Transfer
Cases
Allen & Ors (Social policy)
[1999] EUECJ C-234/98
“According to Article 1(1), the Directive it is to apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger. Article 2(a) and (b) of the Directive define a ‘transferor’ and a ‘transferee’ as any natural or legal person who, by reason of a transfer within the meaning of Article 1(1), ceases to be, or respectively becomes, the employer in respect of the undertaking, business or part of the business.
The Directive is therefore applicable where, following a legal transfer or merger, there is a change in the natural or legal person responsible for carrying on the business who by virtue of that fact incurs the obligations of an employer vis-à-vis employees of the undertaking, regardless of whether or not ownership of the undertaking is transferred (Case 287/86 Ny Mølle Kro [1987] ECR 5465, paragraph 12, and Case 324/86 Tellerup v Daddy’s Dance Hall [1988] ECR 739, paragraph 9).
It is thus clear that the Directive is intended to cover any legal change in the person of the employer if the other conditions it lays down are also met and that it can, therefore, apply to a transfer between two subsidiary companies in the same group, which are distinct legal persons each with specific employment relationships with their employees. The fact that the companies in question not only have the same ownership but also the same management and the same premises and that they are engaged in the same works makes no difference in this regard.
That conclusion is not affected by the judgment in Viho v Commission, cited above, in paragraphs 15 to 17 of which the Court held that Article 85(1) of the EC Treaty (now Article 81(1) EC) does not apply to relations between a parent company and its subsidiaries where those companies form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their course of action on the market, but carry out the instructions issued to them by the parent company controlling them.
That concept of undertaking is specific to competition law and reflects the fact that, without the concordance of economically independent wills, relations within an economic unit cannot constitute an anti-competitive agreement or concerted practice between undertakings within the meaning of Article 85(1) of the Treaty.
Nothing justifies a parent company’s and its subsidiaries’ uniform conduct on the market having greater importance in the application of the Directive than the formal separation between those companies which have distinct legal personalities. That outcome, which would exclude transfers between companies in the same group from the scope of the Directive, would be precisely contrary to the Directive’s aim, which is, according to the Court, to ensure, so far as possible, that the rights of employees are safeguarded in the event of a change of employer by
allowing them to remain in employment with the new employer on the terms and conditions agreed with the transferor (see, in particular, Ny Mølle Kro, cited above, paragraph 12, and Daddy’s Dance Hall, cited above, paragraph 9).
The answer to be given to the first part of the first question must therefore be that the Directive can apply to a transfer between two companies in the same corporate group which have the same ownership, management and premises and which are engaged in the same works.
The second part of the first question and the second question
By the second part of its first question and its second question, the referring court is essentially seeking to ascertain the criteria for determining the existence of a transfer and whether those criteria are satisfied in the present case.
The aim of the Directive is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of the Directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (Case 24/85 Spijkers [1986] ECR 1119, paragraphs 11 and 12, and Case C-13/95 Süzen [1997] ECR I-1259, paragraph 10).
First of all, in order for the Directive to be applicable, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (Case C-48/94 Rygaard [1995] ECR I-2745, paragraph 20). The term ‘entity’ thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective (Süzen, cited above, paragraph 13).
It is for the referring court to establish, in the light of the interpretative criteria set forth above, whether the driveage work carried out by ACC at the Prince of Wales Collieries was organised in the form of an economic entity before that undertaking subcontracted that work to AMS.
Second, in order to determine whether the conditions for the transfer of an economic entity are met, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not essential staff are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities are
suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers, paragraph 13, and Süzen, paragraph 14).
So, the mere fact that, in the instant case, the service provided by the undertaking holding the contracts for driveage work and then by the undertaking to which the work was then subcontracted is similar does not warrant the conclusion that an economic entity has been transferred between the first and the second undertaking. Such an entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate, the operational resources available to it (Süzen, cited above, paragraph 15, Joined Cases C-127/96, C-229/96 and C-74/97 Hernández Vidal and Others [1998] ECR I-8179, paragraph 30, and Joined Cases C-173/96 and C-247/96 Hidalgo and Others [1998] ECR I-8237, paragraph 30).
As pointed out in paragraph 26 above, the national court, in assessing the facts characterising the transaction in question, must take into account, among other factors, the type of undertaking or business concerned. It follows that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the Directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business. Where, in particular, an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets (Süzen, paragraph 18, Hernández Vidal and Others, paragraph 31, and Hidalgo and Others, paragraph 31).
The Court has thus held that, since in certain sectors in which the activity is based essentially on manpower, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking in a stable way (Süzen, paragraph 21, Hernández Vidal and Others, paragraph 32, and Hidalgo and Others, paragraph 32).
Although, as far as this case is concerned, the driving of underground tunnels cannot be considered to be an activity based essentially on manpower since it requires a significant amount of plant and equipment, it is clear from the order for reference that, in the mining sector, it is common for the essential assets required for driveage work to be provided by the mine owner himself. For instance, AMS, as subcontractor, was able to use the equipment which RJB previously made
available to ACC. The fact that ownership of the assets required to run the undertaking did not pass to the new owner does not preclude a transfer (see Ny Mølle Kro and Daddy’s Dance Hall, cited above, and Case C-209/91 Watson Rask and Christensen [1992] ECR I-5755). In the circumstances, the fact that there was no transfer of assets between ACC and AMS is not of decisive importance.
Nor can the fact that ACC was always RJB’s sole contractor and subcontracted the work to AMS preclude in itself the existence of a transfer within the meaning of the Directive. First, the transfer of customers between transferor and transferee is only one factor amongst others in the overall assessment to be made to ascertain whether a transfer has taken place (Spijkers, cited above, paragraph 13). Second, the Directive is applicable wherever, in the context of contractual relations, there is a change in the natural or legal person responsible for carrying on the business who incurs the obligations of an employer towards employees of the undertaking (see, inter alia, Joined Cases C-171/94 and C-172/94 Merckx and Neuhuys [1996] ECR I-1253, paragraph 28).
royathe beginning or end of the contracts, it must be observed that, as the Commission points out, a transfer of an undertaking is a complex legal and practical operation which may take some time to complete. Furthermore, according to the order for reference, the dismissal of ACC’s employees and their engagement by AMS was clearly connected with ACC’s decision to subcontract the work in question to AMS. Moreover, when ACC itself took on the driveage work again, it re-engaged the employees who had been with AMS. Accordingly, no particular importance can be attached to the lack of contemporaneity between the start of the work subcontracted to AMS and its re-engagement of ACC’s employees.
Moreover, even if a temporary suspension of the undertaking’s activity does not of itself preclude the possibility that a transfer has taken place (see Ny Mølle Kro, cited above, paragraph 19), the fact that the work was performed continuously, with no interruption or change in the manner of performance, is none the less a normal feature of transfers of undertakings.
The fact that ACC and AMS share the same management and the same premises and that there was no transfer of management staff between the two companies cannot preclude the existence of a transfer in so far as the transaction between the two subsidiaries actually involved an economic entity within the meaning of the case-law of the Court.
The referring court also points out that the workers dismissed by ACC and taken on by AMS subsequently worked for both companies according to the needs of the local management running the two companies. However, as the Advocate General observes at point 40 of his Opinion, the Court does not have sufficient information to address this point. In any event, if, as the order for reference suggests and Mr
Allen and the other applicants confirmed at the hearing, that situation reflected the initial period during which the driveage work carried out by ACC and AMS overlapped, it is not such as to affect the existence of a transfer for the reasons set out at paragraph 32 of this judgment.
However, ACC submits that the facts of the case are in any event comparable to those of Rygaard, cited above, in which the Court held that there is no transfer where one undertaking merely makes available to another certain workers and material for carrying out certain works.
It is true that in Rygaard the Court held that the situation in which an undertaking transfers to another undertaking one of its building works with a view to the completion of that work, confining itself to providing the latter undertaking with certain workers and equipment to carry out the work in progress, is outside the scope of the Directive. However, that situation differs from the present case in that complete works projects were subcontracted to AMS. Furthermore, at paragraph 21 of the judgment in Rygaard, cited above, the Court added that a transfer of building works with a view to the completion of that work could come within the terms of the Directive if it included the transfer of a body of assets enabling the activities or certain activities of the transferor undertaking to be carried on in a stable way. So, the fact that ACC only subcontracted to AMS the performance of certain driveage work would not be sufficient to preclude application of the Directive if it were established that in that transaction AMS had acquired from ACC a body of assets which would enable it to carry out driveage work on a permanent basis at the Prince of Wales Collieries.
It is for the referring court to establish, in the light of all the interpretative criteria, whether in the case of which it is seised a transfer has taken place.
The answer to the second part of the first question and the second question must therefore be that the Directive applies to a situation in which a company belonging to a group decides to subcontract to another company in the same group contracts for driveage work in mines in so far as the transaction involves the transfer of an economic entity between the two companies. The term ‘economic entity’ refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective.”
Jouini & Ors
[2008] ICR 128, [2007] IRLR 1005,
“On the question referred for a preliminary ruling
By its question, the referring court seeks essentially to ascertain whether Article 1(1) of Directive 2001/23 applies to a situation such as that in the main action, in which there is a transfer of employees between two temporary employment businesses.
Directive 2001/23 applies in accordance with Article 1(1) of the Directive to any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger.
According to settled case-law, the aim of Directive 2001/23 is to ensure the continuity of employment relationships within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of that directive is therefore whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (see, inter alia, Case 24/85 Spijkers [1986] ECR 1119, paragraphs 11 and 12, and Joined Cases C-232/04 and C-233/04 Güney’Görres and Demir [2005] ECR I-11237, paragraph 31 and case-law cited).
With regard to the requirement that there be a legal transfer, there is settled case-law to the effect that the scope of Article 1(1) of Directive 2001/23 cannot be appraised solely on the basis of a textual interpretation (see, with regard to Article 1(1) of Directive 77/187, Case 135/83 Abels [1985] ECR 469, paragraphs 11 to 13, and Case C-29/91 Redmond Stichting [1992] ECR I-3189, paragraph 10). On account of the differences between the language versions of Directive 2001/23 and the divergences between the laws of the Member States with regard to the concept of legal transfer, the Court has given that concept a sufficiently flexible interpretation in keeping with the objective of Directive 2001/23, which is to safeguard employees in the event of a transfer of their undertaking (Redmond Stichting, paragraph 11, and Joined Cases C-171/94 and C-172/94 Merckx and Neuhuys [1996] ECR I-1253, paragraph 28).
That flexible interpretation also relates to the form that the ‘legal’ transfer must take. The concept of legal transfer is thus capable of covering, as the case may be, a written or oral agreement between the transferor and the transferee relating to a change in the person responsible for the operation of the economic entity concerned and a tacit agreement between them resulting from aspects of practical co-operation which imply a common intention to make such a change.
In the main proceedings, according to the referring court the employees concerned were taken on in the course of collaboration between Mayer and PPS, who essentially shared the same directors, which enabled PPS to start up an identical activity. Furthermore, according to the case file, the mutual co-operation rendered it possible for PPS to carry out the same activity for the same clients and largely using the same employees who had previously worked for Mayer. In those circumstances, it seems evident that the aim of such co-operation was to transfer assets of Mayer to PPS.
The concept of legal transfer, as interpreted by the Court, does not therefore preclude the finding of a transfer of a business between Mayer and PPS, even if, as maintained by PPS at the oral hearing, the businesses concerned did not enter into any written or oral agreement.
ding that an economic entity has been transferred. Those workers are nonetheless essential assets, without which the temporary employment business would, by definition, not be capable of performing its economic activity. Moreover, the fact that, in terms of point 2 of Article 1 of Directive 91/383, which is referred to in Article 2(2)(c) of Directive 2001/23, they are linked to the transferor by a working relationship and are remunerated by him directly, serves to confirm their connection to the transferor’s business and furthermore their contribution to the existence of an economic entity within it.
It can be concluded from the foregoing that a single grouping consisting of management personnel, temporary workers and know-how, can pursue an objective of its own, namely the provision of services consisting in the temporary assignment of workers to user undertakings in return for remuneration, and that such a grouping can constitute an economic entity which can operate without recourse to other significant assets or to other parts of the transferor. That may in particular be the case in the main action, since the grouping consisted of an office worker, branch manager, some customer advisors, one-third of the temporary workers and some management personnel possessing certain expertise. It is for the national court to establish whether that is the case.
The answer to the question referred must therefore be that Article 1(1) of Directive 2001/23 must be interpreted as applying to a situation where part of the administrative personnel and part of the temporary workers are transferred to another temporary employment business in order to carry out the same activities in that business for the same clients and which is a matter for the referring court to establish the assets affected by the transfer are sufficient in themselves to allow the services characterising the economic activity in question to be provided without recourse to other significant assets or to other parts of the business.
Albron Catering
[2011] ICR 373 [2011] All ER (EC) 625, [2011] 1 CMLR 41, [2011] IRLR 76
“20 By its two questions, which it will be convenient to examine together, the national court asks, in essence, whether, in the case of a transfer, within the meaning of Directive 2001/23, of an undertaking belonging to a group to an undertaking outside that group, it is possible to regard as a ‘transferor’, within the meaning of Article 2(1)(a) of that directive, the group company to which the employees were assigned on a permanent basis without however being linked to the latter by a contract of employment (‘the non-contractual employer’), given that there exists within that group a undertaking with which the employees concerned were linked by such a contract of employment (‘the contractual employer’).
21 First, it is apparent from the wording of Article 2(1)(a) of Directive 2001/23 that the transferor is the party which, by reason of a transfer, within the meaning of Article 1(1) of that directive, loses the capacity of employer.
22 It is clear from the facts at issue in the main proceedings that the non-contractual employer lost its capacity as non-contractual employer following the transfer of the business. Therefore, one cannot exclude the possibility that it might be regarded as a ‘transferor’, within the meaning of Article 2(1)(a) of Directive 2001/23.
23 Next, as is apparent from the very wording of Article 3(1) of Directive 2001/23, the protection conferred by that directive on employees in the event of a change of employer concerns the rights and obligations arising for the transferor from the existence, at the date of the transfer of the undertaking, of an employment contract or an employment relationship, the existence or otherwise of a contract or employment relationship being, according to Article 2(2) of that directive, a matter for assessment under national law.
24 The requirement under Article 3(1) of Directive 2001/23 that there be either an employment contract, or, in the alternative and thus as an equivalent, an employment relationship at the date of the transfer suggests that, in the mind of the Union legislature, a contractual link with the transferor is not required in all circumstances for employees to be able to benefit from the protection conferred by Directive 2001/23.
25 On the other hand, it is not apparent from Directive 2001/23 that the relationship between the employment contract and the employment relationship is one of subsidiarity and that, therefore, where there is a plurality of employers, the contractual employer must systematically be given greater weight.
26 Thus, in a context such as that in the main proceedings, Directive 2001/23 does not prevent the non-contractual employer, to which employees are assigned on a permanent basis, from being likewise capable of being regarded as a ‘transferor’, within the meaning of Directive 2001/23.
27 Finally, it follows from the provisions of Article 1(1)(b) of Directive 2001/23 that ‘there is a transfer within the meaning of the directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether … that activity is central or ancillary’.
28 Thus, the transfer of an undertaking, within the meaning of Directive 2001/23, presupposes, in particular, a change in the legal or natural person who is responsible for the economic activity of the entity transferred and who, in that capacity, establishes working relations as employer with the staff of that entity, in some cases despite the absence of contractual relations with those employees.
29 It follows that the position of a contractual employer, who is not responsible for the economic activity of the economic entity transferred, cannot systematically take precedence, for the purposes of determining the identity of the transferor, over the position of a non-contractual employer who is responsible for that activity.
30 That analysis is supported by recital 3 of Directive 2001/23, which emphasises the need to protect employees in the event of a change of ‘employer’. That concept may, in a context such as that in the main proceedings, designate the non-contractual employer, responsible for the running of the business transferred.
31 In those circumstances, if, within a group of companies, there are two employers, one having contractual relations with the employees of that group and the other non-contractual relations with them, it is also possible to regard as a ‘transferor’, within the meaning of Directive 2001/23, the employer responsible for the economic activity of the entity transferred which, in that capacity, establishes working relations with the staff of that entity, despite the absence of contractual relations with those staff.
32 The answer to the questions referred must therefore be that, in the event of a transfer, within the meaning of Directive 2001/23, of an undertaking belonging to a group to an undertaking outside that group, it is also possible to regard as a ‘transferor’, within the meaning of Article 2(1)(a) of that directive, the group company to which the employees were assigned on a permanent basis without however being linked to the latter by a contract of employment, even though there exists within that group an undertaking with which the employees concerned were linked by such a contract of employment.”
Stichting v Bartol
[1992] ECR I-3189, [1992] EUECJ C-29/91
“8 Article 1(1) of the directive provides as follows:
“This directive shall apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger”.
9 The six questions submitted by the Kantongerecht are concerned in fact with two separate aspects of the directive’ s scope, as defined by Article 1. Part of the first question and the sixth question are concerned with the interpretation of the expression “legal transfer”, the other questions with the expression “transfer of an undertaking, business or part of a business”. In order to answer the national court’ s questions, it is appropriate to examine successively the possible difficulties of interpretation raised by those two expressions, regard being had to the concerns expressed by that court.
The expression “legal transfer”
10 In its judgment in Case 135/83 Abels v Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie [1985] ECR 469, paragraphs 11, 12 and 13, the Court held that the scope of the provision at issue could not be appraised solely on the basis of a textual interpretation on account of the differences between the language versions of the provision and the divergences between the laws of the Member States with regard to the concept of legal transfer.
11 It has therefore given that concept a sufficiently flexible interpretation in keeping with the objective of the directive, which is to safeguard employees in the event of a transfer of their undertaking, and has held that the directive is applicable wherever, in the context of contractual relations, there is a change in the natural or legal person who is responsible for carrying on the business and who incurs the obligations of an employer towards employees of the undertaking (see, most recently, the judgment in Case 101/87 Bork International v Foreningen af Arbejdsledere i Danmark [1988] ECR 3057, paragraph 13).
12 The Court has considered in particular that the directive was applicable where premises were leased, the lease was rescinded and the owner took over the operation of the undertaking (judgment in Case 287/86 Landsorganisationen i Danmark for Tjenerforbundet i Danmark v Ny Moelle Kro [1987] ECR 5465), in a case where a restaurant was leased, the lease terminated and the business leased to a new lessee who carried on the business (judgment in Case 324/86 Tellerup v Daddy’ s Dance Hall [1988] ECR 739) and even where a bar-discothèque was transferred pursuant to a lease-purchase agreement and restored to its owner by a judicial decision (judgment in Joined Cases 144 and 145/87 Berg v Besselsen [1988] ECR 2559).
13 As the Court observed in its judgment in Bork International, cited above, paragraph 14, where, upon the expiry of a lease, the lessee ceases to be the employer and a third party becomes the employer thereafter under a contract of sale concluded with the owner, the resulting operation may fall within the scope of the directive as defined in Article 1(1) thereof. The fact that in such a case the transfer is effected in two stages, inasmuch as the undertaking is first restored by the lessee to the owner who then transfers it to the new owner, does not prevent the directive from applying.
14 The operation to which the Kantongerecht’ s questions relate, as described in the order for reference, is comparable in structure. The situation in question is where a municipality which finances, through subsidies, the activities of a foundation engaged in providing assistance for drug addicts decides to discontinue the subsidies, and thus causes the foundation to cease its activities and transfer them to another foundation carrying on the same activities.
15 Admittedly, the national court asks in its sixth question whether the fact that the transfer decision was taken unilaterally by the public authority and was not the result of an agreement concluded by it with the subsidized bodies renders the directive inapplicable in this case.
16 That question must be answered in the negative.
17 In the first place, there is a unilateral decision both where an owner decides to change his lessee and where a public body changes its policy on subsidies. In that connection, it is inappropriate to take account of the nature of the subsidy, which is granted by a unilateral act coupled with certain conditions in some Member States and by subsidy contracts in others. In every case, the change in the recipient of the subsidy is carried out in the context of contractual relations within the meaning of the directive and the relevant case-law (judgments in Berg, cited above, paragraph 19, and in Bork International, cited above, paragraphs 13 and 14). What is more, although the Redmond Foundation, in its observations to the Court, disputes that any agreements were concluded, the Kantongerecht expressly observes in the grounds of its order that “both the plaintiff and the Sigma Foundation have declared themselves ready to cooperate actively in the ‘transfer’ of the plaintiff’ s clients/patients to the Sigma Foundation and a working party for the ‘Incorporation of the Activities of the Redmond Foundation into the Sigma Foundation’ has come into being”.
18 Secondly, as the Commission emphasizes in its observations, moreover, the fact that in this case the origin of the operation lies in the grant of subsidies to foundations or associations whose services are allegedly provided without remuneration does not exclude that operation from the scope of the directive. The directive, as has already been stated, is designed to ensure that employees’ rights are safeguarded, and covers all employees who enjoy some, albeit limited, protection against dismissal under national law (judgments in Case 105/84 Foreningen af Arbejdsledere i Danmark v Danmols Inventar [1985] ECR 2639, paragraph 27, and in Case 237/84 Commission v Belgium [1986] ECR 1247, paragraph 13). According to the order for reference, the employees concerned are subject to the Dutch Civil Code.
19 At the hearing, counsel for the plaintiff in the main proceedings put forward another argument, based on the fact that the Redmond Foundation is in a situation comparable to insolvency, which is expressly excluded from the scope of the directive by the Court’ s case-law owing to the serious risk, in the event of the application of the directive to insolvency, of a general deterioration in the working and living conditions of workers, contrary to the social objectives of the Treaty (judgment in Abels, cited above, paragraph 23).
20 That new argument, which was not put forward in the written observations submitted to the Court and is not supported by any document in the case-file, cannot be accepted. It appears from the judgment in Abels, cited above, that only transfers relating to undertakings declared insolvent are excluded from the scope of the directive. Even on the assumption, which is by no means established, that the Redmond Foundation was experiencing difficulties in honouring its commitments at the date of the transfer, that fact alone would not be sufficient to exclude the said transfer from the scope of the directive (see, in particular, the judgment in Danmols Inventar, cited above, paragraphs 9 and 10).
