The judgment handed down by the judicial review division of the Spanish Supreme Court on February 3, 2021, establishes a new doctrine and may force many companies to strengthen their precautions when outsourcing part of their activity. It is arguably among the most important decisions of 2021.
This judgment addresses an essential issue for companies that outsource part of their production. In particular, whether they can avoid liability for the Social Security debts of their contractors and subcontractors—which determines how they deal with the risk of this unforeseen additional cost.
Under article 42 of the Workers Statue (ET), companies that outsource part of their activity are normally liable—either jointly and severally, or vicariously—for the Social Security debts of contractors, both prior to the contract or during its term.
However, article 42(1) ET provides a way to avoid such liability: the interested company must verify that contractors are up to date with Social Security payments through negative certification from the Social Security Treasury (TGSS) within a non-extendable term of 30 days. If the company obtains this negative certificate, it will not be liable for the contractor’s debts. The scope of that certificate has never been clear—especially whether it exonerates from vicarious liability for prior debts or from joint and several liability for debts incurred during the term of the contract (which is why certification is requested on a recurring basis).
Paragraph 2 of the article refers to the Social Security debts of the contractor company that are incurred during the contract. It provides that the principal company will be jointly and severally liable for 3 years following termination of the contract—i.e., the TGSS may directly claim all the contractor’s debts from the company.
A common business practice is to include a clause in the service contract whereby the contractor undertakes to submit a monthly non-default certificate to the TGSS.
Before this judgment, principal companies that submitted such negative certification from the TGSS considered themselves released from further claims.
However, this recent decision of the Supreme Court gives a different interpretation of the effects of debt clearance certification confirming the contractor’s compliance.
In particular, this judgment establishes that only non-default certificates prior to the start date of the contractor’s activity can exempt the company from liability—and only with respect to debts prior to the contract.
On the other hand, non-default certificates have no discharging effect for Social Security debts of contractors arising during the term of the contract (for which the principal company remains jointly and severally liable). There is no such certificate for this event. Non-default certificates merely confirm that at that particular time there is no record of overdue payments, but they do not guarantee that the company has duly complied with its Social Security obligations nor that no debt claims may arise after their issuance. In other words, despite their name, these “certificates” have only informative value, but they do not certify anything.
Therefore, even if such non-default certificates are issued on a monthly basis during the term of the contract, they do not exempt the principal company from joint and several liability for the debts incurred unless the certificate issued by the TGSS is unjustifiably wrong—i.e., inaccurate despite the TGSS being in a position to be aware of the debt.
In practical terms, this interpretation by the Supreme Court implies that the submission of Social Security debt clearance certification does not prevent the authorities from claiming Social Security debts indistinctly from the contractor or the principal company.
Therefore, to protect their position, companies should review their internal procedures and design and implement other instruments not only to verify contractors’ compliance with Social Security obligations, but also to regulate the consequences of potential liability claims.