General Issues
Cases
Landsorganisationen i Danmark v Ny Mølle Kro Case 287/86
“77/187 is intended ‘to provide for the protection of employees in the event of a
change of employer, in particular, to ensure that their rights are safeguarded’. To
that end the directive provides inter alia for the transfer of the transferor’s rights
relationship (Article 3 (1)), the continued observance by the transferee of the terms
and conditions agreed in any collective agreement (Article 3 (2)) and protection
for the employees concerned against dismissal by the transferor or the transferee
solely by reason of the transfer (Article 4 (1)). Article 1 (1), the interpretation of
which is sought in this case, defines the scope of the directive by providing that it
‘shall apply to the transfer of an undertaking, business or part of the business to
another employer as a result of a legal transfer or merger’.
It follows from the preamble and from those provisions that the purpose of the
directive is to ensure, so far as possible, that the rights of employees are safeguarded
in the event of a change of employer by enabling them to remain in
employment with the new employer on the terms and conditions agreed with the
transferor. The directive is therefore 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 employees of the undertaking, regardless of whether or not
ownership of the undertaking is transferred. Employees of an undertaking whose
employer changes without any change in ownership are in a situation comparable
to that of employees of an undertaking which is sold, and require equivalent
protection.
It follows that in so far as the lessee, by virtue of the lease, becomes the employer
in the sense set out above, the transfer 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.
Similar considerations apply where the owner of a leased undertaking takes over
its operation following a breach of the lease by the lessee. Such a takeover also
occurs on the basis of the lease. Consequently, in so far as its effect is that the
lessee ceases to be the employer and the owner reacquires that status, it must also
be regarded as a transfer of the undertaking to another employer as a result of a
legal transfer within the meaning of Article 1 (1) of the directive.
For those reasons the reply to the first question must be that Article 1 (1) of
Council Directive 77/187 of 14 February 1977 must be interpreted as meaning that
the directive is applicable where the owner of a leased undertaking takes over its
operation following a breach of the lease by the lessee. “
James Blaney and others v. Vanguard Plastics Ireland Ltd; Keytech Products Ltd;
UD 271/2000
“The issue
These legal submissions on behalf of the claimants are directed at the issue as to whether or not Council Directive 77/187 (‘the Acquired Rights Directive ’ ) and the European Communities (Safeguarding of Employees’ Rights on Transfer of Undertakings) Regulations 1980 , contained in S.I. No. 306 of 1980 (‘the Regulations’ ) apply to the transfer of the business of Vanguard by the liquidator to Keytech.
Were it not for the fact that the transfer was made by the liquidator to Keytech then it would appear to be a clear case of a transfer within the meaning of the Acquired Rights Directive and the Regulations. Vanguard carried on a plastics injection moulding business from premises in Oldcastle, Co. Meath, for over 21 years. The business was sold by the liquidator to Keytech following a sale by tender ‘of a going concern business’ which sale by tender was advertised in The Irish Times on January 25, 2000 with a tender date specified of February 4, 2000. Keytech took over the business on February 11, 2000 and notified employees by way of a statement dated February 9, 2000, that the business would become known as Keytech Plastics (Oldcastle) Division. The business was sold by the liquidator as a going concern and included the plant and machinery, fixtures and fittings, stock and goodwill of the business. The economic entity for which the claimants worked has retained its identity and is now operated by Keytech as Keytech Plastics (Oldcastle) Division.
Article 1(1) of the Acquired Rights Directive provides that the Directive ‘shall apply to the transfer of an undertaking, business of part of a business to another employer as a result of a legal transfer or merger’ . Keytech argues that the Acquired Rights Directive and the Regulations do not apply to the transfer because the business of Vanguard ‘was in a creditors’ voluntary insolvent liquidation at the date of the said transfer’ .
Analysis of case law
On behalf of the claimants it is submitted that the authorities do not support this proposition of Keytech. In fact, the claimants submit, the authorities indicate that the exception to the Acquired Rights Directive and the Regulations only applies to companies being wound up by the court, i.e. a compulsory winding-up. This is clear from the decisions of the ECJ in Abels v. Administrative Board of the Bedrijsvereniging Voor de Metaal Industrie (Case 135/83 ) [1985] ECR 469 , Dethier Equipment SA v. Dassy (Case C-319/94 ) [1998] ECR I-1061 and Europièces SA, in liquidation v. Sanders and Automotive Industries Holding Co. SA (Case C-399-96 ) [1998] ECR I-6965 and from the High Court decision in Mythen v. Employment Appeals Tribunal [1990] 1 IR 98 ; [1989] ILRM 844 [1980] IR 1 .