21 Accordingly, the answer to the national court’ s questions or parts of questions relating to the interpretation of the expression “legal transfer” within the meaning of Article 1(1) of Directive 77/187 must be that that provision is to be interpreted as meaning that the expression covers a situation in which a public authority decides to terminate the subsidy paid to one legal person, as a result of which the activities of that legal person are fully and definitively terminated, and to transfer it to another legal person with a similar aim.
The expression “transfer of an undertaking, business or part of a business”
22 In its judgment in Case 24/85 Spijkers v Benedik [1986] ECR 1119, the Court specified the conditions under which the factual circumstances capable of being described as a transfer of an undertaking within the meaning of the directive had to be assessed. Three points should be called to mind in that regard.
23 First, the decisive criterion for establishing whether there is a transfer for the purposes of the directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (judgment in Spijkers, cited above, paragraphs 11 and 12).
24 Secondly, in order to determine whether those conditions are met, it is necessary to consider all the facts characterizing the transaction in question, including the type of undertaking or business, whether or not the business’ s tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (judgment in Spijkers, cited above, paragraph 13).
25 Lastly, it is for the national court to make the necessary factual appraisal, in the light of the criteria for interpretation specified by the Court, in order to establish whether or not there is a transfer in the sense indicated (judgment in Spijkers, cited above, paragraph 14).
26 In this case, it is stated in the order for reference that the transfer of subsidies from the one foundation to the other has the following characteristics: the Redmond Foundation ceased its activities; the two foundations pursue the same or a similar aim; the Sigma Foundation partially absorbed the Redmond Foundation; the two foundations cooperated in finalizing the transfer operations; it was agreed that the Redmond Foundation’ s knowledge and resources would be transferred to the Sigma Foundation; the premises rented by the Redmond Foundation were leased to the Sigma Foundation; and the latter offered new employment contracts to some of the Redmond Foundation’ s former employees.
27 All those facts are essential if not decisive features of a transfer and may be used to interpret and apply Article 1 of the directive.
28 In its second, third, fourth and fifth questions, the Kantongerecht describes the particular circumstances in which certain property is used and certain activities carried on and asks whether they are capable of altering the manner in which the aforesaid factors are to be categorized for the purpose of establishing whether or not there is a transfer.
29 As regards the movables, the fact that they were not transferred does not seem in itself to prevent the directive from applying, and it is for the national court to appraise their importance by incorporating them in the overall assessment which has to be made, as pointed out in paragraph 24.
30 The same observation applies to the social and recreational activities, it being understood that the mere fact that those activities are said to have constituted an independent function is not sufficient to rule out the application of the aforementioned provisions of the directive, which were laid down not only for transfers of undertakings, but also for transfers of businesses or parts of businesses, with which activities of a special nature may be equated.
31 Accordingly, the reply to the national court’ s questions relating to the interpretation of the expression “transfer of an undertaking, business or part of a business” within the meaning of Article 1(1) of Directive 77/187 must be that that provision is to be interpreted as meaning that that expression refers to the case in which the entity in question has retained its identity. In order to ascertain whether or not there has been such a transfer in a case such as that which is the subject of the main proceedings, it is necessary to determine, having regard to all the factual circumstances characterizing the operation in question, whether the functions performed are in fact carried out or resumed by the new legal person with the same or similar activities, it being understood that activities of a special nature which constitute independent functions may, where appropriate, be equated with a business or part of a business within the meaning of the directive.”
Henke v Gemeinde Schierke & another
[1996] EUECJ C-298/94
“The first question
8 By its first question, the national court essentially asks whether Article 1(1) of the Directive has to be interpreted as meaning that the concept of a “transfer of an undertaking, business or part of a business” applies to the transfer of administrative functions from a municipality to an administrative collectivity such as the one in question in the main proceedings.
9 Mrs Henke argues that the Directive applies in such a case because entities such as the municipality of Schierke carry out, at least to some extent, activities of an economic character. She adds that, according to the Court’ s case-law, the protection afforded by the Directive is operative even if only part of the undertaking is transferred.
10 The Commission proposes that the answer should be that an operation resulting in a transfer of all of an undertaking’ s tasks and of the tangible assets appertaining thereto and in a change of employer constitutes a “transfer” within the meaning of the Directive. It takes the view, however, that a public entity does not constitute an “undertaking” within the meaning of the Directive, except in so far as it does not exercise powers of a public authority and it employs persons who are protected under national law by virtue of the fact that they are employees.
11 The United Kingdom Government considers for its part that it is possible for there to be a “transfer” within the meaning of the Directive only if the operation relates to an entity which has retained its identity, that is to say, if the premises, assets or employees are transferred. In addition, in its view, a local public authority does not come within the scope of the Directive if it mainly or solely performs activities typical of those carried out by a public service.
12 The German Government proposes that the answer should be that an operation such as the one at issue in the main proceedings does not constitute a “transfer of an undertaking” within the meaning of the Directive. In its view, municipalities are not “undertakings” or “businesses” within the meaning of the Directive because they do not carry out any economic activity and do not come within the field of application of the Treaty. It further argues that the creation of a grouping of municipalities does not amount to a “transfer” within the meaning of the Directive, since the municipalities’ activities were not taken over; instead, a new entity was created to replace the municipalities.
13 As appears from the preamble to the Directive, in particular the first recital, the Directive sets out to protect workers against the potentially unfavourable consequences for them of changes in the structure of undertakings resulting from economic trends at national and Community level, through, inter alia, transfers of undertakings, businesses or parts of businesses to other employers as a result of transfers or mergers.
14 Consequently, the reorganization of structures of the public administration or the transfer of administrative functions between public administrative authorities does not constitute a “transfer of an undertaking” within the meaning of the Directive.
15 This interpretation, moreover, is borne out by the terms used in most of the language versions of the Directive in order to designate the subject of the transfer (virksomhed, Unternehmen, entreprise, impresa, **********, onderneming, empresa, yritys, foeretag; and bedrift, Betrieb, business, établissement, stabilimento, ***********, vestiging, estabelecimento, centro de actividad) or the beneficiary of the transfer (indehaver, Inhaber, chef d’ entreprise, imprenditore, **************, ondernemer, empresário, empresario) and is not contradicted by any of the other language versions of the text.
16 It appears from the documents in the case-file that the purpose of a number of municipalities in the Land of Saxony-Anhalt, including the municipality of Schierke, grouping together was, in particular, to improve the performance of those municipalities’ administrative tasks. It resulted, inter alia, in the reorganization of administrative structures and the transfer of administration functions of the municipality of Schierke to a public entity specially set up for that purpose: the “Brocken” administrative collectivity (Verwaltungsgemeinschaft).
17 It appears that, in the circumstances to which the main proceedings relate, the transfer carried out between the municipality and the administrative collectivity related only to activities involving the exercise of public authority. Even if is assumed that those activities had aspects of an economic nature, they could only be ancillary.
18 In those circumstances, the reply to be given to the national court’ s first question is that Article 1(1) of the Directive must be interpreted as meaning that the concept of a “transfer of an undertaking, business or part of a business” does not apply to the transfer of administrative functions from a municipality to an administrative collectivity such as the one in question in the main proceedings.
The second question
19 By its second question, the national court asks whether Article 1(1) of the Directive has to be interpreted as meaning that the concept of a “legal transfer” applies to a transfer of an undertaking which, as in the case of the transfer referred to in the first question, is effectuated by a public-law agreement.
20 In view of the reply to the first question, the second question no longer has any purpose. There is therefore no need to answer it.”
Scattolon v Ministero dell Istruzione, dell Universita e della Ricerca
[2012] ICR 740, [2011] IRLR 1020, [2012] 1 CMLR 17
“The takeover, within the same member state, by one public authority of staff employed by another public authority entrusted with the supply to schools of auxiliary maintenance and administrative assistance constituted a transfer of an undertaking within the meaning of article 1(1) of Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses (OJ 1977 L 61, p 26). Where such a transfer led to the immediate application to the transferred workers of the collective agreement in force with the transferee, and where the conditions for remuneration were linked in particular to length of service, article 3 of the Directive precluded the transferred workers from suffering, in comparison with their situation immediately before the transfer, a substantial loss of salary by reason of the fact that their length of service with the transferor (equivalent to that completed by workers in the service of the transferee) was not taken into account when determining their starting salary position with the latter
The Court of Justice of the European Union so ruled on a reference for a preliminary ruling pursuant to article 267FEU of the FEU Treaty from the Tribunale di Venezia (Italy). The claimant had been employed as a cleaner by the local authority for about 20 years. After January 2000 she had been transferred onto the list of state employees and placed on a salary scale corresponding to nine years of service. The rights and obligations of the transferred employees and the transferor, contained in a collective agreement for local authority employees, had been replaced on the date of transfer by the collective agreement in force with the transferee. She brought an action seeking recognition of the whole of her length of service and classification in a grade corresponding to service of between 15 to 20 years. The Tribunale di Venezia asked the Court of Justice of the European Union whether (i) the taking over by a public authority of a member state, of staff employed by another public authority entrusted with the task of supplying schools with auxiliary services, constituted the “transfer of an undertaking” within the meaning of article 1(1) of the Directive (article 1(1) of Directive 2001/23/EC corresponded to article 1(1) of Council Directive 77/187/EEC as amended by Council Directive 98/50/EC); and (ii) the transferee had to take account, pursuant to article 3 of the Directive, of the length of service completed by the transferred workers with the transferor when calculating the remuneration of the transferred workers (article 3(1)(3) of Council Directive 2001/23/EC corresponded to article 3(1)(2) of Council Directive 77/187/EEC).
THE COURT said that the transfer of employees entrusted with the supply to schools of auxiliary services including, in particular, tasks of maintenance and administrative assistance, to a new employer within the public administration constituted a “transfer of an undertaking, business or part of a business to another employer” within the meaning of the Directive where that staff consisted in a structured group of employees who were protected as workers by virtue of the domestic law of that member state. It was lawful pursuant to article 3(2) of the Directive for the transferee to apply, at the date of transfer, the working conditions, including those concerning remuneration, laid down by the collective agreement in force with the transferee: see Werhof v Freeway Traffic Systems GmbH & co KG (Case C-499/04) [2006] ECR I-2397 and Juuri v Fazer Amica Oy (Case C-396/07) [2008] ECR I-8883. Where a transfer within the meaning of the Directive led to the immediate application to the transferred workers of the collective agreement in force with the transferee, and where the conditions for remuneration were linked in particular to length of service, article 3 of that Directive precluded the transferred workers from suffering, in comparison with their situation immediately before the transfer, a substantial loss of salary by reason of the fact that their length of service with the transferor, equivalent to that completed by workers in the service of the transferee, was not taken into account when determining their starting salary position with the latter. It was for the national court to examine whether, at the time of the transfer at issue in the main proceedings, there had been such a loss of salary.
Spijkers v Gebroeders Benedik Abattoir CV et Alfred Benedik en Zonen BV.
[1986] EUECJ R-24/85 (18 March 1986)
“undertaking ‘ s assets and business are transferred as a unit from one employer to another ; it is immaterial whether at the time of the transfer the business activities of the transferor have ceased and the goodwill has already disappeared .
The Netherlands and Unnited Kingdom governments and the Commission , on the other hand , consider that the question whether there is a transfer of an undertaking for the purposes of article 1 ( 1 ) must be considered in the light of all the circumstances characterizing the transaction , such as whether or not the tangible assets ( buildings , movable property and stocks ) and the intangible assets ( know-how and goodwill ) were transferred , the nature of the activities engaged in and whether or not those activities had ceased at the time of the transfer . However , none of those factors is in itself decisive .
The United Kingdom government and the Commission suggest that the essential criterion is whether the transferee is put in possession of a going concern and is able to continue its activities or at least activities of the same kind . The Netherlands government emphasizes that , having regard to the social objective of the directive , it is clear that the term ‘ transfer ‘ implies that the transferee actually carries on the activities of the transferor as part of the same business .
That view must be accepted . It is clear from the scheme of directive no 77/187 and from the terms of article 1 ( 1 ) thereof that the directive is intended to ensure the continuity of employment relationships existing within a business , irrespective of any change of ownership . It follows that the decisive criterion for establishing whether there is a transfer for the purposes of the directive is whether the business in question retains its identity.
Consequently , a transfer of an undertaking , business or part of a business does not occur merely because its assets are disposed of . Instead it is necessary to consider , in a case such as the present , whether the business was disposed of as a going concern , as would be indicated , inter alia , by the fact that its operation was actually continued or resumed by the new employer , with the same or similar activities .
In order to determine whether those conditions are met , it is necessary to consider all the facts characterizing the transaction in question , including the type of undertaking or business , whether or not the business ‘ s tangible assets , such as buildings and movable property , are transferred , the value of its intangible assets at the time of the transfer , whether or not the majority of its employees are taken over by the new employer , whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period , if any , for which those activities were suspended . It should be noted , however , that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation .
It is for the national court to make the necessary factual appraisal , in the light of the criteria for interpretation set out above , in order to establish whether or not there is a transfer in the sense indicated above .
Consequently , in reply to the questions submitted it must be held that article 1 ( 1 ) of directive no 77/187 of 14 February 1977 must be interpreted as meaning that the expression ‘ transfer of an undertaking , business or part of a business to another employer ‘ envisages the case in which the business in question retains its identity . In order to establish whether or not such a transfer has taken place in a case such as that before the national court , it is necessary to consider whether , having regard to all the facts characterizing the transaction , the business was disposed of as a going concern , as would be indicated inter alia by the fact that its operation was actually continued or resumed by the new employer , with the same or similar activities .
Nova Colour Graphic Supplies Ltd. v. The E.A.T.
[1987] I.R.428
Barron J. H.C.
“The submission made on behalf of Nova Colour is that the first respondent exceeded its jurisdiction in finding as a fact that the second respondent had continuity of service as between Offset and Nova Colour. The test to determine whether or not such continuity of service exists is contained in para. 7 of the First Schedule to the Minimum Notice and Terms of Employment Act, 1973, as inserted by s. 20 of the Unfair Dismissals Act, 1977. That paragraph is as follows:
“7. Where the whole or part of a trade, business or undertaking was or is transferred to another person either before or after the passing of this Act, the service of an employee in the trade, business or undertaking, or the part thereof, so transferred shall be reckoned as part of the service of the employee with the transferee and the transfer shall not operate to break the continuity of the service of the employee.”
The decision of the first respondent on this issue as set out on page 3 of its award was as follows:
“After careful consideration the Tribunal is of the view that the result of the transaction was that the vast majority of trade customers transferred their business to the [second] respondent. The transfer of the claimant’s employment was the major factor in effecting this transfer of customers. The process was assisted by the transitional period during which the secretary at Offset Graphics Dublin Limited diverted sales enquiries to the [second] respondent. We recognise that goodwill is an intangible, but it is an intangible without which a trading company could hardly function as a living business. We are therefore of the view that “whole or part of (the) trade, business or undertaking” was transferred to the [second] respondent during the first few months of 1985. We therefore hold that there was continuity of employment and that the claimant is within the scope of the Act.”
The application is opposed by both respondents upon the ground that the finding of fact was fully supported by the evidence and by the second respondent also upon the ground that, as Nova Colour appealed the decision of the first respondent, it should now pursue that appeal.
The transfer of a trade, business or undertaking is a question of fact. I was referred to Kenmir Limited v. Frizzell [1968] 1 W.L.R. 329 and Woodhouse v. Peter Brotherhood Limited [1972] 1 W.L.R. 401. It is clear from these cases that there is no hard and fast rule as to what constitutes such a transfer. In the first case, the vital test was taken to be whether the effect of the transaction was to put the transferee in possession of a going concern. In the second case, the vital test was taken to be whether the employees had continued to work as if no change of ownership had occurred. In the present case, it seems to me that there was evidence upon which it could be found as a fact both that Nova Colour was put in possession of a going concern and that the second respondent continued to work as if no change of ownership had occurred. Further, there does not seem to me to be any ground for holding that the finding of the first respondent was perverse taking the ordinary meaning of the words of the statutory rule.
Whether there has been a continuity of service bringing the second respondent within the provisions of the Unfair Dismissals Act, 1977, is a question of fact which the Tribunal has jurisdiction to determine and this it has exercised. If it is wrong in its determination, then this can be remedied by appeal, which is clearly the appropriate manner in which its decision should be challenged. An appeal lies under s. 10, sub-s. 4 from any determination of the Tribunal in relation to a claim for redress under this Act. So, even if it had been that there was no basis in fact for the decision of the Tribunal on the evidence before it, nevertheless an appeal would lie, in the course of which the appellant would not be limited to such evidence. In these circumstances, no useful purpose would be served in any event by granting discretionary relief since ultimately the matter could always be heard afresh on appeal.”
CLECE
[2011] 2 CMLR 30, [2011] IRLR 251, [2011] ICR 1319,
“24 By its question, the referring court asks, in essence, if Article 1(1)(a) and (b) of Directive 2001/23 must be interpreted as meaning that that directive applies to a situation in which a municipal authority which has contracted out the cleaning of its premises to a private company decides to terminate its contract with that company and to undertake those cleaning services itself, by hiring new staff for that purpose.
25 It must be noted that, pursuant to Article 1(1)(c) of Directive 2001/23, that directive applies to public undertakings engaged in economic activities whether or not they are operating for gain.
26 The Court has therefore held that the mere fact that the person to whom the activity is transferred is a public-law body, in this case a municipal authority, cannot be a ground for excluding the existence of a transfer within the scope of that directive (see Case C-175/99 Mayeur [2000] ECR I-7755, paragraphs 29, 33 and 34, and Case C-151/09 UGT-FSP [2010] ECR I-0000, paragraph 23).
27 Therefore, the fact that, as in the dispute in the main proceedings, one of the parties is a municipal authority does not, of itself, prevent Directive 2001/23 from applying.
28 Pursuant to Article 1(1)(a) of Directive 2001/23, that directive applies to any transfer of an undertaking, business or part of an undertaking or business to another employer as a result of a legal transfer or merger.
29 It is clear from the settled case-law that the scope of that provision cannot be determined solely on the basis of a textual interpretation. On account of the differences between the language versions of that directive and the divergences between the laws of the Member States with regard to the concept of legal transfer, the Court has given that concept a sufficiently flexible interpretation in keeping with the objective of that directive, which is, as stated in recital 3 of the preamble, to safeguard employees in the event of a transfer of their undertaking (see, to that effect, Case C-458/05 Jouini and Others [2007] ECR I-7301, paragraph 24 and case-law cited).
30 The Court has therefore held that Directive 77/187, codified by Directive 2001/23, is applicable wherever, in the context of contractual relations, there is a change in the legal or moral person who is responsible for carrying on the undertaking and who incurs the obligations of an employer towards employees of the undertaking (see Joined Cases C-171/94 and C-172/94 Merckx and Neuhuys [1996] ECR I-1253, paragraph 28, and Joined Cases C-127/96, C-229/96 and C-74/97 Hernández Vidal and Others [1998] ECR I-8179, paragraph 23).
31 Similarly, the Court has held that Directive 77/187 is capable of applying to a situation in which an undertaking, which used to have recourse to another undertaking for the cleaning of its premises or part of them, decides to terminate its contract with that other undertaking and in future to carry out that work itself (see Hernández Vidal and Others, paragraph 25).
32 Accordingly, it cannot automatically be excluded that Directive 2001/23 might apply in circumstances such as those of the dispute in the main proceedings, where a municipal authority unilaterally decides to terminate a contract with a private undertaking and to carry out itself the cleaning work it used to contract out to that undertaking.
33 Nonetheless, according to Article 1(1)(b) of Directive 2001/23, a condition for the application of that directive is that the transfer must concern an economic entity which retains its identity after the change of employer.
34 In order to determine whether such an entity retains its identity, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business concerned, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, inter alia, Case 24/85 Spijkers [1986] ECR 1119, paragraph 13; Case C-29/91 Redmond Stichting [1992] ECR I-3189, paragraph 24; Case C-13/95 Süzen [1997] ECR I-1259, paragraph 14; and Case C-340/01 Abler and Others [2003] ECR I-14023, paragraph 33).
35 The Court has previously stated that an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, and therefore the maintenance of the identity of such an entity following the transaction affecting it cannot, logically, depend on the transfer of such assets (see Süzen, paragraph 18; Hernández Vidal and Others, paragraph 31; and UGT-FSP, paragraph 28).
36 The Court has accordingly held that inasmuch as, in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis (see Süzen, paragraph 21; Hernández Vidal and Others, paragraph 32; Joined Cases C-173/96 and C-247/96 Hidalgo and Others [1998] ECR I-8237, paragraph 32; Case C-51/00 Temco [2002] ECR I-969, paragraph 33; and UGT-FSP, paragraph 29).
37 It is of no consequence, as is clear from paragraph 31 of this judgment, whether the majority of employees are taken on following a legal transfer negotiated between the transferor and the transferee, or whether it is the result of a unilateral decision made by the former employer to terminate the employment contracts of the transferred employees, followed by a unilateral decision made by the new employer to take on the majority of the same employees to carry out the same work.
38 If, in circumstances where the majority of employees are taken on, it was a condition for the existence of a transfer within the meaning of Directive 2001/23 that the taking on of staff must be pursuant to a contract, the protection of workers, which is the aim of that directive, would be left to the discretion of employers, for whom it would be open, by not agreeing a contract, to avoid application of the Directive, which would be detrimental to the maintenance of transferred employees’ rights that is required by Article 3(1) of Directive 2001/23.
39 It is true that, according to the Court’s case-law, cleaning services, such as those at issue in the dispute in the main proceedings, can be regarded as an activity essentially based on manpower (see, to that effect, Hernández Vidal and Others, paragraph 27; Hidalgo and Others, paragraph 26; and Jouini and Others, paragraph 32) and, consequently, a group of employees who are permanently assigned to the common task of cleaning may, in the absence of other factors of production, amount to an economic entity (see, to that effect, Hernández Vidal and Others, paragraph 27). That entity’s identity must nonetheless be retained after the transfer in question.
