A critical evaluation of the jurisprudence of the Court of Justice of the European Union (“CJEU”) that has interpreted the provisions of the Acquired Rights Directive. Is the case law emerging from the CJEU deficient, and why?

Table of Contents

1. Introduction

2. Scope of application – The concept of the transfer of an undertaking
2.1 Economic activity in contrast to the exercise of public authority:
An unclear demarcation
2.2 Legal transfer: Resurrection of a contractual link?
2.3 Economic entity retaining its identity: An open door to avoid the
application of the Directive

3. Safeguarding of employees’ rights
3.1 Contractual variation
3.2 Opting-out of a transfer: A sting in the tail
3.3 Collective agreements

4. Dismissal: Clever transferors dismiss before the transfer, or not?

5. Conclusion

Bibliography

1. Introduction

Since its adoption in 1977 the Acquired Rights Directive¹ (hereinafter the “Directive”) has generated a generous amount of case law, both in the national courts of the Member States of the European Union as well as at European level before the CJEU. This was owed to the vague drafting of its original provisions and the lack of clarity or definition even of key concepts such as the “transfer of undertakings”.² Furthermore, the way of doing business in a globalised economy has changed over the years leading to corporate restructuring and the creation of atypical contracts (e.g. leasing, contracting-out, franchising) which the European legislator may not have thought of at that time.³ Consequently, national courts involved in transfer of undertakings litigations have been forced to request the CJEU for preliminary rulings and interpretation in rather fact-specific matters since a settlement based solely on the law text of the Directive or the corresponding national implementation was not possible. At the end, some of the Court’s case law itself has generated new uncertainty among the interpretation of the provisions of the Directive which has resulted in more case law. This prompted the European Council to amend the Directive in 1998 in order to reflect inter alia the case law of the CJEU and ultimately to repeal it in 2001 ‘in the interests of clarity and rationality’.⁴

The purpose of the Directive is to protect employees in the case of a change of employer by ensuring ‘that their rights are safeguarded’.⁵ The respective employment contract or relationship shall continue unchanged with the transferee, in order to prevent the employees from being placed in a ‘less favourable position solely as a result of the transfer’.⁶ Therefore, the protection of employees in the event of a transfer of an undertaking is based on “three pillars”.⁷ Firstly, the Directive provides for a transfer of the transferor’s rights and obligations arising from an employment contract or relationship existing on the transfer date to the transferee.⁸ Secondly, employees are protected against dismissals by the transferor or transferee on the grounds of the transfer of an undertaking except for ‘economic, technical or organisational reasons entailing changes in the workforce’.⁹ Thirdly, the transferor and transferee are required to inform and consult the representatives of their employees affected by the transfer.¹⁰

Besides the applicability of the Directive to transfer of undertakings, the first two pillars of protection mentioned above have formed the lion's share of controversies over the years before the CJEU. The corresponding law and the evolvement of the jurisprudence will be analysed in more detail below.

In this Essay I will argue that the jurisprudence emerging from the CJEU in relation to key concepts of the Directive has largely been deficient. Deficient in the sense that the CJEU has not been consistent in its decisions in course of time, shifting its thinking, providing a lack of clarity and therefore leaving national courts with suboptimal legal certainty in the interpretation of the law.

2. Scope of application – The concept of the transfer of an undertaking

The Directive applies to the transfer of an undertaking, business or part thereof to another employer as a result of a legal transfer or merger.¹¹ Due to the absence of a definition of the terms “transfer of an undertaking” and “legal transfer” in its original version, this has generated a significant amount of litigation. The resulting ambiguities in subsequent case law has led the European Council to introduce a clarifying definition in the amended Directive. Accordingly, there must be 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 (…)’.¹²

The following explanations deal in more detail with the three elements “economic activity”, “legal transfer” and “economic entity retaining its identity” and how the CJEU has developed and interpreted them. It is shown that the introduction of the definition has not contributed to a sufficient clarification.