(i) ECJ decision in Abels
In Abels , the ECJ had to consider whether Article 1(1) of the Acquired Rights Directive extended to two situations, namely (a) where the transferor was adjudged insolvent or (b) where the transferor had been granted a period of court protection with a suspension of the payment of debts known in Dutch law as ‘surseance van betaling’ .
In that case, Mr Abels was employed by a Dutch company called Thole. Following an application by this company, the District Court made a provisional order suspending payment of the company’s debts and then made that order final. Eventually on June 9, 1982, the same court declared the company to be insolvent and appointed a liquidator.
Thole, the Dutch Government and the European Commission all argued that the Acquired Rights Directive only applied to transfers effected on the basis of agreement entered into voluntarily to the exclusion of any transfers resulting from legal proceedings whose purpose was the collective and compulsory liquidation of the debtor’s assets or the overcoming of the debtor’s financial difficulties in order to prevent such liquidation. They argued that such transfers lacked ‘the essential factor of contractual autonomy’ by virtue of the fact that the transfer involved the intervention of the court [1985] ECR 469 at 482.
The ECJ concluded (at 485), in relation to issue (a), that the Acquired Rights Directive did not apply to transfers 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 is submitted that the exception only applies to situations where a company is in liquidation following the institution of ‘insolvency proceedings instituted with a view to the liquidation of the assets of the transferor’ and the transfer takes place ‘under the supervision of a competent judicial authority’ . These factors were clearly material to the decision of the ECJ in light of the approach taken by the court when it came to consider issue (b), i.e. whether or not the Acquired Rights Directive applied to cases of ‘sursceance van betaling’ .
Even though such situations involved legal proceedings (unlike the liquidation of Vanguard), the ECJ noted as follows:
They are, however, different from liquidation proceedings in so far as the supervision exercised by the court over the commencement and the course of such proceedings is more limited (at 486).
The court then concluded 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’ .
(ii) High Court decision in Mythen
Barrington J commented on this important issue in his judgment in Mythen . Having quoted extensively from both the opinion of the Advocate General and from the judgment of the ECJ in Abels , Barrington J stated as follows:
[T]he 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 surseance 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 a surseance van betaling.
Barrington J held that the sale of a business by a receiver was not necessarily excluded from coverage by the Acquired Rights Directive and the Regulations. In emphasising the difference between a sale by a liquidator appointed by the court and a sale by a receiver appointed by a debenture holder, Barrington J stated as follows:
More important however is the fact that the appointment of a receiver by a debenture holder is an entirely extra-judicial process.
(iii) ECJ decision in Dethier Equipment
In this case a Belgium court made an order to put the company into liquidation (this procedure was slightly different from insolvency procedures under Belgian law). The liquidator then dismissed Mr Dassy and transferred the assets of the company to Dethier. The Belgian court asked whether the Acquired Rights Directive could apply to a company in voluntary liquidation but the ECJ held that this did not arise on the facts as the company was being wound up by court order.
The court then emphasised the importance of the purpose of the procedure and it noted that the objective of the procedure was the liquidation of the company by the realising of the company’s assets for the benefit of the company itself and, subsidiarily, of any creditors.
In this case the company had continued to trade during the liquidation. The ECJ stated that:
In such circumstances continuity of the business is assured when the undertaking is transferred. There is accordingly no justification for depriving the employees of the rights which the Directive guarantees them on the conditions it lays down.
Accordingly the ECJ concluded that ‘the Directive applies in the event of the transfer of an undertaking which is being wound up by the court if the undertaking continues to trade’ .
(iv) ECJ decision in Sanders
In this case the company in question was in voluntary liquidation. The liquidator dismissed Mr Sanders on July 27, 1993 and transferred part of the company’s stock to another company. Sanders was then asked to work for the new company. The Belgian court referred a question to the ECJ as to whether the Acquired Rights Directive applied when the transferring company was in voluntary liquidation.