40 According to the order for reference, the Ayuntamiento de Cobisa, in order to carry out itself the cleaning of its schools and premises previously undertaken by CLECE, employed new staff, and did not take on the employees who previously carried out that work for CLECE, nor, moreover, did it take over any tangible or intangible assets of that undertaking. In those circumstances, the only factor creating a link between the activities carried out by CLECE and the Ayuntamiento de Cobisa is the activity in question, namely the cleaning of premises.
41 However, the mere fact that the activity carried out by CLECE and that carried out by the Ayuntamiento de Cobisa are similar, even identical, does not lead to the conclusion that an economic entity has retained its identity. An entity cannot be reduced to the activity entrusted to it. Its identity emerges from several indissociable factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate, the operational resources available to it (see, to that effect, Süzen, paragraph 15; Hernández Vidal and Others, paragraph 30; and Hidalgo and Others, paragraph 30). In particular, the identity of an economic entity, such as that forming the subject of the dispute in the main proceedings, which is essentially based on manpower, cannot be retained if the majority of its employees are not taken on by the alleged transferee.
42 It follows that, notwithstanding any national protection rules, the mere taking over by the Ayuntamiento de Cobisa, in the dispute in the main proceedings, of the cleaning work that was previously carried out by CLECE, cannot, of itself, indicate the existence of a transfer pursuant to Directive 2001/23.
43 Therefore, the answer to the question referred is that Article 1(1)(a) and (b) of Directive 2001/23 must be interpreted as meaning that that directive does not apply to a situation in which a municipal authority which has contracted out the cleaning of its premises to a private company decides to terminate its contract with that company and to undertake the cleaning of those premises itself, by hiring new staff for that purpose.”
Berg and Busschers v Ivo Martin Besselsen
[1988] EUECJ R-145/87
“The first question
7 The first question seeks in substance to ascertain whether Article 3 ( 1 ) of Directive 77/187/EEC of 14 February 1977 must be interpreted as meaning that, after the date of the transfer, the transferor is released from his obligations under the contract of employment or the employment relationship solely by reason of the transfer, even where the employees of the undertaking do not consent to that effect or oppose it .
8 According to Mr Berg and Mr Busschers, that question must be answered in the negative because the transferor can be discharged of his liability vis-à-vis his employees only with their consent . In their view, this follows, first, from the aim of Directive 77/187/EEC which seeks to ensure that the transfer of undertakings is not effected at the expense of their employees, and, secondly, from the principle of the law of obligations according to which no one may assume the debt of a third party without the creditor’ s consent .
9 On the other hand, Mr Besselsen, the Netherlands and Portuguese Governments, the United Kingdom and the Commission stress that the transfer of an undertaking entails the automatic transfer of the rights and obligations deriving from the contract of employment . Consequently, the effect which the transfer has of releasing the transferor from liability cannot depend on the will of the employees concerned and the fact that they object to the transfer does not mean that they remain in the transferor’ s employ .
10 It should be observed that according to the first subparagraph of Article 3 ( 1 ) of Directive 77/187/EEC “the transferor’ s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of the transfer … shall, by reason of such transfer, be transferred to the transferee .” The second subparagraph of this provision states however that : “Member States may provide that, after the date of the transfer … and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship “.
11 An analysis of Article 3 ( 1 ) and, more particularly, the relationship between the first and second subparagraphs of this paragraph show that the transfer of an undertaking entails the automatic transfer from the transferor to the transferee of the employer’ s obligations arising from a contract of employment or an employment relationship, subject however to the right of Member States to provide for joint liability of the transferor and transferee following the transfer . It follows that, unless the Member States avail themselves of this possibility, the transferor is released from his obligations as an employer solely by reason of the transfer and that this legal consequence is not conditional on the consent of the employees concerned .
12 Mr Berg and Mr Busschers are mistaken in arguing that this interpretation is not consistent with the aim pursued by Directive 77/187/EEC . As the Court has consistently held, most recently in its judgment of 10 February 1988 in Case 324/86 Daddy’ s Dance Hall (( 1981 )) ECR 739, this directive is intended to safeguard the rights of workers in the event of a change of employer by making it possible for them to continue to work for the transferee under the same conditions as those agreed with the transferor . Its purpose is not, however, to ensure that the contract of employment or the employment relationship with the transferor is continued where the undertaking’ s employees do not wish to remain in the transferee’ s employ .
13 Similarly, the argument based on a principle of the law of obligations which, it is claimed, is generally recognized in the legal systems of the Member States, namely that a debt may be transferred only with the creditor’ s consent, cannot be accepted . Without there being any need to assess the effect of that principle, it is sufficient to observe that the rules applicable in the event of a transfer of an undertaking or a business to another employer are intended to safeguard, in the interests of the employees, the existing employment relationships which are part of the economic entity transferred . That is why the directive provides for the automatic transfer of obligations arising from employment contracts to the transferee, thereby overriding the principle relied on by the plaintiff in the main proceedings . Moreover, by giving the Member States the power to provide for joint liability of the transferor and the transferee following the transfer, the second subparagraph of Article 3 ( 1 ) of Directive 77/187 enables them to reconcile the rule of automatic transfer with the principles of their domestic legal systems .
14 Accordingly, the reply to the first question must be that Article 3 ( 1 ) of Directive 77/187 of 14 February 1977 must be interpreted as meaning that after the date of transfer and by virtue of the transfer alone, the transferor is discharged from all obligations arising under the contract of employment or the employment relationship, even if the workers employed in the undertaking did not consent of if they object, subject however to the power of the Member States to provide for joint liability of the transferor and the transferee after the date of transfer .
The second question
15 The second question seeks in substance to ascertain whether Article 1 ( 1 ) of Directive 77/187/EEC of 14 February 1977 must be interpreted as meaning that the directive applies, on the one hand, to the transfer of an undertaking under a lease-purchase agreement such as that provided for in Netherlands law and, on the other, to the retransfer of that undertaking following the termination of the lease-purchase agreement by judicial decision .
16 It is common ground between all the parties in these proceedings who have submitted observations on this point that the directive applies to the transfer of an undertaking under a lease-purchase agreement . However, they differ with regard to the applicability of the directive to the retransfer of the undertaking following the termination of a lease-purchase agreement by judicial decision . Mr Berg and Mr Busschers, the Netherlands Government, and the United Kingdom, and also the Commission, in its observations at the hearing, consider that the termination, even by judicial decision, of a contract is so bound to the very existence of the contract that the transfer of an undertaking resulting therefrom must be regarded as equivalent to a transfer resulting from a contract . On the other hand, Mr Besselsen argues that the directive does not cover a transfer resulting from a judicial decision, since such a decision does not constitute an agreement .
17 As the Court has already held, in its judgment of 17 December 1987 in Case 287/86 Ny Moelle Kro (( 1987 )) ECR 5465, Directive 77/187 is applicable where, following a legal transfer or merger, there is a change in the legal or natural person who is responsible for carrying on the business and who by virtue of that fact incurs the obligations of an employer vis-à-vis the employees of the undertaking, regardless of whether or not ownership of the undertaking is transferred .
18 It follows that, in so far as the purchaser of an undertaking becomes, by virtue of a lease-purchase agreement, the employer in the sense set out above, the transfer must be regarded as a transfer of an undertaking as a result of a legal transfer within the meaning of Article 1 ( 1 ) of the directive, notwithstanding the fact that such a purchaser acquires the ownership of the undertaking only when the totality of the purchase price has been paid .
19 Similar considerations apply where the undertaking transferred in this way is restored to the former employer, following the termination of the lease-purchase agreement, regardless of whether the termination results from an agreement between the contracting parties or a unilateral declaration by one of them or indeed a judicial decision . In all these cases, the transfer of the undertaking occurs on the basis of a contract . Consequently, in so far as the retransfer of the undertaking deprives the purchaser of the status of employer, a status which reverts to the vendor, it must be regarded as a transfer of an undertaking to another employer as a result of a legal transfer within the meaning of Article 1 ( 1 ) of the directive .
20 For those reasons the reply to the second question must be that Aritcle 1 ( 1 ) of Directive 77/187/EEC of 14 February 1977 must be interpreted as meaning that the directive applies both to the transfer of an undertaking pursuant to a lease-purchase agreement of the kind available under Netherlands law and to the retransfer of the undertaking upon the termination of the lease-purchase agreement by a judicial decision .”
Mythen v. Employment Appeals Tribunal
[1990] 1 I.R.100
Barrington J. H.C.
“This case raises a very important and difficult point of Community law and on the relationship between national law implementing the European Council Directive of the 14th February, 1977, on the approximation of the laws of member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of business (77/187/EEC) and existing common law and statutory provisions for the protection of employees’ rights.
…..
Of the points raised by far the most difficult is the question of whether the Council Directive and the statutory instrument referred to apply in the present case.
Council Directive 77/187/EEC arises from the necessity to approximate the laws of member states of the European Community in the developing European market. The directive refers in its preamble to economic trends which are bringing in their wake changes in the structure of undertakings through the transfers of undertakings, businesses or parts of businesses to other employers as a result of legal transfers and mergers. It also refers to the necessity to provide for the protection of employees in these circumstances.
By art. 1, the directive is to apply to the transfer of an undertaking, business”or part of a business” to another employer as a result of a legal transfer or merger. For the purposes of the directive a “transferor” is a legal or natural person who by reason of a transfer within the meaning of art. 1 ceases to be the employer in respect of the undertaking, business or part of the business and”transferee” means any natural or legal person who by reason of a transfer within the meaning of art. 1 becomes the employer in respect of the undertaking, business or part of the business.
Article 3, s. 1 provides:
“The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1 (1) shall, by reason of such transfer, be transferred to the transferee.”
Article 4, s. 1 provides:
“The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the work force.”
Statutory Instrument No. 306 of 1980 was made for the purpose of giving effect to the Council Directive. It provides that a word or expression used in the regulations and also used in the Council Directive, unless the context otherwise requires, is to have the same meaning in the regulations as it has in the directive.
Article 3 of the regulations provides:
“The rights and obligations of the transferor arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.”
Article 5 provides:
“5. (1) The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee and a dismissal, the grounds for which are such a transfer, by a transferor or a transferee is hereby prohibited. However, nothing in this Regulation shall be construed as prohibiting dismissals for economic, technical or organisational reasons entailing changes in the work-force.
(2) If a contract of employment or an employment relationship is terminated because a transfer involves a substantial change in working conditions to the detriment of the employee concerned, the employer concerned shall be regarded as having been responsible for termination of the contract of employment or of the employment relationship.”
Article 6 provides:
“Where an undertaking or business, or part of a business, the subject of a transfer preserves its autonomy after the transfer, the status and function, as laid down by the laws, regulations or administrative provisions of the State, of the representatives or of the representation of the employees affected by the transfer shall be preserved by the transferee concerned.”
As the Employment Appeals Tribunal appreciated, these provisions have revolutionary implications for the relationship between employers and employees. The applicant’s case is that the transfer from Joseph Downes and Sons Ltd. to Buttercrust Ltd. was a transfer of “part of a business” within the meaning of the Council Directive and the statutory instrument. He says, moreover, that so far as the section in which he himself was employed was concerned, it was a transfer of “part of a business” as a going concern. Yet, despite the fact that “his job” was transferred as part of a going concern, he himself was made redundant. This, he claims, was an unfair dismissal which gives him the right to claim relief against both the transferee and the transferor.
If the applicant can make out his case on the facts the directive and the regulation would appear, in terms, to apply to him and to give him relief.
Mr. Cooke however submits, as a matter of European law, that the directive was never intended to apply to a situation such as the present. The purpose of the directive, he submits, is to protect the position of workers in the takeovers and mergers of businesses and companies which are expected to be a feature of the developing common market. It was not intended to deal with the liquidation of insolvent businesses or companies. It is, he submits, in the long term interests of all persons with claims on bankrupt businesses or companies that there should be an effective method of realising the assets of those companies. To use the directive to make more difficult the realisation of the assets of a bankrupt company would, in the long term, he submits, defeat the objectives which the Council had in mind in framing the directive.
Counsel have drawn to my attention three decisions of the Court of Justice of the European Communities which relate to the directive. These decisions I will refer to, for convenience, as Wendelboe’s case (Case 19/1983) Wendelboe v. L.J. Music Aps. [1985] 2 E.C.R. 457, Abels’ case (Case 135/1983) Abels v. Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie [1985] 2 E.C.R. 469 and Spijkers’ case (Case 24/1985) Spijkers v. Gebroeders Benedik Abattoir [1986] 3 E.C.R. 1119.
Of these cases by far the most important is Abel’s case . The opinion of the Advocate General, Sir Gordon Slynn, in that case appears to accept that the directive was not intended to apply in the liquidation of bankrupt companies and businesses (see p. 470 et seq.) The intention was that the liquidation of bankrupt businesses and companies should be dealt with by a separate directive but because of the extreme technicality and particularity of the laws relating to bankruptcies and liquidations in the individual member states, great difficulty has been experienced in drafting a directive governing the practice in liquidation and bankruptcy throughout the community. The Advocate General, therefore, drew the conclusion that the directive on safeguarding employment was not intended to apply to liquidations or bankruptcies. He also suggested that the directive should not apply where a company had transferred its business or part of its business after the company had been granted court leave to suspend payment under the system known in Dutch law as a “sursance van betaling”. The “sursance van betaling”appears to correspond with what would be known in Irish law as a stay of proceedings to facilitate a scheme of arrangement.
It is clear however that there was considerable controversy before the court as to whether the directive did or did not apply to transfers made in the liquidation of bankrupt companies. For instance at p. 474 (second column) the Advocate General said:
“The Danish Government contends that those employees who most need protection are those whose employers are insolvent, therefore, the Directive must be taken as applying to liquidations. The Commission and the Dutch Government draw precisely the opposite inference. They claim that a potential purchaser may be deterred from buying up businesses which are insolvent, but which might be capable of rescue, if they are obliged to take on all the employees. The only way of saving the business may be to reduce the number of staff. It is in the interests of the labour force as a whole that such rescue attempts should be made, even if some staff have to go. In fact, rather than in theory, more jobs may be lost if purchasers are deterred by a rule that they must take on the employees and satisfy all obligations to them.”
It is clear also that a suggestion was put forward in argument that if liquidations were excluded from the scope of the directive it might be possible for employers to engineer artificial liquidations for the purpose of getting rid of employees whom they wished to employ no longer. Dealing with this point the Advocate General said (at p. 475, column 2):
“It is suggested that, if liquidations are excluded from the scope of the Directive, it will be possible for undertakings to “engineer” insolvencies so that employees can be dismissed before businesses are transferred, no obligations thus passing to the transferee. There may be a risk of this. It will, however, be for national courts to ensure that undertakings cannot escape the provisions of the Directives unless they really are insolvent. To this end, a mere winding-up order in the English sense, or its equivalent, will not be sufficient since winding-up can take effect for other reasons than insolvency. If there is a dispute as to whether a company is insolvent, then the Directive should be treated as not applying only in situations where an appropriate court has formally found, in accordance with national law provisions, that an undertaking in liquidation is insolvent and that the transfer of a business is made as a consequence.”
Dealing with the question of a transfer made following a “sursance van betaling” the Advocate General said (at p. 476, column 1):
“The first question also refers to the suspension of payments by judicial order (sursance van betaling), though the question does not strictly arise in the present case since liquidation followed the order which was made. As I understand it this order is made by the court provisionally on the application of a debtor who considers that he cannot pay his debts. An administrator is appointed and in the meantime debts (other than preferential or secured debts including those to employees) cannot be enforced. The administrator must approve all acts of administration including transfer of parts of the enterprise and dismissal of employees. This provisional order is made without a full investigation by the court but after a further hearing, of which creditors must be given notice, the court may make a final or definitive order. It seems that in a large number of cases, if the financial difficulties are not resolved, the final suspension order is followed by bankruptcy.
In this case, the business was only transferred after a final order was made. The description given of the rights of the owner of the business, subject to co-operation with the administrator, shows that the position is different from that obtaining in a liquidation, and it is much easier to see a sale of the business by the owner as a consensual transfer. Nonetheless it seems to me that, at the stage of a final order, the extent of judicial control and the nature of the proceedings, though different from liquidation, is such that it should be treated in the same way, as the Dutch Government contends.”
This passage is important because it contains the reasoning on the basis of which the Advocate General recommended that Council Directive 77/187 should not apply to a sale of a business or part of a business taking place either in a liquidation or in a “surséance van betaling” where the debtor had been granted final leave to suspend payments.
Significantly, however, the court declined to follow the opinion of the Advocate General on this matter. It held that the directive should not apply to a sale of a business or part of a business taking place in a liquidation but that it should apply to a sale of a business or part of a business taking place in a “surséance van betaling” even in a case where the company was insolvent. The court’s reasons for making this distinction may be gleaned from the following passage from its judgment which begins at p. 484 of the report:
“The parties are divided as to whether, if the directive were held to be applicable to liquidation or similar proceedings, the resulting social and economic effects would be favourable or prejudicial to the interests of employees.
The Bedrijfsvereniging and the Danish Government consider that the directive is applicable to such a situation on the grounds that employees whose employer has been adjudged insolvent are precisely those who are most in need of protection; moreover, where such protection is provided, both the workers and the liquidator are normally more inclined to ensure that the undertaking continues to operate until a transfer takes place.
On the other hand, the Netherlands government and the Commission refer to certain economic consequences which would detract from the protection of workers if the directive were to be applied to transfers of undertakings in the event of insolvency or a sursancevan betaling’. In their opinion, such an extension of the scope of the directive might dissuade a potential transferee from acquiring an undertaking on conditions acceptable to the creditors thereof, who, in such a case, would prefer to sell the assets of the undertaking separately. That would entail the loss of all the jobs in the undertaking, detracting from the usefulness of the directive.
That difference of opinion shows that, at the present stage of economic development, considerable uncertainty exists regarding the impact on the labour market of transfers of undertakings in the event of an employer’s insolvency and the appropriate measures to be taken in order to ensure the best protection of the workers’ interests.
It is apparent from the foregoing considerations that a serious risk of general deterioration in working and living conditions of workers, contrary to the social objectives of the Treaty, cannot be ruled out. It cannot therefore be concluded that Directive No. 77/187 imposes on the Member States the obligation to extend the rules laid down therein to transfers of undertakings, businesses or parts of businesses taking place in the context of insolvency proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of the competent judicial authority.
It must nevertheless be made clear that even though, in view of the considerations set out above, transfers of that kind do not fall within the scope of the above-mentioned directive, the Member States are at liberty independently to apply the principles of the directive, wholly or in part, on the basis of their national law alone.
Although in this case the transfer of the undertaking was effected in liquidation proceedings, the question submitted by the national court relates also to the case of a transfer taking place in proceedings such as a sursancevan betaling’ (judicial leave to suspend payment of debts).
The parties disagree as to whether such a transfer must conform to the same rules, as far as the application of Directive No. 77/187 is concerned, as a transfer effected as a result of a sale by a liquidator. In that respect, the Netherlands Government and the Commission take the view that the reasons for not extending the scope of the directive to transfer of undertakings occurring in liquidation proceedings also militate against its application to a case where a court has given the transferor leave to suspend payment of debts.
On the other hand, the Bedrijfsvereniging and the Danish Government appear to consider that Directive No. 77/187 should apply where the transferor has obtained leave to suspend payment of debts, even if the Directive is not applicable to a transfer effected in liquidation proceedings. Otherwise, leave to suspend payment of debts might be applied for specifically with a view to a transfer, to the detriment of the rights of the workers.
It is to be noted that proceedings such as those relating to a sursancevan betaling’ have certain features in common with liquidation proceedings, in particular in as much as the proceedings are, in both cases, of a judicial nature. They are, however, different from liquidation proceedings insofar as the supervision exercised by the court over the commencement and the course of such proceedings is more limited. Moreover, the object of such proceedings is primarily to safeguard the assets of the insolvent undertaking and, where possible, to continue the business of the undertaking by means of a collective suspension of the payment of debts with a view to reaching a settlement which will ensure that the undertaking is able to continue operating in the future. If no such settlement is reached, proceedings of this kind may, as in the present case, lead to the debtors being put into liquidation.
It follows that the reasons for not applying the Directive to transfers of undertakings taking place in liquidation proceedings are not applicable to proceedings of this kind taking place at an earlier stage.”
It will be noted from the passages quoted, that both the Advocate General and the court were concerned to ensure that the forms of liquidation proceedings should not be used, by ingenious lawyers, to defeat workers’ rights. The Advocate General said that in the event of a dispute as to whether the company was or was not really insolvent the presumption should be that the directive applied to it until the contrary had been established to the satisfaction of a judicial authority. Likewise the court emphasised the importance of judicial control in differentiating between the sale of a business or part of a business taking place in liquidation proceedings and the sale of a business or part of a business taking place in a “surséance van betaling”. In both cases the company could be insolvent but in liquidation proceedings the court would have more judicial control over the entire proceedings than in a “surséance van betaling”.
The present case is concerned not with the effect of the directive on a liquidation or a scheme of arrangement but with the effect of the appointment of a receiver by a debentureholder. The Court of Justice of the European Communities has not had to consider this question. By s. 4 of our Protection of Employees (Employers Insolvency) Act, 1984, a company over which a receiver has been appointed on behalf of a debentureholder is deemed, for the purposes of the Act, to be insolvent. In many cases liquidation follows close on the appointment of a receiver but there have been cases where a receiver has succeeded not only in paying off the debentureholder’s debt but in turning the company around also. More important, however, is the fact that the appointment of a receiver by a debentureholder is an entirely extra-judicial process. For that reason it is a process which might be employed much more easily than a liquidation or a scheme of arrangement to defeat the purposes of the directive. One cannot assume therefore that because the Court of Justice has held that the directive does not apply to a sale by a liquidator that it would also hold that the directive would not apply to a sale by a receiver appointed by a debentureholder. Indeed, if the present litigation continues it may be necessary, at some stage, to refer this very question to the Court of Justice.
