News & Insights

Summer transfer saga

Did a five-month break in services prevent a transfer of undertaking from occurring?

There is nothing in the legislation governing transfers of undertakings, the Acquired Rights Directive (ARD), to suggest that a temporary cessation of activities would prevent there being a transfer of an undertaking.  However a significant interruption in the activities carried out lends itself to an argument that the relevant entity had not retained its identity and therefore there could be no relevant transfer for the purposes of the legislation.  In a recent case heard by the European Court of Justice (“ECJ”) the court determined whether a five-month cessation of activities meant there was no transfer of an undertaking.

The case centred on a music school in Spain that was set up by a public authority but its day-to-day operations were outsourced to a contractor who won a series of tenders for the contract between 1997 to 2013. During the end of this period the commercial relationship soured, and the school was no longer profitable.  As the public authority was its only client, the contractor company decided to cease all activities and dismiss all its staff.  This happened two months before the end of the academic year in April 2013. Following a new tender process, another contractor was awarded the contract and began managing the school in August 2013. The contractor did not engage any of the staff that had been dismissed by the previous contractor five months prior. The employee representatives of the staff challenged the dismissal.  The court initially held there had not been a transfer of an undertaking because the activities were not resumed until five months after the dismissals.

Mr Siguenza, one of the dismissed employees, appealed this decision. The ECJ was asked to consider whether there had been a transfer of an undertaking for the purposes of the ARD. The courts found that this was capable of being a relevant transfer of an undertaking as the economic activity carried out remained the same, that of a music school, and the new contractor used the same premises, instruments and resources. It is worth noting however that the ECJ also found that the dismissals were probably for an economic, technical or organisational reason entailing changes to the workforce and therefore not void as being linked to the transfer.

The key point that should be noted from this case is that a five-month pause in activities does not automatically mean there cannot be a transfer of an undertaking.  This case is clearly very fact specific due to the fact that three of the five months’ closure were during a time when the music school was closed anyway as it was the summer holidays. The main question is always whether the economic entity retains its identity. The approach under our domestic law is consistent with the approach the ECJ has taken in this case.