chemical and Pharmaceutical Industry Unions (Federação Portuguesa de Sindicatos da Indústria Química e Farmacêutica). Subsequently in 1989, a government legislative act transformed Quimigal de Portugal EP into Quimigal-Química de Portugal SA, a state-owned joint stock company. The purpose of this act was to prepare the company for privatisation, which was to take the form of the disposal of the stake held by the state. In the course of this process, the joint stock company was broken up into various different privately-owned companies, namely Quimitécnica SA, Agroquisa-Agroquímica SA, CUF-Têxteis SA, and Companhia Petroquímica do Barreiro SA. Each of these four companies sought to release itself from the 1986 company collective agreement. Indeed, Quimitécnica SA proceeded to apply the collective employment governing the chemicals industry. For their part, however, the employees claimed that the 1986 company-wide agreement continued to apply.

In 1996, after assessing the situation of Agroquisa-Agroquímica SA, the Supreme Court of Justice (Supremo Tribunal de Justiça) issued a decision rejecting the thesis that the 1986 collective agreement continued to apply to this firm. However, in 1998 another decision issued by the same Court took the opposite stance in relation to CUF-Têxteis SA. Finally, in December 1999, the Court issued a ruling on the situation of Quimitécnica SA - under the terms of a procedural law which aims to harmonise case law - which reiterated the continuing validity of the 1986 collective agreement.

Transfers of undertakings and collective agreements

Since 1976, the Portuguese legal system has applied the convention that whatever the term an instrument of collective labour regulation (ie a collective agreement or government order) may itself stipulate, and independently of whether or not it has been renounced by the parties, that instrument ceases to be in effect only when it is replaced by another. It was only at the beginning of the 1990s that this rule, which found express legal basis in article 11(2) of the Collective Labour Relations Act (LRCT- Decree-Law No 519-C1 of December 1979), the statute that regulates collective agreements, began to be criticised by a number of legal experts. In 1992, the LRCT was altered and article 9 was rewritten to state: "in the event of the total or partial transfer of a company or establishment, the employer to which it is transmitted shall be obliged to comply with the collective labour regulation instrument which binds the transferring employer either until it reaches its term, or for a minimum of 12 months from the date of the transfer, whichever comes later, unless it is replaced by another in the meantime." However, the rule set out in article 11, which provides for the general continued validity of collective labour regulation instruments, was retained.

Following this alteration of the LRCT, a discussion arose as to how to reconcile the new version of article 9 with article 11: while some people consider that article 9 contains a special provision aimed at cases involving business transfers, thus prevailing over the rule set out in article 11 in such situations, others consider that article 9 cannot be applied in such a way as to prejudice the continued validity rule that results from article 11. This discussion became interlinked with another one concerning the significance of collective agreements in relation to contracts of employment. For some years it had appeared that the traditional understanding of this question, whereby more favourable clauses in a collective agreement substitute less favourable provisions in an employment contract, had been put aside. However, this discussion recommenced in relation to the specific situation of the privatisation of state companies, as a result of the 1989 revision of article 296 (1)(c) of the Constitution, which stated that "during the reprivatisation process applicable to a given company, the employees of that company shall retain all the rights and obligations which were previously theirs". This wording was reproduced in article 19 of Law nº 11/90 - the framework law governing privatisations. Some authors - and now the Supreme Court of Justice as well - profess the understanding that although article 9 of the LRCT must prevail in cases involving the transfer of companies, the fact is that in light of article 11 of the same law, where reprivatisation processes are concerned, the clauses of the former collective agreement have come to form part of each employee's individual legal rights and cannot therefore be endangered by a new collective labour regulation instrument.

The recent Supreme Court of Justice's decisions

In the light of recent tendencies in legal thinking and case law, the December 1999 Supreme Court of Justice's decision in the Quimitécnica SA case must be seen as something of a surprise. In fact, it would be very difficult to argue that in cases involving the transfer of companies, article 9 of the LRCT - which is a special rule - should not override article 11. Indeed, the Supreme Court of Justice itself implicitly recognises this thesis in its December 1999 ruling.

At the same time, while it has long been the predominant convention that more favourable clauses in collective agreements override the corresponding provisions in employment contracts, this has not implied that the former clauses substitute the latter ones. In other words, the fact that it is the clauses of the collective agreement that should be applied does not transform them into clauses of the employment contract, nor does it deprive them of their autonomy vis-à-vis that contract. The relationship between a collective agreement and an employment contract works in a similar way to that between an imperative law and an employment contract.

Be that as it may, the rule set out in article 296(1)(c) of the Constitution does not interfere with this issue, inasmuch as it limits itself to guaranteeing (in the same way as article 37(1) of the LRCT already did in the great majority of situations involving business transfers) the conservation of those rights and guarantees which fall within the sphere of each employee's overall individual rights, in cases involving a succession of entities that occupy the position of his or her employer. Moreover, it is manifestly clear that these rights do not include the right of application of a given collective agreement or the ability to rely on its continued validity.

Commentary

The importance of the ruling issued by the Supreme Court of Justice in December 1999 is enhanced by the fact that it was handed down as part of an appeal that was then sent for review - a procedure which involves the intervention of the full assembly of the different sections of the Court - with a view to attempting to achieve the standardisation of the relevant case law. Contrary to earlier "assentos" - special Supreme Court rulings designed to resolve conflicts between earlier decisions of the Court - the authority of a decision that is issued during the course of such appeals is not equivalent to that of a legislative act. This means that lesser tribunals may take decisions which contradict the understanding reached in the ruling handed down in a reviewed appeal, but that if they do, it will always be possible to appeal to the Supreme Court of Justice. (António Nunes de Carvalho)