Holding therefore, as I do, that the Employment Appeals Tribunal erred in refusing to entertain the applicant’s claim, I cannot hold that it is obvious that the applicant’s claim must fail and that, therefore, it would be a waste of time to refer the matter back to the Tribunal..”
Merckx Neuhuys v Ford Motors Company Belgium SA.
[1996] EUECJ C-171/94
“14 Having regard to the foregoing, the Cour du Travail, Brussels, decided to stay the proceedings and to refer the following question, drafted in the same terms in both cases, to the Court of Justice for a preliminary ruling:
“Is there a transfer of an undertaking within the meaning of Directive 77/187 of 14 February 1977 if an undertaking which has decided to discontinue its activities on 31 December 1987 dismisses most of its staff, keeping only 14 out of a total of over 60, and decides that those 14 persons, while retaining their acquired rights, must work from 1 November 1987 for an undertaking with which that first undertaking has no formal agreement, but which has since 15 October 1987 held the dealership previously held by the first undertaking, and if the first undertaking has not transferred any of its assets to the second?”
15 That question seeks essentially to ascertain, first, whether Article 1(1) of the Directive must be interpreted as applying where an undertaking holding a motor vehicledealership for a particular territory discontinues its business and the dealership is then transferred to another undertaking which takes on part of its staff and is recommended to customers, without any transfer of assets. Secondly, having regard to the facts in the main proceedings and in order to provide a helpful response to the national court, it is necessary to establish whether Article 3(1) of the Directive precludes an employee of the transferor at the date of transfer of the undertaking from objecting to the transfer of his contract of employment or employment relationship to the transferee.
The existence of a transfer within the meaning of the directive
16 As regards the first part of the question as reformulated, it is settled case-law that the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the entity in question retains its economic identity, as indicated inter alia by the fact that its operation is actually continued or resumed (see inter alia the judgment in Case C-29/91 Redmond Stichting v Hendrikus Bartol [1992] ECR I-3189, paragraph 23).
17 In order to determine whether that condition is met, it is necessary to consider all the facts characterizing the transaction in question, including the type of undertaking or business, whether or not the business’ s tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees is taken over by the new employer, whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (judgment in Case C-29/91 Redmond Stichting, cited above, paragraph 24).
18 In the light of those principles, the Court notes that in the situation with which the main proceedings are concerned Ford, the main shareholder in Anfo Motors, transferred to Novarobel the dealership for the sale of vehicles in the territory covered by Anfo Motors and so transferred the economic risk associated with that business to an undertaking outside its own group of companies, that Novarobel carried on the activity performed by Anfo Motors, without interruption, in the same sector and subject to similar conditions, that it took on part of its staff and that it was recommended to customers in order to ensure continuity in the operation of the dealership.
19 All those factors, taken as a whole, support the view that the transfer of the dealership in the circumstances of the main proceedings is capable of falling within the scope of the Directive. It must be ascertained, however, whether certain factors relied on by Mr Merckx and Mr Neuhuys may rebut that finding.
20 First, Mr Merckx and Mr Neuhuys claimed that in the circumstances at issue in the main proceedings there had been neither a transfer of the company’ s tangible or intangible assets nor at least partial preservation of the undertaking’ s structure and organization. Moreover, the municipalities of the Brussels conurbation in which Novarobel has its principal place of business are different from those in which Anfo Motors carried on its business.
21 Those circumstances are not such as to prevent the application of the Directive, since, having regard to the nature of the activity pursued, the transfer of tangible assets is not conclusive of whether the entity in question retains its economic identity (see to that effect the judgment in Case C-392/92 Schmidt v Spar- und Leihkasse der frueheren AEmter Bordesholm, Kiel und Cronshagen [1994] ECR I-1311, paragraph 16). The purpose of an exclusive dealership for the sale of motor vehicles of a particular make in a certain sector remains the same even if it is carried on under a different name, from different premises and with different facilities. It is also irrelevant that the principal place of business is situated in a different area of the same conurbation, provided that the contract territory remains the same.
22 Secondly, Mr Merckx and Mr Neuhuys claimed that there could not be a transfer for the purposes of the Directive when an undertaking definitively ceased trading and was put into liquidation, as was the case with Anfo Motors. In such circumstances, the economic entity had ceased to exist and could not retain its identity.
23 In that regard, if the Directive’ s aim of protecting workers is not to be undermined, its application cannot be excluded merely because the transferor discontinues its activities when the transfer is made and is then put into liquidation. If the business of that undertaking is carried on by another undertaking, those facts tend to confirm, rather, that there has been a transfer for the purposes of the Directive.
24 Thirdly, Mr Merckx and Mr Neuhuys claimed that the fact that the majority of the staff had been dismissed upon the transfer of the dealership indicated that the Directive did not apply.
25 Article 4(1) of the Directive provides that the transfer of an undertaking, business or part of the business does not in itself constitute grounds for dismissal. However, that provision is not to stand in the way of dismissals that may take place for economic, technical or organizational reasons entailing changes in the workforce.
26 Accordingly, the fact that the majority of the staff was dismissed when the transfer took place is not sufficient to preclude the application of the Directive. The dismissals might have taken place for economic, technical or organizational reasons, in compliance with Article 4(1), cited above. In any event, failure to comply with that provision could not affect the existence of a transfer for the purposes of the Directive.
27 Finally, Mr Merckx and Mr Neuhuys claimed that, even if there had in fact been a transfer for the purposes of the Directive, it was not the result of a legal transfer as required by Article 1 thereof. That concept necessarily required the existence of a contractual link between the transferor and the transferee. There was no such link in the present case.
28 On account of the differences between the language versions of the Directive and the divergences between the laws of the Member States with regard to the concept of legal transfer, the Court has given that concept a sufficiently flexible interpretation in keeping with the objective of the Directive, which is to safeguard employees in the event of a transfer of their undertaking, and has held that the Directive is applicable wherever, in the context of contractual relations, there is a change in the natural or legal person who is responsible for carrying on the business and who incurs the obligations of an employer towards employees of the undertaking (see, inter alia, the judgment in Redmond Stichting, cited above, at paragraphs 10 and 11).
29 The Court has therefore held that the Directive applies to the termination of a lease of a restaurant followed by the conclusion of a new management contract with another operator (Case 324/86 Tellerup v Daddy’ s Dance Hall [1988] ECR 739), the termination of a lease followed by a sale by the owner (Case 101/87 Bork International vForeningen af Arbejdsledere i Danmark [1988] ECR 3057), and also a situation in which a public authority ceases to grant subsidies to a legal person thereby bringing about the full and definitive termination of its activities in order to transfer them to another legal person with a similar aim (Redmond Stichting, cited above).
30 It is clear from that case-law that, for the Directive to apply, it is not necessary for there to be a direct contractual relationship between the transferor and the transferee. Consequently, where a motor vehicle dealership concluded with one undertaking is terminated and a new dealership is awarded to another undertaking pursuing the same activities, the transfer of undertaking is the result of a legal transfer for the purposes of the Directive, as interpreted by the Court.
31 Furthermore, it is clear from the documents before the Court that the circumstances of the actions brought before the national court are that Ford, the principal shareholder of Anfo Motors, concluded an “agreement and guarantee” with Novarobel, by which it undertook, inter alia, to bear the expenses relating to certain payments for breach of contract, unlawful dismissal or redundancy which might be payable by Novarobel to members of the staff previously employed by Anfo Motors. That fact confirms that there was a legal transfer within the meaning of the Directive.
32 Consequently, the answer to the first part of the question as reformulated above must be that Article 1(1) of the Directive must be interpreted as applying where an undertaking holding a motor vehicle dealership for a particular territory discontinues its activities and the dealership is then transferred to another undertaking which takes on part of the staff and is recommended to customers, without any transfer of assets.
The employee’ s power to prevent the transfer of his contract or the employment relationship
33 As regards the second part of the question as reformulated above, the Court held in Case 105/84 Foreningen af Arbejdsledere i Danmark v Danmols Inventar [1985] ECR 2639, paragraph 16, that the protection which the Directive is intended to guarantee is redundant where the person concerned decides of his own accord not to continue the employment relationship with the new employer after the transfer.
34 It also follows from the judgment in Joined Cases C-132/91, C-138/91 and C-139/91 Katsikas and Others v Konstandinidis [1992] ECR I-6577, paragraphs 31 and 32, that, whilst the Directive allows the employee to remain in the employ of his new employer on the same conditions as were agreed with the transferor, it cannot be interpreted as obliging the employee to continue his employment relationship with the transferee. Such an obligation would jeopardize the fundamental rights of the employee, who must be free to choose his employer and cannot be obliged to work for an employer whom he has not freely chosen.
35 It follows that, in the event of the employee deciding of his own accord not to continue with the contract of employment or employment relationship with the transferee, it is for the Member States to determine what the fate of the contract of employment or employment relationship should be. The Member States may provide, in particular, that in such a case the contract of employment or employment relationship must be regarded as terminated either by the employee or by the employer. They may also provide that the contract or employment relationship should be maintained with the transferor (judgment in Katsikas and Others, cited above, paragraphs 35 and 36).
36 Mr Merckx and Mr Neuhuys claimed, moreover, that in the case in point Novarobel refused to guarantee to maintain their level of remuneration, which was calculated by reference, in particular, to the turnover achieved.
37 In the light of that submission, it should be noted that Article 4(2) provides that if the contract of employment or the employment relationship is terminated because the transfer within the meaning of Article 1(1) involves a substantial change in working conditions to the detriment of the employee, the employer is to be regarded as having been responsible for termination.
38 A change in the level of remuneration awarded to an employee is a substantial change in working conditions within the meaning of that provision, even where the remuneration depends in particular on the turnover achieved. Where the contract of employment or the employment relationship is terminated because the transfer involves such a change, the employer must be regarded as having been responsible for the termination.
39 Consequently, the answer to the second part of the question as reformulated must be that Article 3(1) of the Directive does not preclude an employee employed by the transferor at the date of the transfer of an undertaking from objecting to the transfer to the transferee of the contract of employment or the employment relationship. In such a case, it is for the Member States to determine what the fate of the contract of employment or employment relationship with the transferor should be. However, where the contract of employment or the employment relationship is terminated on account of a change in the level of remuneration awarded to the employee, Article 4(2) of the Directive requires the Member States to provide that the employer is to be regarded as having been responsible for the termination.”
Rask and Christensen v Iss Kantineservice A/S
[1992] EUECJ C-209/91
“The first and second questions
12 In its first two questions, the national court essentially seeks to establish whether Article 1(1) of the Directive is to be interpreted as meaning that the Directive is capable of applying to a situation in which one businessman by a contract assigns to another businessman responsibility for running a facility for staff, which was formerly managed directly, in return for a fee and various advantages, details of which are laid down by the agreement between them.
13 Mrs Watson Rask, Mrs Christensen and the Commission propose that those questions, as thus reformulated, should be answered in the affirmative. They argue that such an agreement transfers responsibility for running the facilities in question to the other party to the agreement, who thereby becomes the employer of the staff assigned to those facilities. The plaintiffs in the main proceedings also argue that the transfer relates to “part of a business” within the meaning of the Directive, on the ground that the facilities transferred constitute an independent economic entity within the transferor undertaking.
14 For its part, the defendant in the main proceedings contends that an agreement such as that described by the national court does not bring about a “transfer of an undertaking” within the meaning of the Directive, unless the directive is given an excessively wide scope. It argues, on the one hand, that an agreement of the type in question does not effect a transfer within the meaning of the Directive, since it gives the party with whom the agreement is made neither full and entire responsibility for running the operation, in particular, as regards customers and the setting of prices, nor ownership of the assets needed for running the operation. It further contends that such an agreement relates to a facility which cannot be described as an “undertaking” within the meaning of the Directive in view of the fact that it is ancillary to the transferor’ s business.
15 According to the Court’ s case-law (see Joined Cases 144 and 145/87 Berg v Besselsen [1988] ECR 2559, paragraph 17), the Directive is applicable whenever, in the context of contractual relations, there is a change in the legal or natural person who is responsible for carrying on the business and who by virtue of that fact incurs the obligations of an employer vis-à-vis the employees of the undertaking, regardless of whether or not ownership of the undertaking is transferred.
16 The protection prescribed by the Directive applies in particular ° by virtue of Article 1(1) ° where the transfer relates only to a business or to part of a business, that is to say, to part of an undertaking. In such an event, it extends to the employees assigned to that part of the business, because, as the Court held in Case 186/83 Botzen v Rotterdamsche Droogdok Maatschappij [1985] ECR 519, paragraph 15, an employment relationship is essentially characterized by the link existing between the employee and the part of the undertaking to which he is assigned to carry out his duties.
17 Thus, where one businessman entrusts, by means of an agreement, responsibility for running a facility of his undertaking, such as a canteen, to another businessman who thereby assumes the obligations of employer vis-à-vis the employees assigned to that facility, the resulting transaction may fall within the scope of the Directive, as defined in Article 1(1). The fact that in such a case the activity transferred is merely an ancillary activity for the transferor without a necessary connection with its company objects cannot have the effect of excluding that transaction from the scope of the Directive. Nor does the fact that the agreement between the transferor and the transferee relates to provision of services exclusively for the benefit of the transferor in return for a fee, details of which are laid down by the agreement, preclude the applicability of the Directive.
18 It is for the national court to assess whether all the facts set out in its order for reference characterize a “transfer of an undertaking” within the meaning of the Directive. Accordingly, it is appropriate, in any event, to remind it that it should take account of the following considerations (see, most recently, Case C-29/91 Redmond Stichting v Hendrikus Bartol and Others [1992] ECR I-3189, paragraphs 23 and 24).
19 First, the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed.
20 Secondly, in order to determine whether those conditions are met, it is necessary to consider all the facts characterizing the transaction in question, including the type of undertaking or business, whether or not tangible assets, such as buildings and movable property, are transferred, the value of intangible assets at the time of the transfer, whether or not the majority of employees are taken over by the new employer, whether or not customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended. It should be noted, however, that all those circumstances are merely individual factors in the overall assessment which must be made and cannot therefore be considered in isolation.
21 Accordingly, the reply to be given to the national court’ s first two questions is that Article 1(1) of the Directive is to be interpreted as meaning that the Directive may apply in a situation in which one businessman, by a contract, assigns to another businessman responsibility for running a facility for staff, which was formerly managed directly, in return for a fee and various advantages, details of which are laid down by the agreement between them.
The third question
22 In its third question, the national court essentially asks whether Article 3 is to be interpreted as meaning that the transferee is bound to maintain the terms and conditions agreed between the employees and the transferor with regard to wages, in particular as regards the date on which wages are paid and the items making them up, even if the total amount of the wages remains unchanged.
23 Article 3 of the Directive provides:
“1. The transferor’ s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.
Member States may provide that, after the date of transfer within the meaning of Article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship.
2. Following the transfer within the meaning of Article 1(1), the transferee shall continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement.
Member States may limit the period for observing such terms and conditions, with the proviso that it shall not be less than one year.”
24 The plaintiffs in the main proceedings argue that the transferee is obliged by Article 3 of the Directive to maintain the terms and conditions of employment and remuneration which were agreed with the transferor, in particular as regards the date on which wages are to be paid.
25 The Commission and ISS maintain that the transferee may alter the terms and conditions laid down by the contract of employment or employment relationship in so far as this is permitted by national law in situations other than the transfer of an undertaking.
26 According to the Court’ s case-law (see, in particular, Case C-362/89 D’ Urso and Others v EMG [1991] ECR I-4105, paragraph 9), the Directive is intended to safeguard for workers affected by a transfer of an undertaking their existing rights under their contracts of employment or employment relationships.
27 However, as the Court held in Case 324/86 Foreningen af Arbejdsledere i Danmark v Daddy’ s Dance Hall [1988] ECR 739, paragraph 16, the Directive is intended to achieve only partial harmonization, essentially by extending the protection guaranteed to workers independently by the laws of the individual Member States to cover the case where an undertaking is transferred. It is not intended to establish a uniform level of protection throughout the Community on the basis of common criteria. Thus the Directive can be relied on only to ensure that the employee is protected in his relations with the transferee to the same extent as he was in his relations with the transferor under the legal rules of the Member State concerned.
28 Consequently, in so far as national law allows the employment relationship to be altered in a manner unfavourable to employees in situations other than the transfer of an undertaking, in particular as regards their terms and conditions of remuneration, such an alteration is not precluded merely because the undertaking has been transferred in the meantime and the agreement has therefore been made with the new employer. Since by virtue of Article 3(1) of the Directive the transferee is subrogated to the transferor’ s rights and obligations under the employment relationship, that relationship may be altered with regard to the transferee, to the same extent as it could have been with regard to the transferor, provided that the transfer of the undertaking itself may never constitute the reason for that amendment (judgment in Daddy’ s Dance Hall, paragraph 17).
29 It should also be borne in mind that, by virtue of Article 3(2) of the Directive, the transferee is bound to continue to observe the terms and conditions of employment agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement. The Member States may limit the period for observing such terms and conditions, subject to the proviso that it must not be less than one year.
30 Within the framework of those rules, it is for the national court to assess the extent, under national law, of the transferor’ s obligations, whether they arise under a contract of employment, an employment relationship or a collective agreement.
31 Consequently, the reply to the third question should be that Article 3 of the Directive is to be interpreted as meaning that, upon a transfer, the terms and conditions of the contract of employment or employment relationship relating to wages, in particular those relating to the date of payment and the composition of wages, cannot be altered even if the total amount of the wages remains the same. The Directive does not, however, preclude an alteration of the employment relationship with the new employer in so far as the applicable national law allows such an alteration to be made in situations other than the transfer of an undertaking. Furthermore, the transferee is also bound to continue to observe the terms and conditions of employment agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement.
Christel Schmidt v Spar & Leihkasse der frueheren Amter Bordesholm, Kiel und Cronshagen
[1995] ICR 237, [1995] 2 CMLR 331, [1994] IRLR 302
“8 Article 1(1) provides that “this directive shall apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger.”
9 In its two questions, the national court seeks to ascertain whether the cleaning operations of a branch of an undertaking can be treated as part of a business within the meaning of the directive and whether it is possible to do so where the work was performed by a single employee before being transferred by contract to an outside firm.
10 The Savings Bank, the Federal Republic of Germany and the United Kingdom argue that those questions should be answered in the negative. In essence, the Savings Bank contends that the performance of cleaning operations is neither the main function nor an ancillary function of the undertaking, while the Government of the Federal Republic of Germany and the United Kingdom submit that the decision by the Savings Bank to entrust those operations to a different firm did not involve either the transfer of an economic unit or the transfer of premises or tangible assets.
11 The Commission takes the view, in particular, that if the cleaning is carried out by the staff of the undertaking, it is a service which the latter performs itself and the fact that such work is merely an ancillary activity not necessarily connected with the objects of the undertaking cannot have the effect of excluding the transfer from the scope of the directive.
12 According to the case-law of the Court (judgment in Case C-209/91 Watson Rask and Christensen v ISS Kantineservice [1992] ECR I-5755, at paragraph 15), the directive is applicable where, following a legal transfer or merger, there is a change in the legal or natural person who is responsible for carrying on the business and who by virtue of that fact incurs the obligations of an employer vis-à-vis the employees of the undertaking, regardless of whether or not ownership of the undertaking is transferred.
13 The protection provided by the directive applies in particular, by virtue of Article 1(1), where the transfer relates only to a business or part of a business, that is to say, a part of an undertaking. In those circumstances the transfer relates to employees assigned to that part of the undertaking since, as the Court held in its judgment in Case 186/83 Botzen and Others v Rotterdamsche Droogdok Maatschappij [1985] ECR 519, at paragraph 15, an employment relationship is essentially characterized by the link between the employee and the part of the undertaking or business to which he is assigned to carry out his duties.
14 Thus, when an undertaking entrusts by contract the responsibility for operating one of its services, such as cleaning, to another undertaking which thereby assumes the obligations of an employer towards employees assigned to those duties, that operation may come within the scope of the directive. As the Court held at paragraph 17 of its judgment in Watson Rask and Christensen, cited above, the fact that in such a case the activity transferred is for the transferor merely an ancillary activity not necessarily connected with its objects cannot have the effect of excluding that operation from the scope of the directive.
15 Nor is the fact that the activity in question was performed, prior to the transfer, by a single employee sufficient to preclude the application of the directive since its application does not depend on the number of employees assigned to the part of the undertaking which is the subject of the transfer. It should be noted that one of the objectives of the directive, as clearly stated in the second recital in the preamble thereto, is to protect employees in the event of a change of employer, in particular to ensure that their rights are safeguarded. That protection extends to all staff and must therefore be guaranteed even where only one employee is affected by the transfer.
16 The arguments of the Government of the Federal Republic of Germany and of the United Kingdom based on the absence of any transfer of tangible assets cannot be accepted either. The fact that in its case-law the Court includes the transfer of such assets among the various factors to be taken into account by a national court to enable it, when assessing a complex transaction as a whole, to decide whether an undertaking has in fact been transferred does not support the conclusion that the absence of these factors precludes the existence of a transfer. The safeguarding of employees’ rights, which constitutes the subject-matter of the directive, as is clear from its actual title, cannot depend exclusively on consideration of a factor which the Court has in any event already held not to be decisive on its own (judgment in Case 24/85 Spijkers v Benedik [1986] ECR 1119, at paragraph 12).
17 According to the case-law of the Court (see the judgment in Spijkers, cited above, at paragraph 11, and the judgment in Case C-29/91 Dr Sophie Redmond Stichting v Bartol and Others [1992] ECR I-3189, at paragraph 23), the decisive criterion for establishing whether there is a transfer for the purposes of the directive is whether the business in question retains its identity. According to that case-law, the retention of that identity is indicated inter alia by the actual continuation or resumption by the new employer of the same or similar activities. Thus, in this case, where all the relevant information is contained in the order for reference, the similarity in the cleaning work performed before and after the transfer, which is reflected, moreover, in the offer to re-engage the employee in question, is typical of an operation which comes within the scope of the directive and which gives the employee whose activity has been transferred the protection afforded to him by that directive.
