Vol 14 (2017) - Issue 2

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Foreign Parent Company’s Liability for a Subsidiary’s Actions or Omissions: Judgment No. 227/2015 of the Portuguese Constitutional Court

The issue of foreign parent company liability for a subsidiary’s actions has been revisited by the Portuguese Constitutional Court (Tribunal Constitucional) in its judgment No. 227/2015, which extends to foreign parents the rules on parent company liability for the employment-related claims against their subsidiaries.
Even though one would have to consider that:
(i) this judgment was given on a concrete case which means that it will require at least two additional Constitutional Court rulings on the same issue to generate a binding rule; and
(ii) that it was not a unanimous one, rather a draw broken by the casting vote of the Chairman of the Constitutional Court;

still, it provides a precedent on the subjective scope of parent company liability rules in Portugal, raising a concern that in the near future other court decisions may lean in the same direction or that a legislative reform of applicable rules may be pushed forward.
This is apparently the first time that the Constitutional Court takes stock of foreign parent company liability under Portuguese law, particularly the joint interpretation of the following central rules:
(i) the subjective scope of the rules governing group relationships, set forth in the Portuguese Code on Commercial Companies, Title VI, Articles 481 et sequentes, under the heading 'Associated Companies' (Sociedades Coligadas) and specifically, Article 481(2), that establishes a fundamental restriction on the scope of applicability of those rules, as follows:
'[T]his title shall apply only to companies having their seat located in Portugal.'
(ii) the parent company’s liability for employment-related claims against the parent’s subsidiary, which is set forth in Article 334 of the Portuguese Labour Code as follows:
'[A] company that is in a relationship of crossownership (relação de participações recíprocas), control (relação de domínio) or group (relação de grupo) with another company shall be jointly and severally liable with the latter under the terms set out in Articles 481 et sequentes of the Code on Commercial Companies for claims resulting from a contract of employment entered into with the latter, or its breach or termination provided that those claims are more than three months overdue.'