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DOI: 10.5553/EELC/187791072022007002006

European Employment Law CasesAccess_open

Case Reports

2022/16 A transfer of undertaking can be established in the absence of a contractual agreement between the transferor and the transferee and even if the transferee concludes new employment contracts with the employees (RO)

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Andreea Suciu and Teodora Manaila, "2022/16 A transfer of undertaking can be established in the absence of a contractual agreement between the transferor and the transferee and even if the transferee concludes new employment contracts with the employees (RO)", European Employment Law Cases, 2, (2022):88-90

    The Ploiești Court of Appeal has ruled that although the applicable national legislation in case of transfers of undertakings requires a transfer of ownership, the ECJ case law prevails and that, in the absence of a contractual agreement, a transfer of undertaking can be established even if the transferee concludes new employment contracts with the employees.

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    • Summary

      The Ploiești Court of Appeal has ruled that although the applicable national legislation in case of transfers of undertakings requires a transfer of ownership, the ECJ case law prevails and that, in the absence of a contractual agreement, a transfer of undertaking can be established even if the transferee concludes new employment contracts with the employees.

    • Legal background

      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 (‘Transfers of Undertakings Directive’) has been transposed into Romanian legislation by Law no. 53/2003 – Labour Code and Law no. 67/2006 on the protection of employees’ rights in the case of transfers of undertakings, businesses or parts thereof (‘Transfers of Undertakings Law’).
      According to national provisions, a transfer should be understood as the transfer of ownership of an enterprise, unit or part thereof, from the transferor to the transferee, with the aim of continuing the main or secondary activity, whether or not it seeks to make a profit.
      Further, the rights and obligations of the transferor arising out of individual employment agreements and the applicable collective labour agreement existing at the transfer date fully transfer to the transferee at the date of the transfer.

    • Facts

      Between 2014 and 2018, Mr A was employed by company Y as head of laboratory for the research and development division. Effective 1 February 2018, the parties terminated their employment contract with mutual consent and on the same date Mr A entered into an employment agreement with company X as a system engineer in the technical division communication interfaces and AMS systems service/test and post-processing development office.
      Company X was related to company Y. They were represented by the same director. Also, in various press articles, it had been made clear that company X had been split from company Y, with company X focusing on the production of measuring, checking and control instruments, while company Y then focused on installation work for buildings. Also, company X bought the shares of company Y.
      Following the restructuring of the business and due to economic loss registered by company X in 2018 and the first part of 2019, Mr A’s position was made redundant. In January 2020, he was consequently dismissed by his employer.
      Following such outcome, the employee challenged the dismissal decision and asked the court to annul the dismissal decision as the employer’s actions infringed the protection applicable to transferred employees (Mr A claimed to have been transferred from company Y to company X in January 2018, thus, two years prior to his dismissal by company X) and subsequently that the employer’s reasoning for the cancellation of his role was unlawful and unjustified.
      Mr A’s employer argued that the transfer of undertaking claimed to have taken place in January 2018 was not possible for the reasons that (i) no transfer agreement had been concluded between the two companies and (ii) there was no interdependence in terms of the activities carried out by the companies as far as their main business activities were concerned.
      Thus, there were no transferred factors of production and no functional link of interdependence and complementarity between the two companies that could constitute a maintenance of identity. In addition, there was no takeover of company Y’s customers by company X or a development by company X of activities previously provided by company Y which could have reflected a continuation by company X of activities previously carried on by company Y.
      The national court agreed with the claims made by Mr A, namely it ascertained that in his case a transfer of undertaking had indeed taken place but given the time that had elapsed between the date of transfer and the communication of the dismissal decision such context was of no relevance to the analysis of the lawfulness of the dismissal decision.
      In addition, the court examined the dismissal decision and its compliance with the national law and concluded that the dissolution of the employee’s position had not been lawful and sufficiently objectively justified. For such reasons, the dismissal decision was annulled and the employee reinstated. The employer (company X) later filed an appeal challenging both the annulment solution as well as the acknowledgement of the transfer of undertaking, however, the tribunal’s solution was upheld and the appeal rejected.

    • Judgment

      In its findings with regard to the existence of a transfer of undertaking, the first instance court noted the simultaneous ending of the old employment contract and the start of the new employment contract, that this happened to multiple employees and the fact that both employers were represented by the same director.
      In view of assessing whether a transfer of undertaking had taken place, the tribunal made reference to Case C-160/14 (João Filipe Ferreira da Silva e Brito and Others – v – Estado português) where the ECJ concluded that the Transfers of Undertakings Directive aims to ensure the continuity of the existing employment relationships within an economic unit, irrespective of the change of owner. The decisive criterion for establishing the existence of a transfer within the meaning of that Directive is therefore whether the establishment in question retains its identity, which results in particular from the actual continuation or resumption of operations.
      In order to determine whether this condition is met, all the factual circumstances characterising the operation in question must be taken into account, including the type of undertaking or establishment concerned, whether tangible items such as buildings and movable property are transferred, the value of intangible items at the time of the transfer, whether or not the majority of the staff have been taken over by the new employer, whether or not customers have been transferred, the degree of similarity between the activities carried on before and after the transfer and the duration of any suspension of those activities. However, these elements are only partial aspects of the overall assessment required and cannot therefore be assessed separately.
      The Court of Appeal also took into consideration the aforementioned press articles that detailed the corporate relation operated between company Y and company X and the shift of focus after the restructuring. Following such conclusions, the Court of Appeal upheld the tribunal’s decision that a transfer of an establishment had taken place, although no transfer/assignment contract was actually submitted in court.