18 It may, however, be noted that while Article 4(1) of the directive provides that the transfer of an undertaking or part of an undertaking cannot in itself constitute grounds for dismissal by the transferor or the transferee, that provision does not stand in the way of dismissals for economic, technical or organizational reasons entailing changes in the workforce.
19 Finally, it should also be borne in mind that the directive does not preclude an amendment to the employment relationship with the new employer, in so far as national law allows such an amendment otherwise than through a transfer of the undertaking (see, most recently, the judgment in Watson Rask and Christensen, cited above, at paragraph 31).
20 The answer to the questions submitted must therefore be that Article 1(1) of Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses is to be interpreted as covering a situation, such as that outlined in the order for reference, in which an undertaking entrusts by contract to another undertaking the responsibility for carrying out cleaning operations which it previously performed itself, even though, prior to the transfer, such work was carried out by a single employee.”
Suezen v Zehnacker Gebaudereinigung GmbH Krankenhausservice
[1997] EUECJ C-13/95
“9 By its two questions, which it is appropriate to consider together, the national court asks whether the directive also applies to a situation in which a person who had entrusted the cleaning of his premises to a first undertaking terminates his contract with the latter and, for the performance of similar work, enters into a new contract with a second undertaking without any concomitant transfer of tangible or intangible business assets from one undertaking to the other.
10 The aim of the directive is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of the directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (Case 24/85 Spijkers [1986] ECR 1119, paragraphs 11 and 12, and, most recently, Joined Cases C-171/94 and C-172/94 Merckx and Neuhuys [1996] ECR I-1253, paragraph 16; see also the advisory opinion of the Court of the European Free Trade Association of 19 December 1996 in Case E-2/96 Ulstein and Røiseng, not yet reported, paragraph 27).
11 Whilst the lack of any contractual link between the transferor and the transferee or, as in this case, between the two undertakings successively entrusted with the cleaning of a school, may point to the absence of a transfer within the meaning of the directive, it is certainly not conclusive.
12 As has been held – most recently in Merckx and Neuhuys (paragraph 28) – the directive is applicable wherever, in the context of contractual relations, there is a change in the natural or legal person who is responsible for carrying on the business and who incurs the obligations of an employer towards employees of the undertaking. Thus, there is no need, in order for the directive to be applicable, for there to be any direct contractual relationship between the transferor and the transferee: the transfer may also take place in two stages, through the intermediary of a third party such as the owner or the person putting up the capital.
13 For the directive to be applicable, however, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (Case C-48/94 Rygaard [1995] ECR I-2745, paragraph 20). The term entity thus refers to an organized grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective.
14 In order to determine whether the conditions for the transfer of an entity are met, it is necessary to consider all the facts characterizing the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers and Redmond Stichting, paragraphs 13 and 24 respectively).
15 As observed by most of the parties who commented on this point, the mere fact that the service provided by the old and the new awardees of a contract is similar does not therefore support the conclusion that an economic entity has been transferred. An entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organized, its operating methods or indeed, where appropriate, the operational resources available to it.
16 The mere loss of a service contract to a competitor cannot therefore by itself indicate the existence of a transfer within the meaning of the directive. In those circumstances, the service undertaking previously entrusted with the contract does not, on losing a customer, thereby cease fully to exist, and a business or part of a business belonging to it cannot be considered to have been transferred to the new awardee of the contract.
17 It must also be noted that, although the transfer of assets is one of the criteria to be taken into account by the national court in deciding whether an undertaking has in fact been transferred, the absence of such assets does not necessarily preclude the existence of such a transfer (Schmidt and Merckx, cited above, paragraphs 16 and 21 respectively).
18 As pointed out in paragraph 14 of this judgment, the national court, in assessing the facts characterizing the transaction in question, must take into account among other things the type of undertaking or business concerned. It follows that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business. Where in particular an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets.
19 The United Kingdom Government and the Commission have argued that, for the entity previously entrusted with a service contract to have been the subject of a transfer within the meaning of the directive, it may be sufficient in certain circumstances for the new awardee of the contract to have voluntarily taken over the majority of the employees specially assigned by his predecessor to the performance of the contract.
20 In that regard, it should be borne in mind that the factual circumstances to be taken into account in determining whether the conditions for a transfer are met include in particular, in addition to the degree of similarity of the activity carried on before and after the transfer and the type of undertaking or business concerned, the question whether or not the majority of the employees were taken over by the new employer (Spijkers, cited above, paragraph 13).
21 Since in certain labour-intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognized that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, as stated in paragraph 21 of Rygaard, cited above, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis.
22 It is for the national court to establish, in the light of the foregoing interpretative guidance, whether a transfer has occurred in this case.
23 The answer to the questions from the national court must therefore be that Article 1(1) of the directive is to be interpreted as meaning that the directive does not apply to a situation in which a person who had entrusted the cleaning of his premises to a first undertaking terminates his contract with the latter and, for the performance of similar work, enters into a new contract with a second undertaking, if there is no concomitant transfer from one undertaking to the other of significant tangible or intangible assets or taking over by the new employer of a major part of the workforce, in terms of their numbers and skills, assigned by his predecessor to the performance of the contract.
Complete Clean Ltd v. Savage & Ors
[2002] UKEAT 668_01_2011
“We now turn to consider the law and it is an area of law which we have to say is wholly unsatisfactory as has been noted by the Courts on numerous occasions. Thus in ADI -v- Willer [2001] IRLR 542 May LJ had this to say at paragraph 20:
“Authorities
It is clear that the state of the European and domestic authorities is unsatisfactory. I think that the underlying reason for this is that there has, as I have said, been judicial emasculation of the concept of legal transfer, but the language of transfer is retained. It is not necessary for there to be anything which would normally be described as a transfer of an undertaking between a first and subsequent employer. Speaking generally, the Regulations can apply when work or services cease to be carried out by one organisation and begin to be carried out by another. The change can be effected by the person benefiting from the work or services. The Council Directive and the 1981 Regulations have a general purpose of protecting the employment of the employees of the first organisation. The definition of when this is achieved and when it is not has lost such clarity as might originally have been achieved from the concept of legal transfer or merger. The concept of an economic entity which retains its identity and is capable of being transferred within the Directive and the Regulations now resides in para 1(b) of Article 1of the Amended Directive. Unfortunately, the amendment scarcely achieves the declared objective of clarifying ‘the legal concept of transfer’.”
There are numerous authorities including a number of decisions of the ECJ which are impossible or extremely difficult to reconcile without extremely fine distinctions. The result is that the law is in a state of critical uncertainty and it is almost impossible to give accurate advice to employees, trades unions, employers or others involved in possible transfers with any degree of certainty.
The relevant Council Directive is the 1977 Directive as amended by the Council Directive 98/50/EC 29 June 1998. (We note that the Directive has since been replaced in 2001 but in similar language). Article 1 of the 1977 Directive reads:
“1(a) This Directive shall apply to any transfer of an undertaking, business or part of an undertaking or business, to another employer as a result of a legal transfer or merger (b) subject to subparagraph (a) in the following provision of this Article there is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains it identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.”
The majority in ADI (May and Dyson LJJ) held, and we quote from the headnote:
“If the circumstances of an alleged transfer of an undertaking are such that an actual transfer of labour would be a relevant factor to be taken into account in deciding whether there has been a TUPE transfer, an employment tribunal is obliged to consider the reason why the labour was not transferred, in accordance with the Court of Appeal’s decision in ECM (Vehicle Delivery) Service Ltd v Cox which held that a transferee who does not take on employees of the transferor in order to avoid the application of TUPE cannot rely on the fact that the employees were not taken on as a factor going to the question of whether there was a TUPE transfer. If the economic entity is labour intensive such that, applying Suzen, there is no transfer if the workforce is not taken on, but there would be if they were, the tribunal is obliged to treat the case as if the labour had transferred if it is established that the reason or principal reason for this was in order to avoid the application of TUPE.”
It was conceded in ADI that there would have been a TUPE transfer if the security officers had been taken on by the transferee and that there would also have been a transfer if the reason they were not taken on was in order to avoid the application of TUPE. Simon Brown LJ dissented on the basis that the decision in ECM (Vehicle Delivery) Service Ltd -v- Cox could not be reconciled with the jurisprudence of the ECJ. It is correct that the Employment Tribunal did not consider ECM (Vehicle Delivery) Service Ltd -v- Cox specifically. However, it seems to us that the Employment Tribunal did direct itself correctly in determining firstly whether there was a relevant and sufficiently identifiable economic entity before going on to consider whether there had been a relevant transfer of that entity; see the judgment of the EAT (Burton J) in Whitewater Leisure Management -v- Barnes [2000] IRLR 456. (See also Kennedy LJ in Betts -v- Brintel Helicopters [1997] IRLR 361 at page 363).It is clear that in the present case the Employment Tribunal found that there was no sufficiently identifiable economic entity. It was, therefore, unnecessary to go on to consider questions of transfer and the issues raised in ECM (Vehicle Delivery) -v- Cox.
We have considered the latest decision of the ECJ on the topic, Temco Service Industries -v- Imzilyen [2002] IRLR 214 in paragraphs 23 – 26:
“23 In that connection it must be observed that the Directive is intended to ensure continuity of employment relationships existing within an economic entity, irrespective of any change of ownership. It follows that the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the business in question retains its identity (see, in particular, case 24/85 Spjikers [1986] ECR 1119, paragraph 11). The transfer must therefore relate to a stable economic entity whose activity is not limited to performing one specific works contract (case C-48/94 Rygaard [1996] IRLR 51, paragraph 20). The term ‘entity’ thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective (case C-13/95 Suzen [1997] IRLR 255, paragraph 13).
24 In order to determine whether the conditions for the transfer of an economic entity are met, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, have been transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of employees have been taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities are suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers, cited above, paragraph 13, and Suzen, cited above, paragraph 14).
25 In its judgments in case C-392/92 Schmidt [1994] IRLR 302, Suzen, and joined cases C-127/96, C-229/96 and C-74/97 Hernandez Vidal and others IRLR 132, the Court has already had to consider the question of the transfer of an economic entity in the cleaning sector. It took the view that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the Directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business. Thus, where, in particular an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets (Suzen, paragraph 18).
26 Thus, in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity. Such an entity is, therefore, capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task (Suzen, paragraph 21). Thus, an organised grouping of wage earners who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity (Hernandez Vidal and others, cited above, paragraph 26).”
The ECJ then concluded at paragraph 33:
“The answer to the first question referred for a preliminary ruling should therefore be that Article 1(1) of the Directive must be interpreted as applying to a situation in which a contractor which has entrusted the contract for cleaning its premises to a first undertaking, which has that contract performed by a subcontractor, terminates that contract and enters into a new contract for the performance of the same work with a second undertaking, where the transaction does not involve any transfer of tangible or intangible assets, between the first undertaking or the subcontractor and the second undertaking, but the second undertaking has taken on, under a collective labour agreement, part of the staff of the subcontractor, provided that the staff thus taken on are an essential part, in terms of their number and their skills, of the staff assigned by the subcontractors to the performance of the subcontract.”
It seems to us that this Decision is wholly consistent with the approach adopted by Burton J in Whitewater. The ECJ recognised that in a labour-intensive contract:
“A group of workers engaged in a joint activity on a permanent basis may constitute an economic entity”
(our underlining)
The Employment Tribunal in this case, sitting as an industrial jury and having correctly directed itself in accordance with Suzen came to the conclusion that there was no economic entity.
We would also refer the most recent decision of the Court of Appeal on TUPE RCO Support Services -v- UNISON Mummery LJ cited paragraph 23 of the judgment of the ECJ in Suzen as to the interpretation of Article 1(1) of the Directive:
“….It is to be interpreted as meaning that the Directive does not apply to a situation in which a person had entrusted the cleaning of his premises to a first undertaking, terminates his contract with the latter and, for the performance of similar work enters into a new contract with a second undertaking, if there is no concomitant transfer from one undertaking to another of a significant tangible or intangible assets or taking over by the new employer of a major part of the workforce, in terms of their number and skills assigned by his predecessor to the performance of the contract.”
This passage clearly supports the approach of the Employment Tribunal.
Mummery LJ having considered the decisions of the ECJ subsequent to Suzen including Oy Likenne concluded (paragraph 24):
“24……..that the Court of Justice now interprets the Directive as setting limits to its application in contracting out cases, which were not expressly identified in Spijkers [1986] ICR 1119, or in Schmidt and other earlier judgments of the Court of Justice. In particular, the mere fact that the putative transferee carries on the same activities or supplies the same services as the putative transferor had done does not by itself support the conclusion that an entity retains its identity. It is not correct to treat that single circumstance as determinative in favour of a transfer. Indeed, there may be no scope for the application of a Directive in a case where, although the same labour-intensive activities have continued, or t
he same services are supplied by a new contractor, none of the workforce has been taken on.
25 I am, however, unable to accept RCO’s submissions that the limits of the application of the Directive set in Suzen mean that, as a matter of Community law, there can never be a transfer of an undertaking in a contracting-out case if neither assets nor workforce are transferred; that the only legally permissible conclusion on the facts of this case was that as none of the workforce were taken on by RCO, no transfer could have taken place; and that the employment tribunal must have erred in law in concluding that there were in fact transfers within the meaning of TUPE.”
Mummery LJ went on to stress the question of:
“26 ……. whether or not the majority of the employees were taken on by the new employer is only one of all the facts, which must be considered by the national court in making an overall assessment of the facts characterising the transaction. Single factors should not be considered in isolation”
and he went on to cite the well known passage in Spijkers [1986] ICR 119 and 1128:
“11…..[T]he decisive criterion for establishing whether there is transfer for the purposes of the Directive is whether the business in question retains its identity.
12. Consequently, a transfer of an undertaking, business or part of a business does not occur merely because its assets are disposed of. Instead it is necessary to consider, in a case such as the present, whether the business was disposed of as a going concern, as would be indicated, inter alia, by the fact that its operation was actually continued or resumed by the new employer, with the same or similar activities.
13. In order to determine whether those conditions are met, it is necessary to consider all the facts characterising the transaction in question, including the type of undertaking or business, whether or not the business’s tangible assets, such as buildings or moveable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation.
14. It is for the national court to make the necessary factual appraisal, in the light of the criteria for interpretation set out above, in order to establish whether or not there is a transfer in the sense indicated above.”
Mummery LJ went on to hold that the decision of the ECJ in Suzen did not require a national court to exclude from its consideration of all the facts characterising the transaction, the circumstances of the decision of the putative transferee not to take on the workforce. The fact that none of the workforce was taken on could not be regarded as conclusive of the question as to whether there was a transfer although it was relevant to the issue of retention of identity, but it was a factor that was relevant and the Employment Tribunal needed to assess its significance by considering the context in which the decision not to take on the workforce was made. This decision does not assist Complete Clean. The question of why the putative transferee decides not to take on employees of the transferor only arises if there was an “undertaking” capable of transfer. In this case there was no sufficiently justifiable economic entity.
The question raised by His Honour Judge Clark as to whether the decision in ECM is contrary to the jurisprudence of the ECJ seems to us to be relevant to the issue of whether there has been a transfer rather than to the question as to whether there was an economic entity in the first place capable of being transferred. It seems to us that the criticism made of the Decision of the Employment Tribunal is misplaced as the Employment Tribunal as an industrial jury, correctly directed itself and came to a conclusion on the facts that it was entitled to come to, that there was no economic entity capable of being transferred. It follows that in our opinion the Decision of the Employment Tribunal was correct and cannot be disturbed and the appeal must accordingly be dismissed.”
Ole Rygaard v Stro Molle Akustik A/S
[1995] EUECJ C-48/94
“14 By its question the national court is essentially asking whether the taking over, with a view to completing, with the consent of the awarder of the main building contract, works started by another undertaking, of two apprentices and an employee, together with the materials assigned to those works, constitutes a transfer of an undertaking, business or part of a business, within the meaning of Article 1(1) of the Directive.
15 According to the Court’ s case-law, it is clear from the scheme of the Directive and from the terms of Article 1(1) thereof that the Directive is intended to ensure continuity of employment relationships existing within a business, irrespective of any change of ownership. It follows that the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the business in question retains its identity (see, in particular, the judgment in Case 24/85 Spijkers v Benedik [1986] ECR 1119, paragraph 11).
16 According to that same judgment, in order to ascertain whether that criterion is satisfied, it is necessary to consider whether the operation of the entity in question is actually continued or resumed by the new employer, with the same or similar economic activities (Spijkers v Benedik, paragraph 12).
17 It is then necessary to consider all the facts characterizing the transaction in question, including the type of undertaking or business concerned, whether or not tangible assets, such as buildings and movable property, are transferred, the value of the intangible assets at the time of the transfer, whether or not most of the personnel are taken over by the new employer, whether or not customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period of any suspension of those activities. All those circumstances are, however, only individual factors in the overall assessment to be made and they cannot therefore be considered in isolation (Spijkers v Benedik, paragraph 13).
18 Mr Rygaard considers that those conditions are satisfied in the present case. He observes that the works taken over by Stroe Moelle are the same as those which had been entrusted to Svend Pedersen A/S and that the duration of the works cannot be decisive in determining whether a transfer of an undertaking, within the meaning of the Directive, has taken place, just as the scale of the activity transferred was not held to be decisive in Case C-392/92 Schmidt [1994] ECR I-1311.
19 That argument cannot be accepted.
20 The authorities cited above presuppose that the transfer relates to a stable economic entity whose activity is not limited to performing one specific works contract.
21 That is not the case of an undertaking which transfers to another undertaking one of its building works with a view to the completion of that work. Such a transfer could come within the terms of the directive only if it included the transfer of a body of assets enabling the activities or certain activities of the transferor undertaking to be carried on in a stable way.
22 That is not so where, as in the case now referred, the transferor undertaking merely makes available to the new contractor certain workers and material for carrying out the works in question.
23 The reply to the question submitted must therefore be that the taking over, with a view to completing, with the consent of the awarder of the main building contract, works started by another undertaking, of two apprentices and an employee, together with the materials assigned to those works, does not constitute a transfer of an undertaking, business or part of a business, within the meaning of Article 1(1) of the Directive.”
Beckmann
[2002] EUECJ C-164/00
“7. Exclusion of occupational pension schemes
(1) Regulations 5 and 6 above shall not apply:
(a) to so much of a contract of employment or collective agreement as relates to an occupational pension scheme within the meaning of the Social Security Pensions Act 1975 or the Social Security Pensions (Northern Ireland) Order 1975; or
(b) to any rights, powers, duties or liabilities under or in connection with any such contract or subsisting by virtue of any such agreement and relating to such a scheme or otherwise arising in connection with that person’s employment and relating to such a scheme.
(2) For the purposes of paragraph (1) above any provisions of an occupational pension scheme which do not relate to benefits for old age, invalidity or survivors shall be treated as not being part of the scheme.’
The referring court specifies that the NHS Superannuation Scheme is an occupational pension scheme as defined in Regulation 7(1) of TUPE.
…..
The first question
Mrs Beckmann and the United Kingdom Government contend that the benefits provided for by Section 46 of the GWC conditions of service do not fall within the scope of the exception laid down by Article 3(3) of the Directive and that they are, therefore,amongst the rights of the employee which are transferred. They are not tied to the risk of old-age, even though they are only paid from a certain age. They derive from a specific mechanism applicable to redundancy in specific circumstances.
In determining whether those benefits fall within the exception provided for by Article 3(3) of the Directive, which should be applied narrowly in the light of the general objectives of the legislation, it is necessary to focus only on the purpose of those benefits. The United Kingdom Government submits that this approach was followed by the Court in its judgment in Case 151/84 Roberts [1986] ECR 703, in which it was held that the conditions for granting early retirement pensions in the case of mass redundancies cannot be considered equivalent to the conditions for granting normal old-age pensions. Mrs Beckmann, for her part, points out that, in its judgment in Case C-262/88 Barber [1990] ECR I-1889, the Court made no distinction between early retirement allowances paid in the event of redundancy and other types of allowance paid in those circumstances and treated both as pay within the meaning of Article 119 of the EC Treaty (Articles 117 to 120 of the EC Treaty were replaced by Articles 136 EC to 143 EC).
Mrs Beckmann adds that to consider an early retirement pension paid in the event of redundancy to be an old-age benefit would be to allow discrimination between employees dismissed after a transfer of an undertaking: some of those employees would always be able to claim benefits linked to redundancy as a result of undertakings by their previous employer, whereas others would no longer be able to claim the early retirement pension which their previous employer would have been obliged to pay them in the same circumstances. Mrs Beckmann argues further that neither the form of the arrangement implemented on redundancy – which may be described as early retirement or be given some other name, bearing in mind that employees individually have no real choice between the different formulas, which depend on their particular circumstances – nor the body which actually makes the payments of the benefits to the persons concerned, can be taken as decisive. What is relevant in the present case is that the benefits would ultimately have been paid, not by the retirement scheme proper, but by the employer, that is to say the NHS, if Mrs Beckmann were to have continued to be employed by it until her dismissal.
DWM, on the other hand, contends that the benefits at issue in the main proceedings are old-age benefits falling within the exception laid down by Article 3(3) of the Directive. The early payment of benefits which are, by their nature, old-age benefits does not alter their nature in any way. DWM points out in that connection that it is undisputed that the NHS Superannuation Scheme is a supplementary company pension scheme within the meaning of that article. The benefits at issue in the main proceedings are calculated exactly like the usual NHS old-age benefits, using a particular mechanism intended to compensate the lowest possible number of years of contribution by the persons concerned. DWM adds that the benefits under Section 46 of the GWC conditions of service are not paid to compensate for loss of a job, which is the purpose of the lump sum redundancy payment provided for by Article 45 of those conditions, which was, in any case, paid to Mrs Beckmann.
