TRANSFER OF BUSINESS – PROPORTIONATE TRANSFER OF AN EMPLOYMENT RELATIONSHIP TO SEVERAL ACQUIRERS?
When businesses or parts of businesses are transferred, there is regularly an “automatic” transfer of existing employment relationships to the acquirer. The transfer of employment relationships on the occasion of a transfer of business is of great practical relevance and repeatedly the subject of court decisions. In individual cases, difficult questions may arise regarding the allocation of existing employment relationships. The European Court of Justice (“ECJ”) has now ruled that the proportional transfer of an employment relationship to several acquirers is also possible in principle.
1. Tenor of the ECJ judgment
In its judgment of 26 March 2020, file no. C-344/18 (ISS Facility NV 7 Sonia Govaerts), the ECJ ruled that in the case of a transfer of business involving several acquirers, the rights and obligations arising from an employment contract are transferred to each of the acquirers on a pro rata basis according to the tasks performed by the employee concerned, provided that the resulting splitting of the employment contract is possible.
2. Facts of the ECJ ruling
The ECJ had to decide on the question submitted to it by the Ghent Labor Court on the interpretation of the European Transfer of Business Directive (Article 3 I of Directive 2001/23/EC).
In the main proceedings before the Ghent Labor Court, Ms. Govaerts was employed by ISS Facility Services NV (“ISS”) since 16 November 1992. ISS was responsible under various lots for the cleaning and maintenance of several buildings in the city of Ghent. Lot 1 included museums and historical buildings, lot 2 libraries and community centers, lot 3 administrative buildings. Ms. Govaerts had been assigned at ISS as project manager for all three lots since 1 April 2013. In the course of a new tendering procedure for the three lots, ISS lost all orders. On 13 June 2013 lots 1 and 3 were awarded to Atalian and lot 2 to Cleaning Masters NV. While ISS assumed that there had been a transfer of business under which the employment relationship between ISS and Ms. Govaerts had been transferred to Atalian, Atalian took the legal position that such a transfer of business did not exist and that there was therefore no contractual relationship between it and Ms. Govaerts. Subsequently, Ms. Govaerts filed a lawsuit against ISS and Atalian before the Ghent Labor Court for payment of compensation for termination. The Labor Court ordered ISS to pay this compensation for termination, but dismissed the action against Atalian as inadmissible. The Ghent Labor Court assumed that there had been no transfer of business concerning Ms. Govaerts’ employment relationship because she performed administrative and organizational tasks but did not participate in the cleaning work in the affected buildings which were the subject of the transfer of business. In the appeal proceedings before the Ghent Labor Court of Appeal, ISS submitted its opinion that 85% of Ms. Govaerts’ employment relationship had been transferred to Atalian and 15% of it to Cleaning Masters NV. The Ghent Labor Court of Appeal assessed the facts of the case differently from the decision of the Ghent Labor Court and assumed that there was a transfer of business within the meaning of the Transfer of Business Directive in accordance with the transposing Belgian legislation, which also covered the claimant’s employment relationship. According to the Ghent Labor Court of Appeal, this must have resulted in a legally ordered transfer of the employment relationship from Ms. Govaerts to Atalian and Cleaning Masters NV.
In order to clarify the conformity of this outcome with European law, the Ghent Labor Court of Appeal suspended the proceedings and referred the questions to the ECJ for a preliminary ruling as to whether (1) in the event of a transfer of an economic entity to different acquirers, the employment relationship of an employee who was employed in each of the transferred parts is transferred to each acquirer to the extent of the employee’s activity, (2) the employment relationship is transferred to the acquirer of those parts of the company in which the employee was mainly employed or (alternatively) (3) in such a case there is no transfer of the employment relationship at all.