2.1 Economic activity in contrast to the exercise of public authority: An unclear demarcation

The CJEU has provided some guidance to what is covered by an “economic activity” in Scattolon, namely ‘any activity consisting in offering goods or services on a given market’ with the exclusion of ‘activities which fall within the exercise of public powers’.¹³ The latter exclusion stemmed from the earlier Henke¹⁴ case which has now been codified in the Directive. Accordingly, there is an exercise of public powers in an ‘administrative reorganisation of public administrative authorities’ or in the event of a ‘transfer of administrative functions between public administrative authorities.¹⁵ Both do not constitute a transfer within the meaning of the Directive.

However, the CJEU has departed from this strict interpretation with respect to transfers concerning public law bodies in subsequent cases. In Sánchez Hidalgo the Court held, where a public body contracted out services (home-help to persons in need or surveillance), this does not involve the exercise of public authority.¹⁶ The same conclusion was reached in Collino which concerned the transfer of an undertaking operating telecommunication services for public use managed by a public body within the State administration to a private law company.¹⁷ Finally, the Directive may even apply where a municipality takes over activities from a private non-profit-making association. This was the case in Mayeur where the CJEU said that the provision of services (publicity and information on behalf of the municipality) ‘is economic in nature and cannot be regarded as deriving from the exercise of public authority’.¹⁸

The central demarcation criterion for the applicability of the Directive in public body cases is therefore the "execution of public authority”. However, the CJEU has failed in its decisions to present a definition of this term and to provide national courts with some guidance regarding the interpretation. As a result, the demarcation of activities involving the exercise of public authority and economic activity will be difficult in practice and sometimes not even possible in particular cases.

Activities are subject to constant changes so that adhering to the characteristic of the exercise of public authority is challenging. Activities which were regarded as the exercise of public powers in the past may be carried out by private undertakings in the future or vice versa.¹⁹ Consequently, if the demarcation criterion for the exercise of public authority is strictly adhered to, employees carrying out activities classified as of economic in nature enjoy at one time the protection of the Directive and, following a change of classification of that activity as a function of the public authority, will no longer be covered by that protection.

There may also be cases where employees of a local authority carry out both activities in the exercise of public powers and economic activities.²⁰ There is also no clear answer to the question of what happens to these employees in the event of a transfer to a new entity.

As a result, more individual cases in the field of reorganisation and transfer concerning public administrative authorities will probably continue to be submitted to the CJEU in the future.

2.2 Legal transfer: Resurrection of a contractual link?

The term "legal transfer" refers to the method of transferring the undertaking.²¹ This includes ordinary transfers regarding business sales which are based on a contract between the transferor and the transferee. However, the question that arose before the CJEU in a considerable amount of cases was whether the Directive would also apply to transfers which do not arise directly from a contract between the transferor and the transferee.

Looking at the jurisprudence, it seems that the CJEU has pursued a broad interpretation of the term “legal transfer”.²² Therefore, the Directive may apply to various forms of leasing arrangements (Ny Mølle Kro ²³, Daddy’s Dance Hall ²⁴ ), contracting out of services to third parties (Watson Rask ²⁵, Schmidt ²⁶, Sánchez Hidalgo ²⁷ ), contracting back in (Hernández Vidal²⁸ ), subcontracting (Allen²⁹, Temco³⁰) as well as privatisation (Beckmann³¹, Martin³², Celtec³³).

Having said this, the CJEU has been inconsistent in its approach as to whether a contractual link is required for the application of the Directive.³⁴ For example, in Sánchez Hidalgo³⁵ and Merckx³⁶ the Court declined the need for a direct contractual relationship between the transferor and transferee for the Directive to apply but provided for a ‘context of contractual relations’.

However, in Collino the CJEU appeared that even no contractual relationship for the transfer is necessary. It rendered the Directive applicable although the transfer resulted ‘from unilateral decisions of the public authority rather than from an agreement’.³⁷

On the other hand, in Temco the CJEU referred again for a transfer ‘to be part of the web of contractual relations even if they are indirect’.³⁸

Despite the numerous amounts of cases dealing with the term “legal transfer”, it is still unclear whether a contractual relationship, although an indirect, remains necessary. A total renunciation would be desirable in the light of clarity and broad applicability of the Directive in order to protect employees in the various transfer scenarios.