The Commission, for its part, maintains that it is necessary to enquire whether the constituent elements and other features of the benefits at issue in the main proceedings are such that they should be grouped with the benefits which need not be maintained for the benefit of an employee in the event of a transfer of an undertaking under the provisions of Article 3(3) of the Directive. The decisive criterion in that regard is the nature of the pension scheme which provides for the benefits in each case.
The Commission argues that the exception provided for by Article 3(3) of the Directive is explained by the characteristics of the supplementary company and inter-company pension schemes to which it relates, as is clear from the preparatory work for the Directive. The structure and, at the same time, the diversity of those schemes were such that it was impossible to require transferees generally to assume obligations under schemes with their own equilibrium, in which the transferees often do not participate.
The Commission proposes that the following criteria should be taken into account in determining whether the benefits at issue in the main proceedings fall within the exception provided for by Article 3(3) of the Directive: method of financing, nature and purpose, conditions for grant and method of calculation.
As regards the early retirement pension and the lump sum on retirement the Commission infers from the information provided by the national court that these are benefits paid under a company pension scheme within the meaning of Article 3(3) of the Directive. It notes in particular that DWM can certainly not participate in the NHS Superannuation Scheme, whereas the conditions for grant and the purposes of the two benefits seem to accord with those of the normal retirement benefits under the scheme. The Commission points out, however, that the NHS employer has to pay to the Secretary of State a contribution to compensate for the costs of the payment of the two benefits but does not know how this contribution is financed. The Commission also raises the question whether, in the event of the death of the persons concerned, their survivors would retain the benefits, as in the case of a retirement pension. The Commission none the less concludes that they appear to fall within the exception provided for by Article 3(3) of the Directive.
As regards the annual allowance and the lump sum compensation payment at issue in the main proceedings, the Commission states that the order for reference does not indicate clearly whether those benefits are paid under the NHS Superannuation Scheme or not, or whether they are intended to provide a sufficient income during the period preceding retirement proper or to pay compensation for redundancy. The Commission notes that their amount does not appear proportionate to the number of years for which the person concerned paid contributions to the scheme and that the employer is also obliged to pay to the Secretary of State a contribution to compensate for the costs of the payment of those allowances. The Commission also wonders what happens in the event of the death of the person concerned. In the end it reserves its position on the two benefits.
As a preliminary point, it is to be noted that there is no dispute between the parties to the main proceedings and the United Kingdom Government that, although the NHS belongs to the public sector, NHS employees are covered by national employment law and are, therefore, eligible to benefit from the provisions of the Directive (see Case C-343/98 Collino and Chiappero [2000] ECR I-6659, paragraph 41).
An arrangement such as that under Article 46 of the GWC conditions of service, provides, inter alia in the event of a certain form of dismissal, for an early retirement pension together with payments to enhance that benefit.
Given the general objective of safeguarding the rights of employees in the event of transfers of undertakings pursued by the Directive when it provides, in Article 3(1) and (2), for transfer to the transferee of the transferor’s rights and obligations arising from a contract of employment, from an employment relationship or collective agreement, the exception to that rule provided for by Article 3(3) must be interpreted strictly.
That exception can therefore apply only to the benefits listed exhaustively in that provision and they must be construed in a narrow sense.
In that connection, it is only benefits paid from the time when an employee reaches the end of his normal working life as laid down by the general structure of the pension scheme in question, and not benefits paid in circumstances such as those in point in the main proceedings (dismissal for redundancy) that can be classified as old-age benefits, even if they are calculated by reference to the rules for calculating normal pension benefits.
The answer to the first question must therefore be that early retirement benefits and benefits intended to enhance the conditions of such retirement, paid in the event of dismissal to employees who have reached a certain age, such as the benefits at issue in the main proceedings, are not old-age, invalidity or survivors’ benefits under supplementary company or inter-company pension schemes within the meaning of Article 3(3) of the Directive.
The second question
By its second question, the referring court is seeking essentially to ascertain whether, if benefits such as the benefits at issue in the main proceedings are not covered by the exception laid down by Article 3(3) of the Directive, the obligations arising on dismissal of an employee from a contract of employment, an employment relationship or a collective agreement binding the transferor in respect of that employee are transferred to the transferee subject to the conditions and limitations of Article 3 of the Directive, even if those obligations derive from statutory instruments or are implemented by such instruments under arrangements such as those applied for the benefits at issue in the main proceedings.
Mrs Beckmann, supported by the United Kingdom Government and the Commission, submits that the right to the benefits at issue in the main proceedings derived from her contract of employment or her employment relationship with the NHS and that her contract expressly provided that she would be able to benefit from the provisions of Section 46 of the GWC conditions of service. Moreover, as that section derived from a collective agreement, the obligation corresponding to that right was transferred to the transferee not only by virtue of Article 3(1) of the Directive, but also by virtue of Article 3(2) thereof. The fact that various statutory instruments were adopted to provide for that right, since the NWRHA was in the public sector, is no more relevant than the fact that benefits are paid by the Secretary of State before being reimbursed by the NWRHA, which is merely an arrangement for its implementation.
DWM, on the other hand, contends that the fact that the rights to the benefits at issue in the main proceedings were provided for by statutory instruments and that the payments are made by the Secretary of State rules out the applicability of Article 3(1) and (2) of the Directive, which only cover the rights employees can invoke against their employer as such under a contract of employment or employment relationship or collective agreement. Under the system in the case in the main proceedings, the transferor employer, that is to say the NWRHA, had obligations towards the Secretary of State and not to the employees. Moreover, DWM itself had no obligation towards the Secretary of State.
With regard to that point, Article 3(1) and (2) of the Directive provides that the transferee is bound by the rights and obligations arising from a contract of employment or an employment relationship existing between the employee and the transferor on the date of the transfer of the undertaking, and by the terms and conditions agreed in a collective agreement on the same terms as are applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement, provided that the Member State concerned has not limited the period for observing such terms and conditions pursuant to the second subparagraph of Article 3(2) of the Directive.
Apart from the exceptions under Article 3(3) of the Directive relating to old-age, invalidity or survivors’ benefits, no exception to those rules is provided for by the Directive and the existence of such a specific clause leads to the conclusion that Article 3(1) and (2) relates to all the rights of employees mentioned therein which are not covered by those exceptions (see Case 135/83 Abels [1985] EC 469, paragraph 37).
Accordingly, neither the fact that the rights and obligations arising from a contract of employment, an employment relationship or a collective agreement binding the transferor on the terms described in paragraph 37 of this judgment derive from statutory instruments or were implemented by such instruments, nor the practical arrangements adopted for such implementation can have the effect that such rights or obligations are not transferred to the transferee.
In the case in the main proceedings, in order to decide whether Mrs Beckmann can require DWM, as transferee, to pay the benefits in question, it is for the referring court, if necessary, to determine whether these benefits arose from her contract of employment or her employment relationship with the transferor employer or from a collective agreement which bound the transferor and would also bind the transferee under Article 3(2) of the Directive.
The answer to the second question must therefore be that, on a proper construction of Article 3 of the Directive, the obligations applicable in the event of the dismissal of an employee, arising from a contract of employment, an employment relationship or a collective agreement binding the transferor as regards that employee, are transferred to the transferee subject to the conditions and limitations laid down by that article, regardless of the fact that those obligations derive from statutory instruments or are implemented by such instruments and regardless of the practical arrangements adopted for such implementation.
Klarenberg
[2009] IRLR 301, [2009] ICR 1263
“The question referred for a preliminary ruling
By its question, the referring court asks, in essence, whether Article 1(1)(a) and (b) of Directive 2001/23 must be interpreted as meaning that that Directive may also apply in a situation where the new employer does not preserve the organisational autonomy of the part of the undertaking or business transferred.
At the outset, it should be borne in mind that, according to settled case’law, in interpreting a provision of Community law it is necessary to consider not only its wording but also the context in which it occurs and the objectives pursued by the rules of which it is part (see, inter alia, Case C-301/98 KVS International [2000] ECR I-3583, paragraph 21; Case C-53/05 Commission v Portugal [2006] ECR I-6215, paragraph 20; and Case C-298/07 Bundesverband der Verbraucherzentralen und Verbraucherverbände [2008] ECR I-0000, paragraph 15).
It is clear from the very wording of Article 1(1)(a) of Directive 2001/23 that any transfer, to another employer, involving an undertaking, a business, or part of an undertaking or business and brought about by a legal transfer or merger falls within the scope of that directive.
Subject to those conditions, the transfer must nevertheless also satisfy the conditions laid down in Article 1(1)(b) of Directive 2001/23 if that directive is to apply: that is to say, it must concern an economic entity understood by ‘an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary’ which, following the transfer, retains its ‘identity’.
It should at the outset be recalled that, as is clear from recital 8 in the preamble to Directive 2001/23, the above provision was adopted to clarify the concept of transfer in the light of the case-law of the Court (see, inter alia, Case 186/83 Botzen and Others [1985] ECR 519, paragraph 6, and Case 24/85 Spijkers [1986] ECR 1119, paragraph 11). According to that case-law, Directive 2001/23 is intended to ensure the continuity of employment relationships existing within an economic entity, irrespective of any change of ownership and, thus, to protect employees in the event that such a change occurs.
It is clear from the provisions of Article 1(1)(a) of Directive 2001/23, read in conjunction with those of Article 1(1)(b) thereof, that, in the event that the economic entity transferred does not retain its identity, the application of point (b) of Article 1(1) forestalls the operation of point (a) of that provision. It follows that Article 1(1)(b) of Directive 2001/23 is capable of restricting the scope of Article 1(1)(a) of that directive, hence the scope of the protection afforded by that directive. Such a provision must therefore be construed narrowly.
Ferrotron contends that the ‘economic entity’, defined in Article 1(1)(b) of Directive 2001/23, retains its identity only if the organisational link which connects all of the staff and/or all of the elements is preserved. By contrast, the economic entity transferred does not retain its identity in a situation where, following the transfer, it loses its organisational autonomy, the acquired resources having been integrated by the transferee into an entirely new structure.
However, regard being had, in particular, to the objective pursued by Directive 2001/23, which seeks as is clear from paragraph 40 of this judgment to ensure effective protection of employees’ rights in the event of a transfer, such an understanding of the identity of the economic entity, according to which that identity depends entirely on the single factor relating to organisational autonomy, as contended by Ferrotron, cannot be accepted. It would imply that, on account of the sole fact that the transferee decides to break down the part of the undertaking or business which it has acquired and to integrate it into its own structure, Directive 2001/23 could not be applied to that part of the undertaking or business, thus depriving the employees concerned of the protection afforded by that directive.
As regards, specifically, the factor relating to organisation, although the Court has previously held that that factor contributes to defining an economic entity (see, to that effect, Case C-13/95 Süzen [1997] ECR I-1259, paragraph 15; Case C-234/98 Allen and Others [1999] ECR I-8643, paragraph 27; Case C-175/99 Mayeur [2000] ECR I-7755, paragraph 53; and Case C-172/99 Liikenne [2001] ECR I-745, paragraph 34), it has also held that an alteration in the organisational structure of the entity transferred is not such as to prevent the application of Directive 2001/23 (see, to that effect, Joined Cases C-171/94 and C-172/94 Merckx and Neuhuys [1996] ECR I-1253, paragraphs 20 and 21; Mayeur, paragraph 54; and Case C-458/05 Jouini and Others [2007] ECR I-7301, paragraph 36).
Moreover, of itself, Article 1(1)(b) of Directive 2001/23 defines the identity of an economic entity by referring to an ‘organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary’, thus emphasising not only the organisational element of the entity transferred but also the element of pursuing an economic activity.
Having regard to the foregoing, in order to interpret the condition relating to the preservation of the identity of an economic entity, within the meaning of Directive 2001/23, account should be taken of the two elements as laid down in Article 1(1)(b) of Directive 2001/23 which, taken together, constitute that identity, and of the objective pursued by that directive, namely the protection of employees.
In accordance with those considerations and, in order not to frustrate in part the effectiveness of Directive 2001/23, that condition should be interpreted, not as requiring the retention of the specific organisation imposed by the undertaking on the various elements of production which are transferred, but as the Advocate General stated in points 42 and 44 of his Opinion as requiring the retention of a functional link of interdependence, and complementarity, between those elements.
The retention of such a functional link between the various elements transferred allows the transferee to use them, even if they are integrated, after the transfer, in a new and different organisational structure, to pursue an identical or analogous economic activity (see, to that effect, Case C-392/92 Schmidt [1994] ECR I-1311, paragraph 17).
It is for the referring court to ascertain, in the light of the foregoing elements, in the context of a global assessment of all the facts characterising the transaction in question in the main proceedings (see, to that effect, Spijkers, paragraph 13; Case C-29/91 Redmond Stichting [1992] ECR I-3189, paragraph 24; Süzen, paragraph 14; and Allen and Others, paragraph 26) whether the identity of the economic entity transferred was preserved.
As was pointed out both by the referring court in its order for reference, and by the German Government and the Commission of the European Communities in their observations to the Court, the wording of the first and fourth subparagraphs of Article 6(1) of Directive 2001/23 confirm that, in the mind of the Community legislature, that directive is intended to apply to any transfer satisfying the conditions laid down in Article 1(1) of that directive, whether or not the economic entity transferred retains its autonomy in the transferee’s organisational structure.
It is, lastly, necessary to reply to Ferrotron’s argument that, in the event of the transferred economic entity losing its organisational autonomy, the continuity of the employment relations that Directive 2001/23 seeks to guarantee cannot, in any event, be assured because the employment position of head of unit, previously occupied by Mr Klarenberg, cannot be linked to any equivalent employment position in the new work structure established by the transferee.
In that regard, it should be recalled that the Court has already held that an obligation to terminate contracts of employment governed by private law in the case of the transfer of an economic activity to a legal person governed by public law constitutes, in accordance with Article 4(2) of Directive 2001/23, a substantial change in working conditions to the detriment of the employee and resulting directly from the transfer, with the result that termination of such contracts of employment must, in such circumstances, be regarded as resulting from the action of the employer (Mayeur, paragraph 56). Likewise, it must be held that the impossibility, which may arise in the event of a transfer, of assigning to an employee, in the organisational structure put in place by the transferee, a position of employment which is equivalent to that which that employee occupied under the previous owner could, if it leads to a substantial change in working conditions to the detriment of that employee, be assimilated with termination of the employment contract resulting from the action of the employer, for the purposes of that provision.
The reply to the question referred by the Landesarbeitsgericht Düsseldorf is therefore that Article 1(1)(a) and (b) of Directive 2001/23 must be interpreted as meaning that that directive may also apply in a situation where the part of the undertaking or business transferred does not retain its organisational autonomy, provided that the functional link between the various elements of production transferred is preserved, and that that link enables the transferee to use those elements to pursue an identical or analogous economic activity, a matter which it is for the national court to determine.
UGT-FSP
[2010] ICR 1248, [2010] EUECJ C-151/09
“The question referred for a preliminary ruling
17 By its question, the national court seeks, essentially, to ascertain whether a transferred economic entity preserves its autonomy, within the meaning of Article 6(1) of Directive 2001/23, when the employees who make up its workforce are taken on by a municipal authority and integrated into its workforce, when those employees continue to occupy the same posts and to carry out the same duties as before the transfer, in the same places of work and under the instruction of the same immediate managers, without significant changes in the working conditions, the sole difference being that elected officials become the persons ultimately in charge of the transferred entity.
18 The Spanish Government considers that the conditions governing a transfer within the meaning of Directive 2001/23 are not satisfied in the case in the main proceedings. The Spanish Government contends that there is no transfer of significant tangible assets from the undertakings providing the outsourced services to the Ayuntamiento de La Línea, since the public schools, streets, parks and municipal gardens already belonged to the Ayuntamiento de La Línea. All that is involved is the taking on of all the staff employed by those undertakings. It is impossible, even though the labour force is a significant factor in those services, to disregard the assets which are an essential part of the outsourced caretaking, cleaning and maintenance services entrusted to those undertakings.
19 In order to answer the question referred, it must therefore first be determined whether a transfer such as that in the main proceedings falls within the scope of Article 1(1)(b) of Directive 2001/23. Only if that question can be answered in the affirmative does the question of autonomy within the meaning of Article 6(1) of Directive 2001/23 arise.
Whether there is a transfer within the meaning of Article 1 of Directive 2001/23
20 On the information provided by the national court, the issue in the main proceedings is the taking back in’house by a municipal authority, a public-law body, of a number of outsourced public services, the provision of which was until then entrusted to various private undertakings. This resumption has been achieved by means of a municipal decree.
21 Under Article 1(1) of Directive 2001/23, that directive is applicable to any transfer of an undertaking, business or part of an undertaking or business to another employer as a result of a legal transfer or merger.
22 In accordance with settled case-law, the aim of Directive 2001/23 is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of that directive is, therefore, whether the entity in question retains its identity, as indicated, in particular, by the fact that its operation is actually continued or resumed (see, inter alia, Case 24/85 Spijkers [1986] ECR 1119, paragraphs 11 and 12, and Joined Cases C-232/04 and C-233/04 Güney’Görres and Demir [2005] ECR I-11237, paragraph 31 and case-law there cited).
23 The Court has held that, under Directive 77/187, the mere fact that the person to whom the activity is transferred is a public-law body, namely a municipality, cannot be a ground for excluding the existence of a transfer within the scope of that directive (Case C-175/99 Mayeur [2000] ECR I-7755, paragraph 33). The same conclusion is called for under Directive 2001/23.
24 The fact that the decision bringing about the resumption of the outsourced public services is a decree, namely, a decision taken unilaterally by the Ayuntamiento de La Línea, does not preclude a finding that there was a transfer, within the meaning of Directive 2001/23, from the private undertakings providing the outsourced services to the Ayuntamiento de La Línea.
25 The Court has previously ruled that the fact that the transfer results from unilateral decisions of public authorities rather than from an agreement does not render the directive inapplicable (see Case C-29/91 Redmond Stichting [1992] ECR I-3189, paragraphs 15 to 17, and Case C-343/98 Collino and Chiappero [2000] ECR I-6659, paragraph 34).
26 For Directive 2001/23 to be applicable, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (see, inter alia, Case C-48/94 Rygaard [1995] ECR I-2745, paragraph 20). The term ‘entity’ thus refers to an organised grouping of persons and assets enabling the exercise of an economic activity which pursues a specific objective (see, inter alia, Case C-13/95 Süzen [1997] ECR I-1259, paragraph 13; Case C-340/01 Abler and Others [2003] ECR I-14023, paragraph 30, and Güney-Görres and Demir, cited above, paragraph 32).
27 In order to determine whether the conditions for the transfer of an organised economic entity are met, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business concerned, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, inter alia, Spijkers, paragraph 13; Redmond Stichting, paragraph 24; Süzen, paragraph 14; Abler and Others, paragraphs 33 and 34, and Güney-Görres and Demir, paragraphs 33 and 34).
28 Further, the Court has stated that an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, and therefore the maintenance of the identity of such an entity following the transaction affecting it cannot, logically, depend on the transfer of such assets (see Süzen, paragraph 18; Joined Cases C-127/96, C-229/96 and C-74/97 Hernández Vidal and Others [1998] ECR I-8179, paragraph 31, and Joined Cases C-173/96 and C-247/96 Hidalgo and Others [1998] ECR I-8237, paragraph 31).
29 The Court has accordingly held that inasmuch as, in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis (Süzen, paragraph 21; Hernández Vidal and Others, paragraph 32, and Hidalgo and Others, paragraph 32).
30 More specifically, the Court has held, in relation to a cleaning company, that an organised grouping of wage earners who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity (Hernández Vidal and Others, paragraph 27).
31 As stated by the Advocate General in point 39 of her Opinion, the fact that, in the main proceedings, there was no transfer of the assets in relation to which the outsourced services were provided by the private undertakings, such as school buildings, streets, parks and civic gardens, has no bearing whatsoever on the issue. The assets which should, where appropriate, be taken into consideration are the plant, machinery and/or equipment that are actually used in order to provide the caretaking, cleaning and maintenance services.
32 It is for the national court to establish, in the light of all the foregoing criteria of interpretation, whether a transfer, within the meaning of Directive 2001/23, has taken place in the case in the main proceedings.
Autonomy within the meaning of Article 6 of Directive 2001/23
33 The Spanish Government maintains that the concept of ‘autonomy’ in Article 6 of Directive 2001/23 must be interpreted as equivalent to the concept of ‘identity’ in Article 1(1)(b) of that directive. However, such an interpretation cannot be accepted.
34 As is clear from the wording of Article 1(1)(b) of Directive 2001/23, the question of retention of identity is to be assessed at the time when the transaction consisting of the legal transfer or merger of the economic entity concerned takes place. Only if the identity of that entity is retained can such a transaction be classified as a transfer within the meaning of that directive.
35 By contrast, the question of preservation of autonomy is to be assessed only after the decision has first been made that a transfer, within the meaning of Directive 2001/23, has taken place. That directive is intended to apply to any transfer satisfying the conditions laid down in Article 1(1) of the directive, whether or not the economic entity transferred preserves its autonomy in the transferee’s organisational structure (see Case C-466/07 Klarenberg [2009] ECR I-0803, paragraph 50).
36 If the concepts of ‘identity’ and ‘autonomy’ were equivalent, the introductory part of Article 6 stating the condition relating to the preservation of the autonomy of the undertaking, business or part of an undertaking or business concerned would be deprived of any purpose, since Article 6(1) of the Directive would automatically apply if the commercial entity retained its identity, within the meaning of Article 1(1)(b) of the Directive. Consequently, those concepts are not equivalent and the question whether an undertaking has preserved its autonomy, for the purposes of Article 6 of Directive 2001/23, must be considered only once it has been established that a transfer has indeed taken place within the meaning of that directive.
37 As regards the concept of ‘autonomy’, it is clear that Article 6 contains no definition of it. Nor is the concept defined in other articles of that directive.
