European Court Of Justice: Two new judgements on transfer of ownership of undertakings

European Court Of Justice: Two new judgements on transfer of ownership of undertakings

In February and March 2020, the European Court of Justice handed down two new judgements on transfer of ownership of undertakings.

The rules on transfer of ownership of undertakings in the Working Environment Act Chapter 16 transposes EU Directive 2001/23 on transfer of ownership of undertakings into Norwegian law. The decisions of the European Court of Justice in this area are therefore of great interest to us in Norway.

In February, the European Court of Justice handed down its judgement in a case concerning the transfer of bus services (C-298/18). Due to financial circumstances, the former employer chose not to submit offers when the bus transport contract was re-tendered in 2016. The new employer that won the tender did not take over the previous employer's buses.

The question that was presented to the European Court of Justice was whether, despite the failure to take over the buses, there was still a transfer of ownership of undertakings. Transfer of ownership of undertakings within the meaning of the Act exists when an independent entity has been transferred to a new employer and has preserved its identity after the transfer.

The case bears several similarities with the Liikenne judgment (C-172/99) of the European Court of Justice, which also applied to the transfer of bus services. The company that won the tender did not take over the buses from the previous employer in this case either.

In assessing whether the business retained its identity after the transfer, the European Court of Justice ruled that bus operations are characterised by the physical assets of the business, i.e. the buses. As neither the buses nor any other operating accessories of significance had been transferred to the new employer, the European Court of Justice concluded in the Liikenne judgement that the conditions for transfer of ownership of undertakings were not fulfilled.

In the February judgement, the European Court of Justice has come to a different result. The court found that there was a transfer of ownership of undertakings even though the buses had not been transferred to the new employer. The reason was the actual circumstances of the case. Due to technical and environmental requirements from the principal, the new employer would have to replace the buses shortly after the takeover. The European Court of Justice ruled that failure to take over in such a case, where the cause was a requirement in the contract with the principal, did not preclude the existence of a transfer of ownership of undertakings.

With this decision, the European Court of Justice signals that the transfer of fixed assets is not always a factor of decisive importance to the question of whether there is a transfer of ownership of undertakings. In our opinion, the direct transfer value of the judgment is limited to cases where the lack of takeover/non-takeover is due to external restrictions, such as regulations in contract with the contractor. In cases where the acquirer could in principle choose to take over the operating equipment, the lack of takeover is likely to still be a key element.

The decision of the European Court of Justice is available here.

The European Court of Justice also issued a new judgement regarding transfer of ownership of undertakings judgment in March (C-344/18). The case involved a cleaning worker who worked for ISS. She was responsible for three different contracts with a public principal. In connection with a new tender, the contracts were awarded to two different suppliers. The question before the European Court of Justice was what rights the employee had in such a case.

The European Court of Justice ruled that working conditions should be proportionally transferred to each of the transferees, so that the employee would have a part-time position in each of the companies. The European Court of Justice stated in its justification that the purpose of Directive 2001/23 on transfer of ownership of undertakings is to protect workers and their rights in connection with the change of employer. At the same time, the Court pointed out that the directive is not only intended to safeguard the interests of the employee, but also to safeguard a fair balance between the interests of the employee and the interests of the employer.

The issue addressed by the judgment has, to our knowledge, not previously been dealt with in the European Court of Justice or in Norwegian courts. When transferring parts of a business, the starting point has been that one must consider which employees belong to the transferred part of the business. With this new decision from the European Courts of Justice, both the businesses involved, and the employees concerned must now deal with a new possible outcome of the transaction. Therefore, if there is a basis for a proportional transfer to several acquirers, it must be identified as early as possible in the process.

The decision of the European Court of Justice is available here.

We at Homble Olsby I Littler have extensive experience in assisting our clients in matters relating to transfer of ownership of undertaking issues. As the two above judgments show, there are constantly new questions that may arise in this area. It is therefore important to make legal assessments in advance of such processes, and we are prepared to assist both existing and new clients.

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