The ECJ held that the Directive did apply in those circumstances. The ECJ stated:
It should be noted that the reasons which led the court to hold in Dethier Equip ment that the Directive can apply to transfers that occur while an undertaking is being wound up by the court are all the more pertinent when the undertaking transferred is being wound up voluntarily.
Application of principles to case before the Tribunal
Accordingly, the claimants submit that where neither the Acquired Rights Directive nor the Regulations expressly exclude transfers by a liquidator in a voluntary liquidation then the EAT should not extend the exclusion set out in Abels which is limited to transfers that occur in the context of insolvency proceedings instituted with a view to the liquidation of the assets of the transferor and which are under the supervision of a competent judicial authority.
In this case, there were no proceedings instituted and the liquidation did not take place under the supervision of any judicial authority. Furthermore, the exclusion in Abels applies to insolvency proceedings ‘instituted with a view to the liquidation of the assets of the transferor’ . In D’Urso and Ors v. Ercole Marelli Elettomeccanica Generale Spa and Ors (Case C-362/89 ) [1991] ECR I-4105 , the ECJ held that the Directive did apply to a transfer of assets by a company even if it was undergoing a compulsory court administrative liquidation where by order it had been decided that the undertaking was to continue trading, for so long as that decision remained in force.
If further reason were needed, this would be an additional reason for not excluding the Acquired Rights Directive and the Regulations. In this case, it was clearly intended that the liquidator would try to sell the business of Vanguard as a going concern. In that regard, please see the copy letter from Mr Gerard Harte, director of Vanguard, dated January 3, 2000, sent to the customers of Vanguard which states in paragraph 2 that ‘the liquidator proposed by the directors has given an undertaking to continue to run the business as a going concern until a buyer takes over’ . The liquidator proposed by the directors was in fact appointed on January 11, 2000, and the business of Vanguard was transferred to Keytech on February 11, 2000.
The liquidator was entitled to do this. In the submission of Keytech the provisions of section 231(2)(a)(i) of the Companies Act 1963 are stated as ‘obligations of the liquidator’ . In fact these are described as ‘powers’ rather than obligations in the Companies Act .
In addition, pursuant to section 321(3) the exercise of such powers conferred by section 231 ‘shall be subject to the control of the court’ in a compulsory winding-up. In a voluntary winding-up pursuant to section 276(1)(b) , the liquidator could exercise the aforementioned power ‘without sanction’ .
Keytech places reliance on the High Court decision of In the Matter of Castle Brand Ltd (In liquidation) and In the Matter of the Companies Acts 1963 to 1983 , unreported , High Court , Hamilton J , March 25, 1985 . That case, the claimants believe, concerned a company which was being wound up by order of the court.
In addition, the EAT in the cases of Kelly & Others v. Cavanagh and Hiester Ltd (In liquidation) v. Dubshad Ltd held that the Regulations do apply to the transfers of a business from a company in voluntary liquidation. This determination of the EAT was made on March 10, 1996, in Cases UD222/96 to 224/96 and according to Gary Byrne in his book Transfer of Undertakings (1999), p. 332, those decisions are under appeal.
Accordingly, it is clear that to the extent that the Acquired Rights Directive and the Regulations have been held not to apply to a transfer of the assets of a business in liquidation then that exclusion is limited to transfers by a liquidator in a court winding-up involving an insolvent company where the winding-up is under the supervision of a competent judicial authority.
In any event, without prejudice to the foregoing, the claimants do not admit for the purposes of these submissions that Vanguard was clearly insolvent. The liquidation of Vanguard was organised by the directors of the company. According to the documents available the directors appear to have formally taken the decision to voluntarily wind up the company at a meeting of December 29, 1999. Indeed according to a letter from Vanguard to Mr Christy McQuillan of SIPTU dated December 29, 1999, this was precipitated by the erroneous release of a letter to creditors of Vanguard on December 23, 1999, in relation to the proposed creditor’s voluntary winding-up which apparently was just ‘one of a few options’ which was being considered by the directors of Vanguard. It is not clear what other options may have been envisaged.