38 However, according to settled case-law, it follows from the need for uniform application of Community law and from the principle of equal treatment that the terms of a provision of Community law which makes no express reference to the law of the Member States for the purposes of determining its meaning and scope must as a general rule be given an autonomous and uniform interpretation throughout the Community at European Union level (see, to that effect, latterly, Case C-433/08 Yaesu Europe [2009] ECR I-0000, paragraph 18, and case-law there cited).
39 Further, it is also settled case’law that the meaning and scope of terms for which European Union law provides no definition must be determined by considering their usual meaning in everyday language, while also taking into account the context in which they occur and the purposes of the rules of which they form part (see to that effect, inter alia, Case C-336/03 easyCar [2005] ECR I-1947, paragraph 21; Case C-549/07 Wallentin-Hermann [2008] ECR I-11061, paragraph 17, and Case C-556/07 Commission v France [2009] ECR I-0025 (summary publication), paragraph 50).
40 It should, first, be borne in mind that Directive 2001/23 is intended to safeguard the rights of employees in the event of a change of employer by allowing them to continue to work for the new employer on the same conditions as those agreed with the transferor (see, inter alia, Case 324/86 Foreningen af Arbejdsledere i Danmark [1988] ECR 739, paragraph 9; Case C-499/04 Werhof [2006] ECR I-2397, paragraph 25, and Case C-396/07 Juuri [2008] ECR I-8883, paragraph 28). The right of employees to be represented is not an exception. It follows that, as a general rule, that representation must not be affected by the transfer.
41 The first subparagraph of Article 6(1) of Directive 2001/23, containing the general rule on the representation of employees, provides that, if the undertaking, business or part of an undertaking or business preserves its autonomy, the status and function of the representatives or of the representation of the employees affected by the transfer are to be preserved, on the same terms and subject to the same conditions as before the date of the transfer.
42 Next, it must be observed that the word ‘autonomy’, according to its usual meaning in everyday language, describes the right of self’government.
43 Applied to an economic entity, the term means the powers, granted to those in charge of that entity, to organise, relatively freely and independently, the work within that entity in the pursuit of its specific economic activity and, more particularly, the powers to give orders and instructions, to allocate tasks to employees of the entity concerned and to determine the use of assets available to the entity, all without direct intervention from other organisational structures of the employer (‘the organisational powers’).
44 Consequently, autonomy is as a general rule preserved, within the meaning of the first subparagraph of Article 6(1) of Directive 2001/23, if, after the transfer, the organisational powers of those in charge of the entity transferred remain, within the organisational structures of the transferee, essentially unchanged as compared with the situation pertaining before the transfer.
45 Accordingly, in those circumstances, the right of employees to be represented must, as a general rule, be exercised on the same terms and subject to the same conditions as before the transfer.
46 By contrast, in a situation in which those in charge of the employees are, following the transfer, persons whose organisational powers have been reduced and can no longer be described as autonomous, the interests of those employees are therefore no longer the same and, consequently, the terms and conditions of their representation must be adapted to the changes which have occurred. For that reason, as is clear from the fourth subparagraph of Article 6(1) of Directive 2001/23, the term of office of the representatives of the employees affected by the transfer must, in such circumstances, be restricted to merely the period required for the reconstitution or reappointment of the representation of employees.
47 As regards the possibility of there being a redistribution of some organisational powers within the entity transferred, that is not, in principle, liable to impair its autonomy. What matters is that all of those in charge of the entity transferred can exercise the organisational powers which they held previously, prior to the transfer, vis a vis other organisational structures of the new employer.
48 Further, the mere change of those ultimately in charge, as in the case in the main proceedings, cannot in itself impair the autonomy of the entity transferred.
49 Only powers which enabled those ultimately in charge to organise directly the activities of the employees of that entity and to substitute their own decision making within that entity would be liable to impair the autonomy of that entity. That is, however, subject to the qualification that such substituted decision making within the entity transferred cannot be considered to be detrimental to its autonomy if it occurs, exceptionally, in circumstances of urgency such as a serious incident detrimental to the operation of the entity, on a temporary basis and in accordance with specific rules for that purpose.
50 Moreover, the mere power of control on the part of those ultimately in charge at cannot, as a general rule, affect the autonomy of the entity transferred, unless that control also includes powers of the kind specified in the preceding paragraph.
51 Such an interpretation of the concept of autonomy makes it possible, it may be added, to preserve the practical effect of Article 6 of Directive 2001/23, given that, in practice, the transfer of an undertaking, a business or part of an undertaking or business is almost always accompanied by the replacement of those ultimately in charge.
52 That interpretation cannot be called in question by the arguments of the Spanish Government that such an interpretation, implying the continuation, in the case in the main proceedings, of the employees’ existing representation, would, first, bring about a form of ‘double representation’ within the workforce of the new employer and, secondly, be tantamount to ignoring the economic damage which the new employer would suffer if he were obliged to concede, to the representatives of transferred employees, time off in which to carry out their duties. Those arguments merely attempt to call in question the legal effects of the choice made by the European Union legislature when inserting Article 6 of Directive 2001/23.
53 Likewise, the Court must reject the argument of the Spanish Government concerning discrimination and an infringement of the principle of equal treatment in relation to the staff representatives and trade union officials representing the existing staff of the new employer.
54 In that regard, as stated by the Advocate General in point 88 of her Opinion, even if the transferred employees and those employed by the new employer are in comparable situations, the difference in treatment which stems from any imbalance within the organisation of the new employer, at the expense of trade union representatives who are already represented there and representatives of the staff concerned, whose numbers remain unchanged, is justified in the light of the objective of Directive 2001/23, which is to ensure, so far as possible and practicable, that the new employees are not disadvantaged by reason of the transfer in comparison with the situation before that transfer.
55 Lastly, as regards the argument related to the freedom of the existing workforce to engage in trade union activities, suffice it to say that the Spanish Government does not demonstrate how, in the circumstances of the main proceedings, the exercise of that fundamental freedom is affected by retaining the representatives of employees of the transferred entity.
56 Having regard to all of the foregoing, the answer to the question referred is that an economic entity which is transferred preserves its autonomy, within the meaning of Article 6(1) of Directive 2001/23, provided that the powers granted to those in charge of that entity, within the organisational structures of the transferor, namely the power to organise, relatively freely and independently, the work within that entity in the pursuit of its specific economic activity and, more particularly, the powers to give orders and instructions, to allocate tasks to employees of the entity concerned and to determine the use of assets available to the entity, all without direct intervention from other organisational structures of the employer, remain, within the organisational structures of the transferee, essentially unchanged. The mere change of those ultimately in charge cannot in itself be detrimental to the autonomy of the entity transferred, except where those who have become ultimately in charge have available to them powers which enable them to organise directly the activities of the employees of that entity and therefore to substitute their decision making within that entity for that of those immediately in charge of the employees.”
Cannon v Noonan Cleaning Ltd and CPS Cleaning Services Limited [1997]
This case involved contract for cleaning services at a Garda Station. The cleaning contract was lost to the respondent. No tangible assets were transferred to the respondent. The complainant was not engaged by the respondent The EAT held that there was no transfer of undertaking and applied Suzen.
Fairhurst Ward Abbotts Ltd. v Botes Building Ltd. & Ors
[2004] EWCA Civ 83 [2004] IRLR 304, [2004] ICR 919
Lord Justice Mummery:
The Legal Background
“This appeal turns on the interpretation of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) and their application in a contracting out situation to a claimed transfer of “part of an undertaking.” The case involves an excursion into a relatively unexplored corner of the much litigated provisions of TUPE and of the Acquired Rights Directive EC/187/EEC (the Directive). It raises a difficult point on which there is no direct decision of the European Court of Justice or of the English courts and tribunals.
The overall purpose and general principles of the Directive and of the implementing provisions in TUPE are well known. They were recently re-stated by the Court of Justice in the following passage taken from the judgment in a case of one company in a group sub-contracting work to another company in the same group. Allen v. Amalgamated Construction Co Ltd [2000] IRLR 119 at 134 paras 23-27 is central to the arguments advanced in support of this appeal.
“23 The aim of the Directive is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of the Directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (case 24/85 Spijkers [1986] ECR 1119, paragraphs 11 and 12, and case C-13/95 Suzen [1997] IRLR 255, paragraph 10).
24 First of all, in order for the Directive to be applicable, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (case C- 48/94 Rygaard [1996] IRLR 51, paragraph 20). The term “entity” thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective (Suzen, cited above, paragraph 13).
25 It is for the referring court to establish, in the light of the interpretative criteria set forth above, whether the driveage work carried out by ACC at the Prince of Wales Collieries was organised in the form of an economic entity before that undertaking sub-contracted that work to AMS.
26 Second, in order to determine whether the conditions for the transfer of an economic entity are met, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not essential staff are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities are suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers, paragraph 13, and Suzen, paragraph 14).
27 So the mere fact that, in the instant case, the service provided by the undertaking holding the contracts for driveage work and then by the undertaking to which the work was then subcontracted is similar does not warrant the conclusion that an economic entity has been transferred between the first and the second undertaking. Such an entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or, indeed, where appropriate, the operational resources available to it (Suzen cited above, paragraph 15, joined cases C-127/96, C-229/96 and C-74/97 Hernandez, Vidal and others [1999] IRLR 132, paragraph 30, and joined cases C-173/96 and C-247/96 Hidalgo and others [1999] IRLR 136, paragraph 30.”
The national court is under an obligation to apply those principles in discharging its duty to interpret the provisions of TUPE, if it is possible to do so, so as to be compatible with the provisions of the Directive, as interpreted by the Court of Justice. Thus, in determining whether there is a transfer of an “undertaking” or of “part of an undertaking” the English courts and tribunals must give effect to the description of the essence of an undertaking by the Court of Justice as the carrying on of work organised in the form of “a stable economic entity” before the contracting out of that work has taken place. (The relevant jurisprudence of the Court of Justice on this issue is now reflected in Article 1 (b) of the amending Directive 98/50/EEC.)
It is not in dispute that the provisions of the Directive and TUPE apply to the transfer of “part of an undertaking.” That is made clear by article 1 of the Directive and by regulations 2 (1) and 3(1) and (4) of TUPE. The principles stated in Allen above apply to the transfer of part of an undertaking, as well as to the transfer of the entirety of an undertaking.
It is common ground that (a) the provisions and principles set out in Allen are capable of applying to the contracting out of services by public authorities (see, for example, RCO Support Services v. UNISON [2002] IRLR 401 and the cases cited therein); and (b) the persons protected by the provisions are those who were employed under a contract of employment by the transferor in the undertaking, or the part transferred by a relevant transfer, immediately before the transfer: see article 3 of the Directive and regulation 5 (1) and (3) TUPE.
A. Fairhurst’s Appeal
In his careful submissions Mr Swift argued that the ruling of the Employment Tribunal that the subject matter of the alleged transfer to Fairhurst was an undertaking in the hands of Botes prior to the transfer was inconsistent with TUPE, the Directive and the authorities. The Employment Tribunal had erred in law. The Appeal Tribunal ought to have allowed Fairhurst’s appeal.
The essential point of law made by Mr Swift was based on the passage in Allen cited in paragraph 2 above. He contended that the subject matter of the relevant transfer must be, in the hands of the transferor, an identifiable, pre-existing “stable economic entity,” within which the continuity of employment relationships is to be preserved, irrespective of any change of ownership. An economic entity is a concept distinct from (a) the activity actually carried out by the undertaking and (b) the undertaking, which may comprise more than one identifiable economic entity. It is necessary to identify the “economic entity” in the hands of the transferor, which is capable of being transferred, before it can be determined whether that entity has retained its identity in the hands of the transferee and has been transferred. If the undertaking, or part of the undertaking, does not amount to a stable, identifiable “economic entity,” then there is nothing capable of being transferred within the meaning of the Directive or TUPE. Once it was appreciated that the undertaking, or the part transferred, had to be an economic entity, the basis of the general comments about evasion of the protection in the Directive and TUPE made by the Appeal Tribunal in the passages quoted in paragraph 19 above ceased to exist.
When the approach laid down in Allen is compared with the approach of the Employment Tribunal, as upheld on appeal, it is apparent, Mr Swift argued, that the decision reached was erroneous in law: it proceeded on the misconceived basis that a “part of an undertaking” could be transferred where the part was not a separate, identifiable economic entity in the hands of the transferor before the relevant transfer. The economic entity in the hands of Botes prior to April 1999 was the Major Voids Contract. That contract comprised what became Area 1 and Area 2. There was, however, no finding that Area 2, which was the subject matter of the re-tendered contract with Fairhurst, existed as a discrete, identifiable economic entity in the hands of Botes prior to April 1999. The Area 2 contract was all that was obtained by Fairhurst as a result of the tendering exercise. If it was not an economic entity in the hands of Botes, it could not have been transferred as such to Fairhurst. In concluding that there was a relevant transfer the tribunals below had used the terms “economic entity” and “undertaking” interchangeably. They erroneously referred to a different economic entity (Area 2), when deciding whether there was a transfer, than they had referred to when addressing the prior question whether there was an economic entity in the hands of Botes capable of being transferred (the Major Voids Contract). They were not the same entity. There was no finding that, prior to April 1999, the workforce was organised or deployed, or that the Major Voids Contract was arranged or administered, to reflect a distinction between Area 1 and Area 2. The organisation run by Botes was directed to fulfilling the obligations with respect to the provision of building maintenance services under the Major Voids Contract as a whole, and not in respect of two discrete stable economic entities within that contract, so as to be capable of being separately transferred and retaining their identities in two different hands.
Mr Swift’s arguments are a logical development from his initial premise that the economic entity, which is to be the subject of the transfer, must, in the case of a transfer of a part, be identified as such in the hands of the transferor before the relevant transfer takes place.
I am not persuaded that, as a matter of law, the initial premise on which Mr Swift’s submissions rest is correct. TUPE applies
“3(1)…to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated.”
TUPE also provides that
“2 (2) References in these Regulations to the transfer of part of an undertaking are references to a transfer of a part which is being transferred as a business.
The effect of the application of TUPE is that by Regulation 5(1) and (3) any contract of employment of a person employed immediately before the transfer by the transferor in the undertaking or part transferred, which would otherwise have been terminated by the transfer, ” shall have effect after the transfer as if originally made between the person so employed and the transferee.” It is also made clear in Regulations 3(4) and 5(3) that a transfer may be effected by a series of two or more transactions.
On the question whether there is within TUPE an “undertaking”, which is the same as the expression used in the Directive (see Article 1) along with the expression “business or part of a business,” I agree with Mr Swift that it is first necessary to identify a “stable economic entity,” being an organised grouping of persons and of assets enabling (or facilitating) the exercise of an economic activity which pursues a specific objective. An activity or a service is not in itself an economic entity: the emphasis is on the way in which the work is organised: see Allen above and the citations in the judgment given by Lindsay J on behalf of the Appeal Tribunal in Cheeseman v. R Brewer Contracts Ltd [2001] IRLR 144 at paragraph 10.
I part company from Mr Swift in his approach to a case, such as this, of a transfer of something less than the entire undertaking. His approach to partial transfers is too narrow and literal. I agree that, unless a stable economic entity can be identified as existing before the transfer takes place, there can be no transfer of an undertaking. In this case a stable economic entity was identified as existing prior to April 1999. It existed in respect of whole area of the borough. So, if the tendering process had been organised in the same way as previously, the award of a new contract to Fairhurst, in the place of Botes, for the whole area of the borough would, on the present state of the authorities, undoubtedly have been a transfer of an undertaking.
This case is concerned with the effect of partitioning the borough into two separate areas. As already explained, the Directive and TUPE are capable of applying to the transfer of “part of an undertaking,” as well as to the transfer of an entire undertaking. A part of an undertaking is simply something less than the whole of an undertaking. Neither the legislation nor the case law expressly requires that the particular part transferred should itself, before the date of the transfer, exist as a discrete and identifiable stable economic entity. Nor do I think that such a requirement is implicit in the need to identify a pre-existing stable economic entity. In my judgment, it is sufficient if a part of the larger stable economic entity becomes identified for the first time as a separate economic entity on the occasion of the transfer separating a part from the whole.
I agree that, if it is possible to identify part of an undertaking as a discrete economic entity before the transfer takes place, the applicant will find it easier to satisfy both the “transfer” test that the part transferred retains its identity in the hands of the transferee, and the requirement that the applicant was employed, immediately before the transfer, in the part transferred. But I do not agree that, in the absence of a part which is identifiable as a discrete economic entity before the transfer takes place, there can be no transfer of a part or that it will be impossible for the applicant to establish that there was a transfer of the part of the undertaking in which he was employed. It all depends on the evidence available in the particular case. In contending for transfer of a part it may be more difficult to make the required “before” and “after” comparison where the part becomes a discrete economic entity for the first time on the making of the transfer, but it is not necessarily an impossibility.
I would add that the attainment of the aim of the Directive and of TUPE, in preserving the continuity of employment relationships within an undertaking, does not require a distinction to be drawn between (a) the case where the part of the entity transferred was identifiable as a discrete part before the transfer and (b) the case where the part of the entity transferred became identifiable as a separate entity, in this case geographically, on the actual making of the transfer. On the contrary, if Mr Swift is correct, TUPE and the Directive would not apply to the case where an existing stable economic entity, in which there are employment relationships, is partitioned into separate identifiable parts for the first time on the making of the transfer, even in cases in which it is evidentially possible to trace the organisation of the work carried on after partition back into a part of the larger pre-partition stable economic entity. That result is not, in my view, consistent with the aim of TUPE and the Directive nor is it dictated by the text and scheme of the domestic and Community legislation.
I do not think that this approach is inconsistent with the decision of the Northern Ireland Court of Appeal in Hassard v. Mc Grath & Ors [1996] NILR 586 on the interpretation and application of TUPE. That was a case in which, before the alleged transfer, the undertaking of general building work operations, was carried on by the Northern Ireland Housing Executive through its Direct Labour Organisation. It was divided into four modules based on districts. The employee joiner divided his time between the modules, two of which were then contracted out to two separate building contractors. The question arose in unfair dismissal proceedings by the employee whether there had been a transfer of an identifiable part of an undertaking by the executive to one of the contractors. The court observed that it was common ground that there were two elements in deciding whether there was a relevant transfer: whether there has been an identifiable undertaking and whether on the facts a transfer had taken place. On the first issue as to whether the content of the modules was sufficient to enable them to be classified as parts of an undertaking, the court emphasised the need to consider the “undertaking” issue separately from the “transfer” issue. It was held that there must have been an economic entity capable of being transferred as a going concern, but that the part of the undertaking transferred did not have to have been regarded by either the transferor or the transferee as a separate or distinct part of it, or to have been separately operated by them. This was said at p598
” We are of the opinion that it would not be correct to look at the issue exclusively from the standpoint of either the transferor or the transferee. It is relevant to consider in the first instance whether the transferor regarded the activity in question as a distinct part of his undertaking, for an affirmative answer to that may well settle the matter. It is not, however, conclusive that he did not so regard it or treat it as a separate part of his organisation, if it was in effect an economic entity capable of being transferred as a going concern, For example, a bank may have many branches throughout Northern Ireland, in two or three of which the cleaners are employed directly by the bank, while others are cleaned by a company to whom the operation is contracted out, which has travelling squads of cleaners each dealing with a number of branches. If the bank decides to arrange for the contracting company to undertake the cleaning of the remaining branches, that may on the authority of the Schmidt case be capable of constituting the transfer of so many parts of the bank’s business, even though the company is merely adding them to an already extensive cleaning operation and may simply adjust its schedules to add those branches to groups of others cleaned by particular squads. The test is whether the cleaning of each branch could be regarded as an economic entity which is capable of transfer as a going concern, even if it is not so regarded by the transferor or separately operated by the transferee. There must of course be a point at which the fragmentation is so great that the fragments could not be regarded as distinct parts of the transferor’s undertakings. The question of fragmentation will also be material to the second issue in this appeal, namely whether the employee was assigned to the part or parts transferred.
In our view it was a matter for the tribunal to consider whether the modules purchased by the contractors constituted parts of the executive’s business, by the application of the principles which we have set out. We are not prepared to hold that those modules could not reasonably be regarded by a tribunal properly directed by the law as parts of the executive’s undertaking, and it was therefore a matter of fact which it was open to the tribunal to decide. It is necessary to determine whether it did apply the correct test when it held in favour of the employee on this issue. The tribunal confined itself in para 17 of its decision to holding that the modules constituted an identifiable entity, which remained identifiable in the hands of the private contractors to whom they were transferred. For the reasons we have set out, we do not consider that in so holding it applied the correct test. The test which it did apply is relevant to the question whether there was a transfer, as distinct from some change of activity which does not amount to a transfer. It is not sufficient to determine the question whether what was transferee constituted a part of the transferors’ undertaking…”
In my judgment there was no error on the part of the Employment Tribunal on this point. They found that prior to April 1999 there was an existing stable economic entity, the Major Voids Contract, which was an undertaking in the hands of Botes. It was a single contract for building maintenance services for the whole of the Borough of Southwark. After that date the same services were supplied to the Council over the same geographical area, but by two stable economic entities under two separate contracts in the hands of two different contractors. The fact that the two areas were previously one entire area covered by one contract prior to April 1999 did not prevent the tribunal from concluding in the circumstances that part of the larger economic entity in the hands of Botes and covered by area 2 was capable of being transferred to Fairhurst, in whose hands it then retained its identity as a part of the larger economic entity. Accordingly I would dismiss Fairhurst’s appeal.”
Digan v Sheehan Security Corporation Limited
[2003]
This case involved the transfer of a security contract at the Athlone Accommodation Service.
The EAT again held, inter alia, that a changeover of contractors per se does not amount to a transfer of undertaking unless there is also a transfer of significant tangible or intangible assets.
