Utrecht University, Lecture 7 of the Course European Law (2016/2017). 

European Law, lecture 7

Transfer of enterprise & collective redundancies (16 January 2017)

The last topic of the course is the transfer of enterprise and collective redundancies. There are Directives on this subject. Because open markets can also lead to negative effects for employees, there is a restructuring needed of enterprises and transfer of enterprises to other countries. Europe needed a ‘social face’, given by Social Action Programme of the European Commission in 1974.

Most of the lecture will deal with the transfer of undertaking.

Transfer of undertaking

The transfer of undertaking is a Directive, adopted in 1977 and changed in 1998, and later changed in 2001 (Directive 2001/23). The Directive sets some social conditions. It’s about the protection of the rights of employees in case of transfer of undertakings. But what protection is given? There are three main rules which need to be protected. The workers’ rights need to be safeguarded. Firstly, the contract of employment which the employee had with the transferor on the date of the transfer shall, by reason of such transfer, be automatically and completely transferred to the transferee (article 3(1) Directive 2001/23). Secondly, the transfer of an enterprise is no reason for dismissal of the employee. Finally, workers representatives must be unformed and consulted about the transfer of the enterprise.

The Directive needs to be implemented in national law. It is not only applicable in cross border situations, but also in any case as defined by the Directive.

In the Netherlands it is implemented in the Civil Code, in the Title about Labour law.

Main rules:

1. There has to be a change of employership  (Company A is transferring with Company B) There is a change in the legal person which is responsible, the contracts will be changed to the taking over by the new employer.
2. Employees may not be dismissed just because there is a change of employership.
3. There is a right to consultation and information

Maintenance of rights

Member States can provide that, after the date of the transfer, the transferor and the transferee shall be jointly and severally liable in respect of obligations which arose before the date of transfer from a contract of employment or an employment relationship existing on the date of the transfer (article 3(1) Directive 2001/23). The transfer and transferee should be held liable.

After the transfer, the acquiring enterprise must apply the working conditions laid down in the collective agreement as applicable for the transferring enterprise until the moment that the collective agreement expires or ends, or until another collective agreement comes into force or is applied.

Member States can shorten this period, but is must not be less than one year (article 3(3) Directive 2001/23).

Dismissal

There is a prohibition of dismissal. The undertaking 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 workforce (article 4(1) Directive 2001/23). For example: a restructure in a company. It might sometimes happen that the company can dismiss employees after the transfer of enterprise, because of restructure measures.

In some cases it might be difficult for the employee to prove the reason for dismissal.

If the employee does not agree with the transfer

If the contact of employment is terminated because the transfer involves a substantial change in working conditions to the detriment of the employee, the employer shall be regarded as having been responsible for termination of the contract of employment or the employment relationship (article 4(2) Directive 2001/23). Member State should regulate this situation. If the employee resigns because he does not like the consequences of the transfer, than the employer is being held responsible (this is important to know for example for compensation, social security benefits). 

The employee has the right to financial compensation in case of unemployment, if the employer is responsible for the unemployment. In the case the employee resigns because he does not agree with the transfer, then the employer is responsible and held liable for the social compensation.

Directive 2001/23

When is the Directive applicable? There are criteria for being employee for the Directive. You have to ask yourself:

1. Is the employee an employee for the purposes of the Directive? The Directive applies to any person who, in the Member State concerned, is protected as an employee under national employment law (article 2 Directive 2001/23). Member States cannot exempt persons solely because of the number of hours of their employment contract, fixed term contracts or contracts with temporary agencies.

Civil servants are excluded from an application on the Directive!

2. Is the person an employee of the enterprise which is transferred? Is there a real link between the part of the enterprise which is transferred and the employee? Solely employees who according to the organisational structure of the enterprise belong to the part of the enterprise concerned and predominantly perform their work there, are considered employees of that part and are to be transferred. For example: a company is transferring the productional team, then only the productional team is begin regarded as employee of the enterprise which is transferred. The Human Resource Management team is nog being regaded as employee of the transfer, because the team is not being transferred.

The unit must perform an economic activity, this is a relevant question.

The Directive does not apply on the public sector. Thus an administration reorganisation of public administrative authorities, or the transfer of administrative functions between public administration authorities, is not a transfer in the sense of directive (article 1 Directive 2001/23). However, public services performing an economic task, can fall within the scope of the Directive (article 1c Directive 2001/23).

Spijkers case: Spijkers was assistant manager of Colaris Abbatoir BV (slaughter-house). In December 1982, the business activities ceased entirely/ The entire slaughter-house, with various rooms and offices, the land and specified goods, where purchased by Benedik Abattoir. Sinds February 1983, Abattoir operated a slaughterhouse. All the employees of Colaris were taken over by Benedik Abattoir, apart from Mr. Spijkers and one other employee. The transfer of business assets enabled Benedik Abattoir to continue the activities of Colaris, although Benedik did not take over Colaris customers.

According to the Court, the Directive is intended to ensure the continuity of employment relationships existing within a business, irrespective of any change of ownership. Essential is whether the business in question retains its identity. Consequently, a transfer of an undertaking, business or part of business does not occur merely because its assets are disposed of. Instead it is necessary to consider whether the business is 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.