In addition, no judicial authority had determined that Vanguard was insolvent. Such determination could only be made by the High Court. In addition, the claimants submit that the documents appended to the Keytech submission do not conclusively establish the insolvency of Vanguard. In particular, there is no evidence that the company was unable to pay its debts within the meaning of the Companies Acts . In addition, the profit and loss account for year ended November 30, 1998 (appended to Keytech’s submission), indicated that the company made a gross profit in that year of £696,401 and a profit for that financial year of £80,433. However, there had clearly been a dramatic improvement in the company’s performance in light of the gross profit of £345,140 the previous year and the loss for that previous financial year of £387,823. Clearly the company’s performance and profitability improved dramatically between 1997 and 1998.
In the regard, the comments of the Advocate General in Ables are appropriate where he stated as follows (at p. 475):
It will however be for national courts to ensure that undertakings cannot escape the provisions of the Directive unless they really are insolvent. To this end, a mere winding-up order in the English sense, or its equivalent, will not be suffi cient 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 formerly found, in accordance with national law provisions, that an undertaking in liquidation is insolvent and that the transfer of the business is made as a consequence.
It is submitted on behalf of the claimants that this is an additional reason why this Tribunal should not exclude the application of the Acquired Rights Directive and the Regulations from being applied to the sale of a business by a liquidator unless that occurs following a court order for the winding up of the company, where a finding of insolvency has been made.
The requirement that the liquidation proceedings or other analogous insolvency proceedings be under judicial supervision or the supervision of another competent authority (which it is submitted flows from the ECJ decision in Ables ) is reflected in the new Council Directive 98/50 which amends the Acquired Rights Directive .
This new Directive does not have to be implemented by the Member States until July 17, 2001. However, the amending Directive provides for a new Article 4(3) of the Acquired Rights Directive and it provides as follows:
1. Unless Members States provide otherwise, Articles 3 and 4 (of the Acquired Rights Directive ) shall not apply to any transfer of an undertaking, business or part of an undertaking or business where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of a competent public authority (which may be an insolvency practitioner authorised by a competent public authority).
Accordingly, it is envisaged that the exclusion will only apply in circumstances where there have been proceedings instituted with at view to the liquidation of the company’s assets, and the matter is taking place under the supervision of a competent public authority or practitioner authorised by a competent public authority.
It is submitted that this new provision is consistent with the claimants’ interpretation of the ECJ decision in Ables and the analysis of it by Barrington J in the High Court in Mythen and accordingly the claimants submit that this transfer is covered by the Acquired Rights Directive and the Regulations.
Legal submission of the second named respondent
The second named respondent submits that the Transfer of Undertakings Regulations 1990 (hereinafter referred to as ‘the Regulations’ ) do not apply to the transfer of assets between the liquidator of the first named respondent and the second named respondent as the first named respondent was in a creditors’ voluntary insolvent liquidation at the date of the said transfer. The second named respondent relies upon the Ordinary Resolution of Vanguard Plastics (Ireland) Ltd dated January 11, 2000 directing that the company be wound up voluntarily. It is submitted that that is evidence of the insolvency of the said company but in the event that there is any doubt as to the insolvency of the company the second named respondent relies upon the statement of affairs of the company of January 11, 2000 a copy of which was given to the creditors of the company at the meeting of the creditors on January 11 at which the liquidator was appointed which shows an estimated deficit of IR£859,805 and a copy of the company profit and loss account for year ended November 30, 1998 at a deficit of some £1,013,941.
In the light of the evidence it is submitted that the claimants are not entitled to go behind the fact of the insolvent voluntary liquidation of Vanguard Plastics (Ireland) Ltd.
The liquidator of Vanguard Plastics (Ireland) Ltd properly continued trading for a short period of some weeks in order to maximise the value of the assets of the company in accordance with the obligations of the liquidator pursuant to section 231(2)(1) of the Companies Act 1963 as amended to:
do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.
Everything done by the liquidator was with a view to the liquidation of the assets at the best possible price in the interests of the creditors.
The transfer of a business that occurs in the context of insolvency proceedings instituted with a view to the liquidation of the assets of the transferor does not come within the scope of the Regulations. This has been confirmed by the High Court (In the Matter of Castle Brands Ltd (in liquidation) and In the Matter of the Companies Acts , unreported , High Court , Hamilton J , March 25, 1985 ) and more recently by the European Court of Justice (Abels ) . The decision of the European Court in Abels was expressly followed by the High Court in Mythen v. Employment Appeals Tribunal .