2.3 Economic entity retaining its identity: An open door to avoid the application of the Directive

The CJEU firstly clarified in Spijkers³⁹ that there is a transfer of an undertaking where it retains its identity to the extent that it is transferred as a going concern and the transferee continues the business with the ‘same or similar activities’. Furthermore, all facts that characterize the transaction must be considered and no single factor is decisive.

Based on the two elements of the Spijkers formula, “activity” and “economic entity”, subsequent cases have developed two different conceptions of the undertaking: the “entreprise-activité” and the “entreprise-organisation” approach.⁴⁰

“Entreprise-activité”

The “entreprise-activité” approach focused on the similarity of the activities carried out by the transferee compared with those of the transferor. The most criticised case in this category was Schmidt⁴¹, which dealt with the contracting out of cleaning services performed by an individual employee. Contrary to Spijkers, the CJEU held that the similarity of the activity is the sole conclusive factor in determining whether there is a transfer of an undertaking. The absence of any transfer of tangible assets does not preclude the transfer. The Court came to a similar conclusion in Merckx⁴², where no tangible assets were transferred and neither the business name nor the premises and facilities remained the same. It was sufficient for the transfer of an undertaking that the contract territory remained the same.

However, the CJEU took a different approach in Rygaard⁴³ where it held that the similarity between the activities was not sufficient as the related transfer consisted only of a single building project which did not relate to a “stable economic entity”. For the Directive to apply the transfer of a body of assets is required. The Court therefore has adopted another approach in subsequent cases.

“Entreprise-organisation”

Following Rygaard, the CJEU in Süzen ⁴⁴ picked up that the transfer must relate to a “stable economic entity” which ‘refers to an organized grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective’. This definition has precisely been adopted in the Directive.⁴⁵ Furthermore, the Court rejected more or less the pure similarity of activity test in Schmidt.⁴⁶ The most important novelty, however, was the distinction between asset-based and non-asset-based businesses. In asset-based businesses a transfer of an undertaking exists where ‘significant tangible or intangible assets’ are transferred.⁴⁷ By contrast where a business is essentially based on manpower (non-asset-based businesses) there is a transfer of an undertaking where the new employer takes over a ‘major part of the workforce, in terms of their numbers and skills’.⁴⁸

[...]

¹ Council Directive 77/187/EC 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 [1977] OJ L61/26 as amended by Council Directive 98/50/EC of 29 June 1998 [1998] OJ L201/88 and repealed by Council Directive 2001/23/EC of 12 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, businesses or parts of undertakings or businesses [2001] OJ L82/16 (Acquired Rights Directive).

² Philippa Watson, EU Social and Employment Law (2nd edn, OUP 2014) para 12.10.

³ ibid para 12.12.

⁴ Acquired Rights Directive, recitals 1, 7 and 8.

⁵ Acquired Rights Directive, recital 3.

⁶ Case 287/86 Landsorganisationen i Danmark for Tjenerforbundet i Danmark v Ny Mølle Kro [1987] ECR 5465, para 25; Case C-478/03 Celtec Ltd v Astley and Others [2005] ECR I-4389, para 26.

⁷ Catherine Barnard, EU Employment Law (4th edn, OUP 2012) 579.

⁸ Acquired Rights Directive, art 3(1).

⁹ Acquired Rights Directive, art 4(1).

¹⁰ Acquired Rights Directive, arts 7(1) and 7(2).

¹¹ Acquired Rights Directive, art 1(1)(a).

¹² Acquired Rights Directive, art 1(1)(b).

¹³ Case C-108/10 Ivana Scattolon v Ministero dell’Istruzione, dell’Università e della Ricerca [2011] ECR I-7491, paras 43, 44.

¹⁴ Case C-298/94 Annette Henke v Gemeinde Schierke and Verwaltungsgemeinschaft Brocken [1996] ECR I-4989, paras 14, 17.

