New attacks aimed at subcontracting (from Europe this time)

The importance of contracting and outsourcing business activities in a dynamic and competitive economy does not need to be underlined. Although we cannot give in either to the persistent assailment being directed by various union and doctrinal sectors at the fragmentation of productive activities. Faced with an increasingly complex business scenario, in which multiple companies participate in the same production process, and parts of it are contracted or subcontracted for reasons of specialization and organizational efficiency (without forgetting the reduction of production costs), in the imagination of some minds there continues to exist an organization of productive activities in which every phase of the production process has to be performed by the same company and every participant in them should be its employees. Each company must perform the whole of its production process, without needing outside input, for some of its phases, from other companies and therefore without putting in place complex structures involving the coexistence, for the same production process, of different companies and different workforces.

This notion, so far removed from the current business scenario and incompatible with freedom to conduct a business and a market economy, seems more like a distant beacon guiding union strategies and legislative proposals towards progressively restricting subcontracting possibilities. This was evident in the debates preceding the 2021 labor reform, where the subcontracting reform ultimately focused on which collective agreement should apply to subcontractors.  The result was a reasonable piece of legislation that respected the guiding principles of collective bargaining.

The debate, however, is far from over. On the one hand, it is stated that companies must be guaranteed full freedom of organization of productive activities, which may give rise to complex structures in which parts of the production process are outsourced and in which various business entities can join forces to carry them out, by concluding commercial contracts on the subcontracting of projects and services or by setting up groups of companies, among other options (as stated in the study on The organizational and productive needs of companies and the responses of the legal system, which I directed on behalf of CEOE and was published in 2025 by the IEE, p. 83). On the other hand, attempts to impose increasingly restrictive rules in this field have not ceased.

This time, the alarm for business flexibility comes from Europe.  The European Parliament’s resolution of March 13, 2025, on "Social and Employment Aspects of Restructuring Processes: The Need to Protect Jobs and Workers’ Rights" also addresses subcontracting, calling on the Commission (in section 18) "in close cooperation with social partners, to consider the establishment of a framework directive to address the challenges and complexities associated with employers’ obligations in subcontracting chains and labor market intermediaries in Europe."

A framework directive following these guidelines would, however, be highly counterproductive, as an analysis of the main proposals in the resolution shows.  We take a look at these proposals and criticisms of them:

Establishment of a framework directive to address employers’ obligations in the subcontracting chain. There is no need for European legislation on this subject. It is (or should have been) regulated in national legislation. Additional European legislation is unnecessary, would not be able to take account of the particular characteristics of national production systems and would in all likelihood be detrimental to the freedom to conduct a business and the market economy. Excessive regulation always has negative consequences from the standpoint of the freedom to conduct a business and business competitiveness.

Measures regulating the role of intermediaries in the labor market other than temporary work agencies. Regulation of labor market intermediaries other than temporary employment agencies is even less necessary. This may be an avenue for treating contractor and subcontractor companies as intermediaries in the labor market, with a distorted and very reductive view of their activity. Freedom to conduct a business includes the freedom to organize productive activities and, in today's economy, for various reasons (including specialization), the use of contracting and subcontracting is a general rule which, broadly speaking, has a positive impact on the productivity and competitiveness of companies and the European economy. The case law of the Court of Justice of the European Union has already clarified that where the conditions for the supply of labor characteristic of temporary employment agencies are met, the relevant regulations must apply, even if the supplier is not formally organized as a temporary employment agency (judgment of October 24, 2024, case C-441/23). The supply of labor other than through temporary employment agencies includes cases of an unlawful loan of workers, which must be provided for and regulated in national legislation. However, contracting and subcontracting, as legitimate organizational options, should not be included in this debate. If a false contract or subcontract is used to conceal a mere supply of workers, this is a fraudulent scenario that national authorities must pursue and sanction, but it does not require additional regulations, especially not if they are mixed with the legal regime for legitimate subcontracting activities.

Legal framework limiting subcontracting. The restriction of subcontracting that is intended with the resolution must be rejected. Interventionism in this area would be contrary to the freedom to conduct a business. Moreover, it would be arbitrary to set a general limit on subcontracting chains without considering the characteristics of productive sectors and national economies. Cases of excessive fragmentation lacking technical rationale should be monitored by labor representatives and national authorities, not addressed by arbitrarily setting a general limit.

And ensuring joint and several liability through the subcontracting chain. Ensuring joint and several liability through the subcontracting chain should be rejected. National laws should establish the necessary guarantees and, among them, notifications of liability, either secondary or joint and several. However, establishing a general rule for joint and several liability in all cases and over the entire chain is clearly excessive and harmful. Each company must assume its own responsibilities, and only in specific, justified cases should liability be notified, usually on a secondary basis and only exceptionally joint and several.