The European Court of Justice have reiterated the principle of Abels , i.e. that the transfer of assets by a company in liquidation does not come within the terms of the Directive, in a number of subsequent cases, for example in D’Urso & Ors v. Ercole Marelli Elettromeccanica Generale Spa & Ors [1991] ECR 3057 .
The evidence in this case is that Vanguards Plastics (Ireland) Ltd was insolvent and was in liquidation when the transfer of the assets took place. The facts of the case clearly come within the principle of law as laid down by the European Court of Justice in Abels and has been applied by both the European Court of Justice and the High Court since. The Employment Appeals Tribunal is bound to follow the same principle of law.
Determination of the Tribunal
The parties to this claim have asked the Tribunal to rule on a preliminary issue as to whether the European Communities (Safeguarding of Employees Rights on Transfer of Undertakings) Regulations 1980 . S.I No. 306 of 1980, commonly known as the Acquired Rights Directive implementing Directive 77/187 apply in this case.
The majority decision of the Tribunal, Mr Richard Keating dissenting, is that the regulations apply to a transfer of the business unless the company involved is subject to a compulsory, court-ordered winding-up and has been adjudged insolvent by a competent judicial authority.
The Tribunal is of the opinion, by a majority, that the common thread running through the case law on this issue, including the case law cited by the parties in their respective submissions to the Tribunal, is clearly that if the purpose of winding-up proceedings is anything other than the winding-up, closure or liquidation of a business, the regulations will apply.
We are of the opinion, by a majority, that unless the winding up of a business results in the cessation of that business in its entirety the Directive, the purpose of which is clearly to protect employment, logically should apply to the situation. Put simply, if there were jobs before the transfer and those jobs exist after the transfer has been affected, the persons who held those jobs are entitled to have their employment protected subject to paragraph (5) of the Regulations.
The Tribunal has heard submissions from both parties as to the circumstances in which this business was sought to be wound up. The winding-up was a creditors’ voluntary winding-up. The business was advertised in The Irish Times by the liquidator as being sold as a going concern. The claimants gave evidence that the business ceased production merely for a matter of hours and a number of staff were retained by the new employer. The business appears to have resumed with the same or similar activities, that is, it appears to have retained its identity.
The majority ruling of the Tribunal on this preliminary issue is that on the basis of the evidence presented to it by the parties and on application of the law to this evidence the Acquired Rights Directive applies in this case.
Dissenting opinion of Mr Richard Keating: The net issue in this preliminary direction that both parties are seeking from the Tribunal seems to me to be the question of the insolvency of Vanguard Plastics Ltd. The majority of case law presented exclude the ‘Acquired Rights Directive ’ applying where insolvency of a company is under judicial supervision.
It is clearly evident to me from the evidence of the liquidator’s representative and the papers submitted by the respondents that Vanguard Plastics Ltd was insolvent. Hence the members of the company took the decision to volun tarily wind up the company.
To maximise the assets of the company, the liquidator took the decision to continue trading for a short period as he is obliged to do in accordance with section 231(2)(i) of the Companies Act 1963 as amended. If the liquidator had ceased trading when appointed, and terminated the employment of all employees, then under present legislation the Acquired Rights Directive would not apply. Regardless of any other issue it seems to me that there is a conflict here between maximising assets of the company on behalf of the creditors and the rights of the employees under the Acquired Rights Directive .
Addressing the question of the insolvency of a company under (a) voluntary liquidation and (b) liquidation under judicial supervision, it is clear that the ECJ has ruled that the Acquired Rights Directive does not apply under (b).
However, in practical terms and more particularly as the law governing voluntary liquidation in Ireland is in my opinion strictly adhered to, I cannot differentiate between (a) and (b) above. In this context I find it interesting to note the comments of the Advocate General in the Abels case: ‘It will however be for national courts to ensure that undertakings cannot escape the provisions of the Directive unless they really are insolvent’ .
I am not aware whether the new Council Directive 98/50 distinguishes between the forms of liquidation available in Ireland. Taking into account however, that this Directive is not due to be implemented until July 2001, it is my opinion that the subject-matter, i.e. whether an insolvency of a company under voluntary liquidation as it applies in Ireland be equivalent to a company adjudged insolvent by a judicial authority, be submitted as a stated case on a point of law to the High Court.