Grosvenor Cleaning Services Limited v Services Industrial Professional Technical Union [2004]
The EAT relied on Spijkers
“In JMA Spijkers v Gebroedaeas Benedik Abbatoir C.V. [1986] ECR 119 the Court set out what it considered to be the decisive criteria for establishing whether the Directive applied:
“In order to establish whether or not such a transfer has taken place in a case such as that before the national court, it is necessary to consider whether, having regard to all the facts characterising the transaction, the business was disposed of as a going concern, as would be indicated inter alia by the fact that its operation was actually continuing or resumed by the new employer, with the same or similar activities”
“To decide whether these conditions are fulfilled it is necessary to take account of all factual circumstances of the transaction in question including the type of undertaking or business in question, the transfer or otherwise of tangible assets such as buildings and stocks, the value of intangible assets at the date of transfer, whether the majority of the staff are taken over by the new employer, the transfer or otherwise of the circle of customers and the agree of similarity between activities before and after the transfer, and the duration of any interruption in those activities. It should remain clear however, that each of these factors is only part of the overall assessment which is required and therefore they cannot be examined independently of each other”.
The essence of a transfer is that the economic entity retains its identity. In the ECJ case Daddy’s Dance Hall 1988 IRLR 315 ECJ, it was held that the Regulations applied in a case where premises were leased, and at the termination of the lease the employment of the claimant was terminated. A new lessee was brought in to run the premises and he employed the claimant, but later dismissed him. The new lessee was obliged to carry on the employment rights and obligations of the first lessee, even though there was no contractual connection between the first and second lessee.
The ECJ in Hidalgo and Others v Asociation de Servicios Aser and Sociedad Cooperativa Minerva (C-173/96), and Horst Ziemann Sicherheit GmbH and Horst Bohn Sicherheitsdienst (C-247/96)gives guidelines to national courts to assist in their examination of whether a transfer of undertakings has taken place.
At paragraph 34 of Sicherheit the Court states:
“the term economic entity refers to an organised grouping of persons and assets enabling an economic activity which pursues a specific objective to be exercised. The mere fact that the service successively provided by the old and the new undertaking to which the service is contracted out or the contract is awarded is similar does not justify the conclusion that a transfer of such an entity has occurred”.
In order for the Regulations to be applicable, the transfer must relate to a ‘stable economic entity’. The term entity refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective(Suzen).
The Court in Hidalgo at paragraph 26, states:
“Whilst such an entity must be sufficiently structured and autonomous, it will not necessarily have significant assets, material or immaterial. Indeed, in certain sectors, such as cleaning and surveillance, these assets are often reduced to their most basic and the activity is essentially based on manpower. Thus, an organised grouping of wage earners who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity”.
The Court in its judgement at paragraph 32 states:
• “Since, in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis”.
Advocate General Cosmas in Hidalgo states:
“I take the view that the work of cleaning the premises of undertakings – an activity for which they have a permanent need even where their main business is not cleaning – may fall within the scope of the Directive if it is carried out by a stable group of employees pursuing a specific objective; this holds true even where there has been no transfer of significant tangible or intangible assets, provided that there is an economic entity and that that entity retains its identity after the transfer”.
At paragraph 107 he states:
“However, to determine whether there is a stable economic entity, the national courts must consider first whether it is dealing with an organised grouping of persons and assets or simply of persons, that is to say, a grouping of employees who constitute a stable unit by virtue of the fact that they are engaged in a particular economic activity and pursue the same objective, in the sense defined above. It must then determine whether that grouping has retained its identity”.
At paragraph 145 he states:
“It is true that an economic entity must be organised, that is to say, it must have an organisational structure, however minimal, in order to constitute an undertaking, business or part of a business”.
Cavan Industrial Cleaning Services Ltd
“The Tribunal are satisfied that no assets, tangible or intangible, transferred and the service undertaking previously entrusted with the contract did not, on losing the contract, cease to fully exist and it cannot be considered that a business or part of a business belonging to it has been transferred to the appellant. From the evidence before it, in this case, the Tribunal is satisfied that a transfer of undertakings within the meaning of Article 1(1) of the Transfer of Undertakings Regulations did not occur. The Tribunal is allowing the appeal and therefore upsets the recommendation of the Rights Commissioner in this case.
Top Security Limited -v- Thomas SadlieR
, Bartos Baziuk, John Nicholson, Paddy Dowling, David Mythen
[2017] IEHC 134
JUDGMENT of Mr. Justice White delivered on the 10th day of March, 2017
1. This is a statutory appeal from a decision of the Employment Appeals Tribunal on the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003. (S.I. 131/2003.) The Employment Appeals Tribunal heard an appeal from the Rights Commissioner on 8th September, 2015, and 26th January, 2016, and issued its decision on 22nd February, 2016. An Originating Notice of Motion was issued on behalf of the applicant on 15th March, 2016, originally returnable for 18th April, 2016, grounded on the affidavit and exhibits of Guy Davies, General Manager of the applicant company, sworn on 14th March, 2016. A statement of opposition was filed and served on 30th May, 2016, grounded on the affidavit of Hugh Hegarty, Trade Union Official, sworn on 30th May, 2016. The appeal was heard in this Court on 13th December, 2016, and judgment was reserved.
2. Regulation 12(2) states:-
“A party to proceedings before the Tribunal under Regulation 11 may appeal to the High Court from a determination of the Tribunal on a point of law and the determination of the High Court shall be final and conclusive.”
3. The appellant contends that in its determination, the Tribunal erred in law as follows:-
(a) There was no evidence before the Tribunal that the activity carried out by the respondents amounted to a stable economic entity that transferred from Manguard to the appellant.
(b) Strictly in the alternative, the evidence before the Tribunal was such that the decision by the Tribunal, to the effect, that the activity carried out by the respondents was a stable economic entity was irrational such that it was not open to the Tribunal to make such a finding.
(c) There was no evidence before the Tribunal that the activity carried out by the respondents was sufficiently structured and autonomous so as to enable the Tribunal to make a finding that it amounted to a stable economic entity.
(d) There was no evidence before the Tribunal that (and the Tribunal made no findings to the effect) the activity carried out by the respondents had any functional autonomy, the concept of autonomy referring to the powers granted to those in charge of the group of workers concerned, to organise, relatively freely and independently, the work within that group, and more particularly, to give instructions and allocate tasks to subordinates within the group, without direct intervention from other organisational structures of Manguard.
(e) The finding by the Tribunal that there was a transfer of an intangible asset in circumstances where the respondents transferred, was wrong. There was no agreement to transfer the respondents. The respondents did not transfer and with the exception of the fourth respondent, who retired – remained in the employment of Manguard. In the premises, the finding that there had been a transfer of an intangible asset was based upon a false premise.
(f) There was no evidence before the Tribunal that any good will transferred. The finding by the Tribunal that there was a transfer of good will was perverse.
(g) In finding that there was a transfer of undertakings, the Tribunal misdirected itself as to import of the decisions of the ECJ opened to it and in particular the decisions of the ECJ and Francisco Hernandez Vidal SA & Ors [1998] ECR 1-08179 and Francisca Sanches Hidalgo & Ors [1998] ECR 1-08237. The key principles set out in those authorities are as follows:-
(i) in certain circumstances a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity;
(ii) such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transfer or undertaking on a regular basis;
(iii) the mere fact that the work carried out before and after the transfer is similar does not justify the conclusion that the transfer of an entity has occurred. A stable economic entity cannot be reduced to the activity entrusted to it;
(iv) the identity of such an entity emerges from other factors such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate the operational resources available to it.
(v) a transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract.
(h) Applying those principles to the activity carried out by the respondents, the Tribunal was bound to conclude that there was no transfer. There was no evidence before the Tribunal that the provision of security services at the offices of the CSSO could, on its own, amount to a stable economic entity.
(i) There was no evidence before the Tribunal and the Tribunal made no findings (other than the perverse finding that there was a transfer of an intangible asset) or any other factors or elements or circumstances that could rise to a finding that there was a transfer of a stable economic entity.
(j) The determination by the Tribunal that the mere fact that the appellant was now carrying on the same activity formally carried out by the respondents in and of itself meant that there was a transfer of a stable economic entity was perverse and directly contrary to the ratio of the decisions of the ECJ referred to above.
(k) The Tribunal failed to have any or any proper regard to the position of Manguard and, in particular, failed to have regard to the fact that Manguard continued to employ four of the five respondents.
(l) The Tribunal failed to have any or any proper regard to the fact that the appellant had tendered for the contract on foot of a tender process that was subject to EU Council Directive 2004/18/EC as implemented into Irish law by S.I. 329 of 2006.
(m) It was common case that the appellant had tendered for the contract on the basis that it would provide the service using its own employees. The finding of the Tribunal entirely undermines the relevant provisions of public procurement law and, in particular, undermines the fundamental requirement that contracts should be awarded on the basis of objective criteria which ensure compliance with the principles of transparency, non-discrimination and equal treatment and which guarantee that tenders are assessed on conditions of effective competition.
(n) The Tribunal erred in law in finding that the appellant breached Regulation 8 of the 2003 Regulations in circumstances where the respondents did not make any claim under Regulation 8.
4. The respondents to this appeal were employed as security guards providing security services to the Chief States Solicitors Office at Osmond House, Ship Street, Dublin 8 and the Chancery Building, Chancery Lane, Dublin 7. The evidence placed before the Tribunal was that the respondents were originally employed by Oscar Security each on separate dates ranging from 1988 to 2008 and all were transferred under the TUPE Regulations to Manguard Plus Limited on 25th October, 2010. They worked exclusively at these offices. On 31st May, 2013, the appellant submitted a tender to the Minister for Justice for the provision of security services at the same offices. Manguard Plus Limited was the incumbent service provider. On 19th July, 2013, the applicant was awarded the contract to provide the security services with effect from 26th August, 2013.
5. The tender document provided was a framework agreement for the provision of security services.
6. Paragraph 3.5 stated:-
“Transfer of Undertakings
Service Providers will be required to include an undertaking in their Tender and (the Contractor in any contract awarded) to comply fully with the provisions of Council Directive 2001/23/EC of 12th March, 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, business or parts of undertakings or business and is implemented in Irish law by S.I. No. 131 of 2003 European Communities (Protection of Employees and Transfer of Undertakings) Regulations 2003 and to indemnify the Contracting Authority for any claim arising or loss of costs incurred as a result of its failure or incapacity to fulfil its obligations under the said Directive and Statutory Instrument.
Service Providers are required to include an undertaking in their Tender (the Contractor in any contract awarded) indemnifying the Contracting Authority against any claim by any new contractor engaged by the Contracting Authority in the future for losses arising from the failure of the existing contractor to comply with and fulfil its obligations under the terms and conditions of its employment contracts with its employees, during the term of the said contracts, who may subsequently be engaged by the new contractor.”
7. The request for supplementary tender was furnished by Wesley Graham, Head of Office Services, Chief States Solicitors Offices on 15th May, 2013. It was for a fixed price contract. The applicant submitted a detailed tender in writing on 31st May, 2013.
8. There had been an exchange of emails on 22nd and 24th May, 2013, in which Mr. Graham made clear that “Tenderers should note that it is not a matter for a Contracting Authority to determine whether or not the Transfer of Undertakings Regulations apply. It is a matter of law depending on the surrounding facts and on the solution to be proposed by a Tenderer. This is a matter for Tenderers to address. The Contracting Authority does not give legal advice as to the application or non-application of TUPE.
9. By letter by registered post of 25th July, 2013, Sean Hall, the Operation Director of Manguard Plus Limited wrote to Mr. Guy Davies, General Manager, Top Security, Westgate House, Westgate Business Park, Ballymount, Dublin 24. The letter stated:-
“Dear Guy
We have been made aware that your company, Top Security, has been awarded the contract to provide Security services to the Chief States Solicitors Office at Osmond House and the Chancery commencing 25th August, 2013.
As per the requirements of the Security Service Framework Agreement, s. 3.5 and this tender award, you are required to comply with Statutory Instrument 131 of 2003, concerning the transfer of employees. This group of employees is protected under that instrument due to the unique nature of their employment, having been employed by Oscar Security at that site and then joining Manguard Plus under TUPE when we commenced this contract in October 2010 and having never worked at any other site during their employment with Manguard Plus.
We note that the Regulations require you consult with the employees affected and that this consultation must commence at least 30 days before the effective date of transfer. We also note that this consultation process has not commenced and de facto you are not in compliance with S.I. 131 and we further believe from comments made that it is not your intention to comply with S.I. 131.
I can confirm that we have complied with a responsibility under S.I. 131 in relation to consultation and we now attach the employee information necessary to effect the transfer as further required.
Unless it is evidenced in writing within 7 days that you will comply with the contractual terms regarding TUPE we will seek a judicial review of the contract award. In that instance we will use this letter to fix costs for the review in Top Security.”
10. The appellant has accepted it did not respond to this letter nor did it communicate directly with the respondents.
11. In respect of the alleged Transfer of Undertaking, the Employment Appeals Tribunal found as follows:-
“Having listened to the evidence both written and oral from both parties and having observed the demeanour of the witnesses, and having regard to the wide, varied unwieldy and at times contradictory nature of the law in this area (as stated), the Tribunal is of the view that the service involved was an “economic entity” and not a mere activity as it involved a service provider for a profit by groups of worker/wage earners in competition with other like services rendered and was rendered in two different locations and as such comes within the definition as outlined in S.I. 131.
That their identity was retained in that they would continue to carry out the same work for the same customers/client i.e. CSSO in the same two locations as outlined and that the same customer/client would also be transferring.
That the majority of the workforce pertaining to the locations which involved the transfer of five employees of a total of eight employees in the said entity would be transferred.
That the entity involved two different locations which amounted to a part of business or undertaking pursuant to S.I. 131.
That the words and phrases “economic entity” and “undertaking” and “business” are used interchangeably.”
That the respondent agreed in evidence that a workforce and/or goodwill could amount to intangible assets and by implication amount to a transfer of intangible assets.
That in a transfer involving a service or services, that in such transfers, assets include intangible assets such as it work-force and goodwill, either solely or in addition to the transfer of tangible assets.
That the absence of a transfer of assets does not necessarily preclude the existence of a transfer of undertakings.
That the transfer would involve a change of employer.
That having regard to the letter from company M dated the 19th July 2013 stating that the client had confirmed that the TUPE Regulations would apply and requesting them to sign forms containing their details for the attention of the Respondent.
That arising from this and other undertakings given which were relied on by the appellants, that on balance it was envisaged that TUPE were part of the negotiations between the parties and that the Respondent knew or ought to have known that it was intended that TUPE Regulations would apply to this situation.
12. Paragraph 9(e) of the statutory appeal requires some clarification. The applicant alleges that the finding by the tribunal that there was a transfer of intangible assets in circumstances where the respondents transferred was wrong, and that the respondents did not transfer but remained in the employment of Manguard Plus Limited.
13. In a judgment of the European Court of Justice in Abler v. Sodexho [2004] IRLR 168, the court held:-
“The failure of a new contractor to take over an essential part of the staff which its predecessor employed to perform the same activity is not sufficient to preclude the existence of a transfer of an entity which retains its identity within the meaning of Business Transfers Directive 77/187 in a sector such as catering, where the activity is based essentially on equipment. Any other conclusion would run counter to the principal objectives of the Directive, which is to ensure the continuity, even against the wishes of the transferee, of the employment contracts of the employees of the transferor.”
14. The uncontradicted evidence before the tribunal is that the applicant did not engage at all in the process.
15. The applicant is also incorrect when it asserts that four of the respondents did not lose their employment with the Transferring entity. The uncontradicted evidence was that Thomas Sadlier was re engaged by Manguard Plus Limited after unemployment of four weeks. He then covered holidays for other employees. When made permanent it was at a reduced wage. John Nicholson lost three weeks work, and recommenced work with Manguard Plus Limited at reduced wages. David Mythen was without work for eight weeks, and then procured three shifts a week, at a loss until early February 2014. Mr. Patrick Dowling worked three shifts, subsequent to the termination of his employment on 25th August, 2013. The court does not have any information about Bartosz Baziuk.
16. Mr. Davies in his affidavit did not agree that he had accepted in evidence that a workforce and/or goodwill could amount to intangible assets. As far as he was concerned no goodwill or employees transferred.
17. The court accepts the well established principle in relation to an appeal on a point of law that the Superior Courts have repeatedly applied a consistent significant curial deference to expert tribunals which is summarised by Hamilton C.J. in Henry Denning & Sons Ireland Limited v. Minister for Social Welfare [1998] 1 IR 34, stating:-
“That the courts should be slow to interfere with the decisions of expert administrative tribunals. Where conclusions are based upon an identifiable error of law or an unsustainable finding of fact by a tribunal such conclusions must be corrected. Otherwise it should be recognised that tribunals which have been given statutory tasks to perform and exercise their functions, as is now usually the case, with a high degree of expertise and provide coherent and balanced judgments on the evidence and arguments heard by them it should not be necessary for the courts to review their decisions by way of appeal or judicial review.”
18. In the same case, Keane J. citing with approval the comments of Carroll J. in the High Court, stated:-
“In an appeal on a question of law the court does not go into the merits of the decision. The primary facts are not in issue. Where there is a question of conclusions and inferences to be drawn from facts (a mixed question of fact and law) the court should confine itself to considering if they are conclusions and inferences which no reasonable person could draw or whether they are based on a wrong view of the law.”
19. In the same judgment, Keane J. cited the decision of Kenny J. in Mara (Inspector of Taxes) v. Hummingbird Limited [1982] 2 ILRM 421, when he stated:-
“If the conclusions from the primary facts are ones which no reasonable commissioner could draw, the court should set aside his findings on the ground that he must be assumed to have misdirected himself as to the law or made a mistake in reasoning. Finally, if his conclusions show that he has adopted a wrong view of the law, they should be set aside.”
20. In section of (l) and (m) of the statutory appeal, the appellant has argued that the Tribunal failed to consider EU Council Directive 2014/18/EC as implemented in Irish law by S.I. No. 329 of 2006, that is the Public Procurement Regulations. That was not raised in evidence before the Tribunal. The respondents rely on a judgment of Laffoy J. in Minister for Finance v. McArdle [2007] IEHC 98, when she stated:
“At the hearing before this court there was a dispute as to what matters were properly before the court. Counsel for the defendant referred the court to the judgment of Finlay C.J. in Bates v. Model Bakery Limited [1993] 1 I.R. 359. In his judgment, the former Chief Justice was addressing the issue of the proper procedure to be adopted on an appeal to the High Court on a question of law under s. 39 of the Redundancy Payments Act 1967. What prompted his observations was that evidence had been adduced before the High Court on the appeal which had not been before the first instance and primary decision maker, the Employment Appeals Tribunal. In the passage referred to by counsel for the defendant the Chief Justice stated that the appropriate procedure is that the summons provided for by the Rules of the Superior Courts 1986 should state the decision being appealed against, the question of law which it is suggested was in error and the grounds of appeal and it should be supported only by an affidavit or affidavits exhibiting the determination of the Employment Appeals Tribunal, including any findings of fact or recital of evidence made by it, and, in effect, identifying the parties and the grounds on which the aggrieved party seeks a determination of the question of law………… More importantly, no case appears to have been made before the Rights Commissioner that her jurisdiction was spent once the concession was made on the basis that issues in relation to the terms and conditions of a contract of indefinite duration are not within the ambit of the Act. Nor was that case made before the Labour Court. Counsel for the defendant submitted that it is not open to an appellant on an appeal on a point of law from a determination of the Labour Court under s. 15(6) of the Act to present arguments as to the legal position which were not addressed to the Labour Court, citing two authorities on appeals from the Information Commissioner: the decision of this Court (McKechnie J.) delivered on 11th May, 2001 in Deely v. The Information Commissioner; and the decision of this Court (Smyth J.) delivered on 31st May, 2005 in South Western Area Health Board v. Information Commissioner. In my view, that submission must be correct in point of principle, at any rate where the legal issue is whether the first instance decision maker (in this case the Rights Commissioner) or the appellate decision maker (in this case the Labour Court) had jurisdiction to make the relevant decision. Accordingly, I consider that the lack of locus standi ground is not properly before the court.”
21. The grounds of the statutory appeal on the issue of public procurement cannot be considered by this Court as this issue was not raised before the Tribunal.
22. The applicant’s submission that the respondents did not make a claim pursuant to regulation 8 is correct. The applicant has accepted that it did not inform or consult as it believed it had no responsibility to do so because in its view there was no Transfer of Undertaking. The responsibility for information and consultation rested with Manguard Plus Limited, unless the Transferee envisaged any measures in relation to the employees. The Tribunal was incorrect in law, in finding the applicant in breach of Regulation 8.
23. The matters set out at 9(a) to (k), are matters both of fact and law.
24. The Tribunal decision is a detailed one covering both the factual situation and the law. The decision refers to a number of European Court of Justice and Employment Appeals Tribunal judgments.
25. The Tribunal took the view that they were special and unique circumstances in this case when it stated:-
“Accordingly the Tribunal is of the view that in the special and unique circumstances of this particular case that the TUPE Regulations would apply and that it would be appropriate that the remedy of compensation should be awarded.”
26. The Tribunal having heard the evidence of the parties, was best placed to apply the facts so found to the legal principles. In applying the law it preferred some precedents over others. There are merits to the submissions of both parties and the court can see how different interpretations based on the facts determined by the tribunal could arise. However the court is not deciding the case, but exercising a supervisory jurisdiction. I do not consider the submissions made by the applicant of sufficient persuasion to overturn the decision of the tribunal on the Transfer of Undertakings. The decision of the Tribunal was not irrational, perverse or based on an identifiable error of law, or an unsustainable finding of fact.
27. There was a fairly unique situation here in that these employees had been in place in one location for a substantial period of time, there had already been a transfer of undertakings from Oscar Security to Manguard Plus Limited and the applicant was on notice in the tender documents of its responsibility to assess the situation in respect of any liability under the TUPE Regulations. The applicant ignored this.
28. To determine the matters set out at paras. 9(a) to (k) would be, in the court’s view, to enter into a de novo hearing when the Tribunal was uniquely placed to decide and adjudicate on the issue.
29. I do not consider the failure of the Tribunal to take into consideration the relevant size and operations of Manguard Plus Limited is ultimately relevant to the determination as to whether there was a Transfer ofndertakings or not in the unique circumstances of this case.
30. I, accordingly, refuse the application of the applicants on the substantive ground that there was no transfer of undertakings.