AT THE INTERSECTION OF CORPORATE AND EMPLOYMENT LAW: PRINCIPAL EMPLOYER – SUB-EMPLOYER RELATIONSHIPS AND LEGAL RISK MANAGEMENT – 5. Transfer of the Workplace on a Change of Sub-Employer (Art. 6 of the Employment Law), and the Legal Fate of Severance Pay and Annual Leave Entitlements

It is a frequently encountered scenario in practice that sub-employer firms providing services on the principal employer's projects change, whether because a tender period expires or through termination, while the sub-employer's workers continue to be employed without interruption at the principal employer's workplace.

In the practice of the Court of Cassation, where the worker continues to work at the same workplace despite the change of sub-employer and there is no actual break in the working relationship, the provisions on transfer of the workplace and the features of the principal employer–sub-employer relationship are assessed together as regards the continuity of the employment contract and liability as between sub-employers.

On a change of sub-employer, liability for severance pay is assessed within the framework of the provisions on transfer of the workplace in Article 6 of the Employment Law, Article 14 of Employment Law No. 1475 which remains in force, and the practice of the Court of Cassation.

In this context, while the liability of previous sub-employers for severance pay is assessed within their own periods and the relevant legal limits, for the final sub-employer the worker's total period of service at the same workplace is taken as the basis.

There is an important distinction here to which companies must pay attention in their budget planning: previous sub-employers are held liable only on the basis of the "historic" wage applicable during their own periods, whereas the principal employer and the final sub-employer are liable on the basis of the worker's most recent current wage. Paid annual leave, by its nature, is a right to rest strictly personal to the worker which does not convert into a monetary entitlement unless it goes untaken.

On a change of sub-employer, the new sub-employer is deemed to have taken over the worker's accrued leave records in their entirety; annual leave entitlements are not reset to zero. For this reason, opening a fresh annual leave account for the worker at each change of sub-employer, or disregarding leave accrued in the previous period, may give rise to serious labour claim disputes in the future. A different approach applies to notice pay than to severance pay.

Since the employment contract is not legally interrupted on transfers between sub-employers, no entitlement to notice pay arises on the transfer dates. Where the contract is wrongfully terminated by the final sub-employer, the final sub-employer effecting the termination and the principal employer are liable for the whole of the notice pay; as a rule, no claim is directed against earlier transferring sub-employers.

Conclusion for Companies: Even where sub-employer firms change, the worker's length of service on the principal employer's site and accrued leave entitlements continue as a matter of law. Ensuring that personnel files are transferred in full to the new firm at each subcontractor change, and that accrued leave is properly recorded, is the most practical way of preventing compensation burdens that would otherwise accumulate over time.