3. ECJ ruling
In the starting point, the ECJ stated that the Transfer of Business Directive does not regulate the case of the transfer of an employment relationship to several acquirers. At the same time, the ECJ takes into account the objective of the Transfer of Businesses Directive to ensure, as far as possible, the continuation of employment relationships with the transferee in unchanged form in order to prevent a deterioration of the situation of the affected employees solely as a result of the transfer. In addition to the protection of the affected employees, the Transfer of Businesses Directive also seeks to balance the interests of the acquirer. The ECJ further clarifies that for the question of the existence of a transfer of business it is irrelevant whether the economic unit is transferred to one or more acquirers. The ECJ thus ruled out the third variant of the question submitted by the Ghent Labor Court of Appeal, namely that the claimant’s employment relationship was not covered by the transfer of business at all.
In the context of the examination of the submitted question, whether the employment relationship is transferred only to the acquirer with whom the employee mainly performs his tasks, the ECJ comes to the conclusion that this does not sufficiently take into account the interests of the acquirer concerned. This is because a full-time employment contract is transferred to this acquirer, but the employee in question would have to perform the duties in question only on a part-time basis, namely to the extent that he worked for the previous employer for this part of the business. As a consequence, the ECJ affirms a proportionate transfer of the employment relationship to each acquirer according to the tasks performed by the employee. The ECJ considers this to be a balance between the interests of the employees and the respective interests of the acquirer. The practical consequences of the implementation of such a division of an employment relationship between several acquirers must be decided by the national court in the light of national employment law provisions. The ECJ considers the economic value of the lots as well as the time actually spent on each lot to be admissible as a criterion for allocation.
4. Consequences for the practice in Germany
The ECJ ruling seems problematic for labor law practice. The allocation of employees in partial business transfers has already given rise to controversy in the past.
According to the case law of the German Federal Labor Court (Bundesarbeitsgericht; “BAG”), the circumstances at the time of the transfer of business shall be decisive for such classification. Contentwise the allocation is to depend primarily on the intention of the parties to the employment contract. If an assignment is by this means not possible, it must be made according to objective criteria. The BAG focuses on whether the employee was actually (partially) integrated into the transferred business. In order to belong to this part of the business it is not sufficient if the employee has only (also) performed activities for this part of the business. In fact, the BAG’s case law focuses rather on the part of the company in which the employee was predominantly employed, i.e. the main part of the company, and also applies this criterion to temporary activities in other parts of the company. If, after examining these criteria, it remains unclear to which part of the business the employee concerned belongs, the case law of the regional labor courts in Germany, together with parts of the legal literature, assumes that the employee has the right to choose, based on his right of objection, whether it wants to be assigned to the remaining or the acquired part of the business.
The ECJ now opposes the established case law of the BAG on the so-called priority formula for the assignment of employees to transferred parts of the business with a contrary legal interpretation which cannot be disregarded by the German labor courts. The question of how the division of an employment relationship is to be legally implemented in practice remains open. Furthermore, it is questionable whether in comparable cases the German labor courts would have accepted a transfer of the claimant’s employment relationship under sec. 613a German Civil Code (BGB) at all. In the case of employees who, as in the case decided by the ECJ, perform administrative tasks, it is not uncommon to come to the conclusion that their employment relationships are not transferred under the transfer of business. Instead of (artificially) splitting the employment relationship of administrative employees to several acquirers, it seems more obvious that only the employees who were involved in cleaning activities under the various lots in the sub-companies were transferred to the respective acquirer, but not employees of the administrative body. These regularly remain with the former owner of the transferred business. It remains to be seen whether this result, which appears appropriate in a large number of cases, is to be held against the background of the ECJ’s decision.
In the decision discussed above, the ECJ expressly rejected the third question submitted (alternatively) by the Ghent Labor Court of Appeal as to whether there was no transfer of the claimant’s employment relationship to a transfer of business. It also remains to be seen how the Ghent Labor Court of Appeal will decide the case against the background of Belgian labor law and whether it will split the employment relationship between the two acquirers.
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