Dethier Equipement
[1998] ICR 541
“The first question
By its first question, the national court essentially seeks to ascertain whether, on a proper construction of Article 1(1) of the Directive, the Directive applies in the event of the transfer of an undertaking which is being wound up voluntarily or by the court.
It should be noted first of all that the Court has consistently held that it cannot give preliminary rulings on questions which bear no relation to the facts and the subject-matter of the main action and are therefore not strictly needed in order to decide the case (see, in particular, Case 126/80 Salonia v Poidomani and Giglio [1981] ECR 1563, paragraph 6; Case C-343/90 Lourenço Dias v Director da Alfândega do Porto [1992] ECR I-4673, paragraph 20; Case C-18/93 Corsica Ferries v Corpo dei Piloti del Porto di Genova [1994] ECR I-1783, paragraph 14; and Case C-96/94 Centro Servizi Spediporto v Spedizioni Marittima del Golfo [1995] ECR I-2883, paragraph 45).
Since the main proceedings concern the transfer of an undertaking being wound up by the court, the Court is not required to interpret the Directive with regard to the transfer of an undertaking being wound up voluntarily, a situation which is unrelated to the subject-matter of the main proceedings, whatever the similarities between the procedure governing winding up by the court and that governing voluntary winding up.
Next, as the Court ruled in Case 135/83 Abels v Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie [1985] ECR 469, the Directive does not apply to the transfer of an undertaking, business or part of a business in the course of insolvency proceedings.
However, it is clear from paragraphs 28 and 29 of that judgment that the Directive is applicable to proceedings such as a ‘surséance van betaling’ (judicial leave to suspend payment of debts), even though they have certain features in common with insolvency proceedings. The Court in fact considered that the reasons for not having the Directive apply in the case of insolvency proceedings were not valid when the proceedings in question involved supervision by the court which was more limited than in the case of insolvency and when they were intended primarily to safeguard the assets of the undertaking and, if possible, to keep the undertaking in business by means of a collective suspension of debt payment with a view to reaching a settlement allowing the undertaking to continue operating in the future.
Similarly, the Court held in Case C-362/89 D’Urso and Others [1991] ECR I-4105 that the Directive did not apply to transfers of undertakings, businesses or parts of a business made as part of a creditors’ arrangement procedure of the kind provided for by the Italian legislation on compulsory administrative liquidation, whose effects were comparable to those of bankruptcy proceedings (paragraphs 28, 31 and 34). Conversely, it did apply when it was decided, under a body of legislation such as that governing special administration for large undertakings in critical difficulties,
that the undertaking was to continue trading for as long as that decision remained in force. In such cases, the primary purpose of the special administration procedure was to give the undertaking some stability allowing its future activity to be safeguarded. The social and economic objectives thus pursued could not explain or justify the circumstance that, when all or part of the undertaking was transferred, its employees lost the rights which the Directive conferred on them under the conditions which it laid down (D’Urso and Others, paragraphs 29 and 32, 33 and 34).
More recently, the Court held in Case C-472/93 Spano and Others v Fiat Geotech and Fiat Hitachi [1995] ECR I-4321 that the Directive applied to the transfer of an undertaking declared to be in critical difficulties pursuant to Italian Law No 675 of 12 August 1977. It pointed out in particular that the purpose of a declaration that an undertaking was in critical difficulties was to enable the undertaking to retrieve its economic and financial situation and above all to preserve jobs, that the procedure in question was designed to promote the continuation of its business with a view to its subsequent recovery and that, by contrast with insolvency proceedings, it did not involve any judicial supervision or any measure whereby the assets of the undertaking were put under administration and did not provide for any suspension of payments (paragraphs 26, 28 and 29).
It follows from that case-law that, in deciding whether the Directive applies to the transfer of an undertaking subject to an administrative or judicial procedure, the determining factor to be taken into consideration is the purpose of the procedure in question (D’Urso and Others, paragraph 26, and Spano and Others, paragraph 24). However, as the Advocate General has stated in points 31, 41 and 45 of his Opinion, account should also be taken of the form of the procedure in question, in particular in so far as it means that the undertaking continues or ceases trading, and also of the Directive’s objectives.