    • Commentary

      The case illustrates a classic method used by the transferor and transferee in practice to avoid enforcing the Transfers of Undertakings Law and the ECJ case law. In such cases, given the contractual connection imposed by the national legislation on the transferee and the transferor, most employers would contact their employees and request them to agree to a ‘gentlemen’s agreement’ and mutually terminate the current employment contract and conclude a new employment contract with the transferee.
      In some cases, such new employment relationship was joined by a new probationary period during which some employees would be dismissed based on a simple written notice without the employer being required to justify such decision and comply with the usual prior legal dismissal procedure. Consequently, the mechanism was also used as a method to remove transferred employees without having any legal exposure for the transferee/transferor.
      The free manifestation of will expressed in relation to the mutual termination of the employment contract and the conclusion a new employment contract is rather difficult to challenge in court and would require a claim regarding the defective consent of the employee rather than a breach of legal provisions.
      In practice, up until the present court ruling, national courts gave precedence to the national provisions which required a contract between the transferee and the transferor. Such practice only encouraged the use of the mechanism described above.
      The case is of great interest for a number of reasons including the manner in which the court argued its findings, making reference to contextual evidence like press reports, similarities regarding the party representing the former and current employing company, other employees affected by such contractual mechanism and how the change of employer was performed at a corporate level. Although there have been cases where a transfer of undertaking had been established between two different companies with an emphasis on the continuity of the activity performed by the employees (e.g. the same activity in the same place, in the same conditions), in the present case the emphasis was not the activity performed by Mr A (despite it appearing to be similar in content), but on the actions of the employer itself. Another aspect of interest is the express recognition of such practice as the transfer of business, a solution that removes the semblance of legality associated with such practice and which we expect will prevent future employers from taking advantage of in the future.

    • Comments from other jurisdictions

      Germany (Phyllis Schacht, Luther Rechtsanwaltsgesellschaft mbH): The Transfers of Undertakings Directive has been transposed into German law by Section 613a of the German Civil Code (Bürgerliches Gesetzbuch, ‘BGB’) which requires that “a business or part of a business passes to another owner by legal transaction”. Such a transfer of an undertaking is given when there is a change in the legal personality of the owner within the framework of contractual legal relationships and the latter actually continues the undertaking concerned.
      A change of ownership under German law does not require a contract between the transferor and the transferee. The Federal Labour Court (Bundesarbeitsgericht, ‘BAG’) established this as early as 1999 (ruling of 26 August 1999 – 8 AZR 827/98). What is required, however, is a transfer within the framework of contractual legal relationships whereby it is irrelevant if one or several contracts are entered into. In the present case, it must be assumed that contracts were concluded in connection with the spin-off and the sale of shares. According to the German law of evidence, these would have to be presented in principle, so that a reference to the press releases would not be sufficient. In conclusion, however, it can be assumed that a German court would also affirm a change of ownership within the framework of contractual legal relationships.
      In addition, the actual continuation of the business concerned is required. According to German case law, whether such a continuation exists is determined – similar to Romanian law – on the basis of an overall assessment of the circumstances. In this regard, the BAG had already stated in 1982 (ruling of 20 July 1982 – 3 AZR 261/80) that a continuation of the business is not excluded because the employee is dismissed and rehired by the new employer. The same applies to the present case of a termination agreement and subsequent rehiring. A German court would therefore also assume a continuation of the business.
      The requirements of Section 613a BGB are therefore also met under German law. As a result, however, the termination would not be invalid under German law due to the transfer of the business. According to Section 613a(4) BGB, a termination is only invalid if it is issued due to the transfer of the business, whereas a termination based on other reasons is – in accordance with otherwise applicable law – valid. In the given case the termination was for operational reasons, so that Section 613a(4) BGB is not applicable.
      Overall a German court would come to the same conclusion as the Romanian court, albeit with a partially different reasoning.

      Greece (Effie Mitsopoulou/lawspace): We consider that the Greek courts would have taken a similar position to the Romanian courts on the existence of a transfer: namely they would have ruled that a transfer of undertaking had indeed taken place. Under the Greek law which has implemented the Transfers of Undertakings Directive, there is a transfer of undertaking in a case where the business function/service/sector to be transferred is an organized economic unity in the sense of the law, i.e. an organized unity of material and immaterial assets, capable of being transferred and retaining its identity after the transfer. No prerequisite on the existence of a contractual transfer agreement exists.
      Under the same law in Greece, the realization of dismissals is prohibited when the cause is the actual transfer, but an exception exists in case dismissals need to be realized for technical, financial and organizational reasons, under the condition, though, of non-violation of Greek employment law provisions and of the non-abuse of right. Greek courts examine meticulously the condition of each reorganization procedure, the correct application of the legal criteria which determine who will be dismissed first (employees with less seniority and less family commitments go first etc.), the necessity of the dismissals in relation to other measures that could have been taken instead, etc.
      In the present case, given the time that had lapsed between the date of transfer and the taking place of the termination (two years) as well as the reasons of such termination (restructuring) the Greek courts would have probably found such termination lawful.
      Finally, an interesting aspect in this case is the fact that company X bought all the shares of company Y: this would be considered as a share deal and it would consequently result in no change of employer.

      Subject: Transfer of Undertaking
      Parties: Unknown
      Court: Ploie’ti Court of Appeal
      Date: 9 December 2021
      Case number: Not available
      Internet publication: Not available


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