¹⁵ Acquired Rights Directive, art 1(1)(c).

¹⁶ Joined cases C-173/96 and C-247/96 Francisca Sánchez Hidalgo and Others v Asociación de Servicios Aser and Sociedad Cooperativa Minerva, and Horst Ziemann v Ziemann Sicherheit GmbH and Horst Bohn Sicherheitsdienst [1998] ECR I-8237, para 24.

¹⁷ Case C-343/98 Renato Collino and Luisella Chiappero v Telecom Italia SpA [2000] ECR I-6659, paras 35, 41.

¹⁸ Case C-175/99 Didier Mayeur v Association Promotion de l'information messine [2000] ECR I-7755, paras 38-40, 57.

¹⁹ Henke (n 15), Opinion of AG Lenz, para 29; Amandine Garde, ‘Recent Developments in the Law Relating to Transfer of Undertakings’ (2002) 39 Common Market Law Review 523, 539-542.

²⁰ ibid.

²¹ Barnard (n 8) 584.

²² ibid 584-589.

²³ Ny Mølle Kro (n 7).

²⁴ Case 324/86 Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S [1988] ECR I-739.

²⁵ Case C-209/91 Anne Watson Rask and Kirsten Christensen v Iss Kantineservice A/S [1992] ECR I-5755.

²⁶ Case C-392/92 Christel Schmidt v Spar- und Leihkasse der früheren Ämter Bordesholm, Kiel und Cronshagen [1994] ECR I-1311.

²⁷ Sánchez Hidalgo (n 17).

²⁸ Joined cases C-127/96, C-229/96 and C-74/97 Francisco Hernández Vidal SA v Prudencia Gómez Pérez, María Gómez Pérez and Contratas y Limpiezas SL, Friedrich Santner v Hoechst AG, and Mercedes Gómez Montaña v Claro Sol SA and Red Nacional de Ferrocarriles Españoles (Renfe) [1998] ECR I-8179.

²⁹ Case C-234/98 G. C. Allen and Others v Amalgamated Construction Co. Ltd [1999] ECR I-8643.

³⁰ Case C-51/00 Temco Service Industries SA v Samir Imzilyen and Others [2002] ECR I-969.

³¹ Case C-164/00 Katia Beckmann v Dynamco Whichloe Macfarlane Ltd [2002] ECR I-4893.

³² Case C-4/01 Serene Martin, Rohit Daby and Brian Willis v South Bank University [2003] ECR I-12859.

³³ Celtec (n 7).

³⁴ Gavin Barrett, ‘Light Acquired on Acquired Rights: Examining Developments in Employment Rights on Transfers of Undertakings’ (2005) 42 Common Market Law Review 1053, 1078-1084; Barnard (n 8) 589.

³⁵ Sánchez Hidalgo (n 17), para 23.

³⁶ Joined cases C-171/94 and C-172/94 Albert Merckx and Patrick Neuhuys v Ford Motors Company Belgium SA [1996] ECR I-1253, paras 28, 30.

³⁷ Collino (n18), para 34.

³⁸ Temco (n 31), para 32.

³⁹ Case 24/85 Jozef Maria Antonius Spijkers v Gebroeders Benedik Abattoir CV and Alfred Benedik en Zonen BV [1986] ECR 1119, paras 11-15.

⁴⁰ Barnard (n 8) 592, 593.

⁴¹ Schmidt (n 27), paras 16, 17.

⁴² Merckx (n 37), para 21.

⁴³ Case C-48/94 Ledernes Hovedorganisation, acting for Ole Rygaard v Dansk Arbejdsgiverforening, acting for Strø Mølle Akustik A/S [1995] ECR I-2745, paras 18-23.

⁴⁴ Case C-13/95 Ayse Süzen v Zehnacker Gebäudereinigung GmbH Krankenhausservice [1997] ECR I-1259, para 13.

⁴⁵ Aquired Rights Directive, art 1(1)(b).

⁴⁶ Süzen (n 45), paras 15, 20.

⁴⁷ ibid, paras 18, 23.

⁴⁸ ibid, paras 21, 23.