In this case, it is apparent from the information provided by the Cour du Travail that the objective of the Belgian procedure under which a company is wound up by the court is liquidation by realising the company’s assets for the benefit of the company itself and, subsidiarily, of any creditors. It is not a condition for putting a company into liquidation that its liabilities must exceed its assets. Although liquidation may be a stage which precedes insolvency, it can also occur, as the Belgian Government states, when the members no longer wish to cooperate.
It follows that, although the objectives of a winding up by the court may sometimes be similar to those of insolvency proceedings, this is not necessarily the case, since liquidation proceedings may be used whenever it is wished to bring a company’s activities to an end and whatever the reasons for that course.
Since the criterion relating to the purpose of the procedure for winding up by the court appears not to be conclusive, it is necessary to consider that procedure in detail.
According to the reference by the national court, in the case of a liquidation the liquidator, although appointed by the court, is an organ of the company who sells the assets under the supervision of the general meeting; there is no special procedure for establishing liabilities under the supervision of the court; and a creditor may as a rule enforce his debt against the company and obtain judgment against it. By contrast, in the case of an insolvency, the administrator, inasmuch as he represents the creditors, is a third party vis-à-vis the company and realises the assets under the supervision of the court; the liabilities of the company are established in accordance with a special procedure and individual enforcement actions are prohibited.
It is thus apparent that the situation of an undertaking being wound up by the court presents considerable differences from that of an undertaking subject to insolvency proceedings and that the reasons which have led the Court to rule out application of the Directive in the latter situation may be absent in the case of an undertaking being wound up by the court.
That is the case where, as in the main proceedings, the undertaking continues to trade while it is being wound up by the court. In such circumstances continuity of the business is assured when the undertaking is transferred. There is accordingly no justification for depriving the employees of the rights which the Directive guarantees them on the conditions it lays down.
The answer to the first question submitted for a preliminary ruling must therefore be that, on a proper construction of Article 1(1) of the Directive, the Directive applies in the event of the transfer of an undertaking which is being wound up by the court if the undertaking continues to trade.
The second question
By the first part of the second question, the national court essentially asks whether, on a proper construction of Article 4(1) of the Directive, only the transferee may dismiss employees for economic, technical or organisational reasons or whether the transferor must also be accorded that power.
Article 4(1) protects the rights of employees against a dismissal whose sole justification is the transfer, both vis-à-vis the transferor as well as vis-à-vis the transferee.
The Court has held that employees whose contract of employment or employment relationship comes to an end with effect from a date prior to that of the transfer, contrary to Article 4(1), must be regarded as still employed by the undertaking on the date of the transfer, with the result, in particular, that the employer’s obligations towards them are automatically transferred from the transferor to the
transferee (Case 101/87 Bork International and Others v Foreningen af Arbejdsledere i Danmark [1988] ECR 3057, paragraph 18).
Accordingly, inasmuch as Article 4(1) precludes dismissals from taking place solely by reason of the transfer, it does not restrict the power of the transferor any more than that of the transferee to effect dismissals for the reasons which it allows.
The answer to the first part of the second question referred for a preliminary ruling must therefore be that, on a proper construction of Article 4(1) of the Directive, both the transferor and the transferee may dismiss employees for economic, technical or organisational reasons.
By the second part of the second question, the national court essentially seeks to ascertain whether employees unlawfully dismissed by the transferor shortly before the undertaking is transferred and not taken on by the transferee may claim, as against the transferee, that their dismissal was unlawful.
First, it follows from the judgment in Bork International and Others that employees dismissed before the undertaking was transferred, contrary to Article 4(1), must be regarded as still employed by the undertaking on the date of the transfer.
Secondly, it is settled case-law (see, in particular, Case 324/86 Tellerup v Daddy’s Dance Hall [1988] ECR 739, paragraph 14) that the rules of the Directive, in particular those concerning the protection of workers against dismissal by reason of the transfer, must be considered to be mandatory, so that it is not possible to derogate from them in a manner unfavourable to employees.
Therefore, the contract of employment of a person unlawfully dismissed shortly before the transfer must be regarded as still extant as against the transferee even if the dismissed employee was not taken on by him after the undertaking was transferred.