From the case it follows:

1. All facts have to be considered (including the type of undertaking or business, whether or not the  majority of employees are being taken over, whether or not its customers are transferred and the degree of similarity between the activities carried out on before and after the transfer, and the period for which those activities were suspended).
2. Each single criterion is not decisive, they have to be seen in their mutual connection (they do not all have to be satisfied).
3. There can be different outcomes, because of the type of activities or production mode.

Merckx-case

Mr. Merckx and Mr. Neuhuys were salesmen with Anfo Motors. Anfo Motors sold motor vehicles as a Ford dealer, in  Brussels; Ford was main shareholder. On 8 October 1987 Anfo Motors informed Mr Merckx and Mr Neuhuys that it would discontinue all its activities on 31 December 1987. Ford would be working with an independent dealer, Novarobel. Novarobel would take on 14 of the 64 employees of Anfo Motors. Anfo Motors sent a letter to its customers to recommend to them the services of the new dealer. Merckx and Neuhuys were  asked to work for  the new firm, but they refused.

1. Is there a transfer?

Ford transferred the economic risk of the dealer to an undertaking outside its own group of companies. Novarobel carried on the activity performed by Anfo Motors, without interruption, in the same sector and subject to similar conditions. 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 (without transfer of assets).  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.

2.  What if the employee does not want to be transferred?

The directive does not oblige the employee to continue his employment relationship with the transferee. Member States have to determine what the fate of the contract of employment or employment relationship is. Relevant may be Article 4(2) of the directive: 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.

Suzen- case

Süzen was employed by Zehnacker who performed her cleaning activities in an institution for education in Germany. This institution terminated its cleaning contract with Zehnacker and made a contract as from 1 August 1994 with Lefarth GmbH. Süzen was dismissed and  invoked the directive: she wanted to be taken over. The Court held:

‘’The mere fact that the service provided by the old and the new awardees of a contract is similar is not sufficient for the conclusion that an economic entity has been transferred.

In certain labour-intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, if such an entity is capable of maintaining its identity after it has been transferred. Relevant is whether the new employer takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task’’.

Sodexho- case

Sanrest provided catering services  for a hospital. The premises themselves, as well as water, energy and the necessary small and large equipment were provided for Sanrest by the hospital. Sanrest bore the cost of wear and tear of that equipment. In 1999, the hospital terminated its contract with Sanrest.  A new contract was awarded to Sodexho. Sodexho had refused to take over Sanrest's materials, stock and employees. Sanrest terminated the employment contracts of its employees.  Sodexho contended that there had been no transfer of an undertaking as it had refused to take over even one of Sanrest's employees. Sodexho  argued: the failure to take on any of the staff of Sanrest precludes  transfer of an economic entity which maintains its identity. The Court held that:

‘’Catering cannot be regarded as an activity based essentially on manpower since it requires a significant amount of equipment. The tangible assets - namely, the premises, water and energy and small and large equipment (inter alia the appliances needed for preparing the meals and the dishwashers) - were taken over by Sodexho. A defining feature is the express and fundamental obligation to prepare the meals in the hospital kitchen and thus to take over those tangible assets. The transfer of the premises and the equipment provided by the hospital is sufficient, in the circumstances, to make this a transfer of an economic entity. ‘’

Summary of the case law

• Spijkers: all factors have to be taken into account to decide that an enterprise is taken over
• Süzen: in certain labour-intensive sectors a group of workers may constitute an economic entity, if such an entity is capable of maintaining its identity after it has been transferred: relevant is whether the new employer takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task.
• Merckx: the economic risk was transferred, plus the customers, within same sector and same activities (even though no tangible assets were involved and no contract between two enterprises)
• Sodexho: in catering sector also tangible assets are important. In this case the enterprise is  taken over, even though the assets remained in possession of the hospital

Collective redundancies

Collective redundancies are being regulated by the Directive 75/129, replaced by the Directive 98/95. The Directive obliges the enterprise concerned to start negotiations with workers representatives. To see whether collective redundancies can be avoided, the number of workers affected can be reduces, and whether the consequences can be mitigated by recourse to accompanying social measures.

Collective redundancies apply to dismissals effected by an employer for one or more reasons not related to the individual workers concerned where, according to the choice of the Member States, the number of redundancies is, (i) either over a period of 30 days; at least 10 in establishments normally employing more than 20 and less than 100 workers, at last 10% of the number of workers in establishments normally employing at least 100 but less than 30 workers, at least 30 in establishments normally employing 300 workers or more, (ii) or, over a period of 90 days, at least 20, whatever the number of workers normally employed in the establishments in question.

Where an employeris contemplating collective redundancies, he shall begin consultations in good time with the workers’ representatives with a view to reaching an agreement (article 2(1) Directive). The employer shall supply them with all relevant information (article 2(3) Directive). Workers representatives are defined by law and practice in the Member State concerned.

1. Information/consultation workers representatives (agreement, social plan)
2. Notification of the information to the public authorities within a period of 30 days.

An important case is the Junk case.