For those reasons, the answer to the second part of the second question referred for a preliminary ruling must be that employees unlawfully dismissed by the transferor shortly before the undertaking is transferred and not taken on by the transferee may claim, as against the transferee, that their dismissal was unlawful.”
Europieces [2001] 1 CMLR 25,
“In relation to the second part of the question, as recast above, the Court has consistently held that the 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 new employer on the same conditions as those agreed with the transferor (see D’Urso and Others, cited above, paragraph 9, and Joined Cases C-132/91, C-138/91 and C-139/91 Katsikas and Others [1992] ECR I-6577, paragraph 21).
However, 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. In that situation the Court has already held that Article 3(1) of the Directive does not apply (Case 105/84 Danmols Inventar [1985] ECR 2639, and Katsikas, cited above, paragraph 30).
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 (Joined Cases C-171/94 and C-172/94 Merckx and Neuhuys [1996] ECR I-1253, paragraph 35).
Further, it should be noted that Article 4(2) of the Directive 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 the termination.
It appears from the order for reference that draft contracts of employment were submitted to various members of staff, including Mr Sanders who declined to enter into them.
In addition, the liquidator would appear to have informed Mr Sanders that the intention was not to change his duties unilaterally, but that circumstances and legal requirements made it necessary to allocate other tasks to him.
That being so, it is for the national court to examine the reasons why the employee refused the contract of employment offered to him and to determine whether that contract involved a substantial change in working conditions to his detriment.
In the light of the foregoing, the answer to the second part of the question, as recast above, must be that Article 3(1) of the Directive does not preclude a worker employed by the transferor at the date of the transfer of an undertaking from
objecting to the transfer of his contract of employment or employment relationship to the transferee, provided he decides to do so of his own accord. It is for the national court to determine whether the contract of employment proposed by the transferee involves a substantial change in working conditions to the detriment of the worker. If it does, Article 4(2) of the Directive requires Member States to provide that the employer is to be considered responsible for the termination.”
THE COURT (Second Chamber),
in answer to the question referred to it by the Cour du Travail de Bruxelles by judgment of 11 December 1996, hereby rules:
1. 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 meaning that the directive applies where a company in voluntary liquidation transfers all or part of its assets to another company from which the worker then takes his orders which the company in liquidation states are to be carried out.
2. Article 3(1) of Directive 77/187/EEC does not preclude a worker employed by the transferor at the date of the transfer of an undertaking from objecting to the transfer of his contract of employment or employment relationship to the transferee, provided he decides to do so of his own accord. It is for the national court to determine whether the contract of employment proposed by the transferee involves a substantial change in working conditions to the detriment of the worker. If it does, Article 4(2) of the directive requires Member States to provide that the employer is to be considered responsible for the termination.”
In re claims by PSK Construction Ltd.
(Case No. 12/2006) EAT
PSK entered into financial difficulty. From the week commencing 20th February, 2006 the sub-contracting work was transferred from PSK to another subcontracting company, PLK Plant and Equipment Hire Ltd. (PLK). PSK and PLK were founded by a Mr. Peter Killeen. The employees of PSK who had worked for PSK up to Friday 17th February, 2006 transferred their employment immediately, in the week commencing Monday 20th February, 2006 to PSK. PSK carried on the work for the main contractor in succession to PLK without interruption, with the same employees, and providing exactly the same kind of services.
The Employment Appeals Tribunal held that there was a transfer of an undertaking from PSK to PLK with effect from the week coming 20th February, 2006 and, at the latest, by Friday 24th February, 2006 (the same week) notwithstanding the transfer was made in the course of the voluntary winding of of PSK
Counsel for the Minister argued that PSK only became insolvent for the purposes of the Protection of Employees (Employers’ Insolvency) Act, 1984 on 16th March, when the resolution was passed at the creditors meeting, and the employees of PSK had taken up employment with PLK three to four weeks prior to the date of the insolvency and therefore the provisions of the Protection of Employees (Employer’s Insolvency) Act, 1984 were not relevant and were not engaged. The Employment Appeals Tribunal held that the employees were not entitled to be reimbursed from the Fun because of the earlier transfer of an undertaking. The employees of PSK who commenced to work for PLK were entitled to continuous service with all rights intact, and no redundancy occurred