A
UTHOR:
L
UKASR
EICHMANNS
TUDENTN
O.:
10964479
T
HESIS SUPERVISOR:
PROF.
DR. R.M.
B
ELTZERLLM
T
RACK:
E
UROPEAN ANDI
NTERNATIONALL
ABOURL
AWM
ASTERT
HESISP
OSSIBLE RISKS TO EMPLOYEES’
RIGHTS ARISING OUT OF ATRANSFER OF UNDERTAKING WITH INVOLVEMENT OF A
CORPORATE GROUP UNDER
E
UROPEAN LABOUR LAW1
Table of Contents
1. Introduction ... 2
1.1 Foreword ... 2
1.2 Brief description of Directive 2001/23/EC ... 5
1.3 Corporate Group ... 7
2. Possible risks to employees’ rights arising out of a transfer of undertaking with involvement of a corporate group ... 10
2.1 Use of an undertaking as “a central employer” ... 10
2.2 Autonomy of an economic entity ... 14
2.3 Asset-based businesses and Labour intensive businesses ... 16
2.4 Use of one-off projects - Stable economic entity ... 20
2.5 Dismissals for “ETO” reasons ... 23
2.6 Limitation of the validity of collective agreements ... 25
2.7 Appointment of the new representatives of the employees following the transfer ... 28
3. Conclusion ... 30
2
1. Introduction
1.1 Foreword
This master thesis scrutinizes the matter of a transfer of undertaking with the involvement of a corporate group and focuses on possible risks which may arise out of this process. This phenomenon will be analysed from the perspective of European labour law, which means that only relevant legal instruments adopted by the European Union (hereinafter referred to as “EU”) institutions and the related case law of the Court of Justice of the European Union (hereinafter referred to as “CJEU”) will be taken into consideration. Therefore, the research question which will be discussed and subsequently answered in this thesis is following: “What
are the risks to employees’ rights arising out of a transfer of undertaking with involvement of a corporate group under European labour law?”
The subject matter dealing with the protection of employees’ rights during the process of a transfer of undertakings has been regulated at the European level by the Council Directive 2001/23/EC 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 (hereinafter referred to as “Directive 2001/23/EC”), which is also known as the “acquired rights directive”. This directive supersedes its predecessor – the 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 undertakings or businesses (hereinafter referred to as “Directive 77/187/EEC”), which was later amended by the Council Directive 98/50/EC of 29 June 1998.
Directive 77/187/EEC was adopted as part of the Social Action Programme of 1974-1976 along with two other important directives – the Council Directive 75/129/EEC of 17 February 1975 on the approximation of the laws of the Member States relating to collective redundancies and the Council Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer. Those directives were enacted in order to address the social consequences of the economic changes, which occurred in the late 1960´s and in the 1970´s. As Barnard points out, there was a concern that, in the inevitable process of
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restructuring companies, brought about by increased competition as barriers to trade were removed, individual employees would suffer.1
For the purpose of tackling those concerns, Directive 75/129/EEC dealing with collective redundancies was adopted as the first legal tool addressing the subject matter of restructuring companies. Blanpain states that this directive was a response to the AKZO case.2 AKZO, a Dutch-German multinational company, carried out a major restructuring in 1973, in which the enterprise planned to make about 5,000 employees redundant. The company had a lot of subsidiaries all across the member states of the European Community (hereinafter referred to as “EC”), so it was able to evaluate in which state the costs of redundancies would be the lowest. This strategy was largely condemned by the EC law makers and led to demands for setting up a minimum level for EC wide protection of employees in a similar situation.3 Therefore, as pointed out above, the incentive for the regulation of companies’ restructuring in terms of the protection of employees´ rights was given by the case of a restructuring process within a corporate group, where a mother company was able to decide as to where the redundancies would be carried out and hence what the fate of the particular subsidiaries and its employees would be.
Up to now, the subject matter of a transfer of undertakings has been one of the most frequent issues which the CJEU has dealt with in its case law. There have been more than 50 judgements concerning this subject matter until today.4 Therefore it can be stated that this phenomenon is a leading issue on the matter of companies’ restructuring from a labour law perspective. Another interesting fact justifying the relevance of the topic of this thesis is that according to the Report of the Reflection Group on the Future of the EU Company Law published in 2011, the international group of companies has become the prevailing form of European large-sized enterprises.5
That is why I believe that the phenomenon scrutinized in this thesis is highly relevant today, which is especially articulated in the period of (post?) economic crises in Europe. The
1
BARNARD, Catherine; EC Employment Law; (3rd ed. Oxford: Oxford University Press, 2012, cxxxiii, Oxford EC law library. ISBN 01-992-8003-7);p. 619.
2 BLANPAIN, Roger; European labour law; (10th rev. ed. Frederick, Md., 2006. ISBN 90-411-2454-3.); para 1542.
3 Ibid.
4 BARANCOVÁ, Helena; Reštrukturalizácia podnikov v judikatúre Súdneho dvora ES; (Plzeň: Vydavatelství a nakladatelství Aleš Čeněk, 2009, ISBN 978-807-3802-400); p. 17.
5 The Report of the Reflection Group on the Future of the EU Company Law; (European Commission, Brussels, 5 April 2011); p. 59.
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undertakings participating in a corporate group are controlled by a mother company, which supervises business activities within the whole group structure. In this way the transfer of an undertaking within a corporate group is somewhat different from a “regular” transfer, where the transferor and the transferee are not related at all, because the mother company has means to influence this kind of a transfer and its consequences, which may pose a danger for the rights of employees affected by such a transfer. However, on the basis of the research I have done, I have found out that not enough emphasis has been dedicated to the problem of possible risks to employees’ rights arising out of a transfer of undertaking involving a corporate group in European labour law discourse. In my opinion, that is the place where the contribution of this thesis for the academic debate lies.
With respect to the aforementioned, I would like to identify the danger for employees´ rights in relation to the transfer of undertaking deriving from the existence of a corporate group involved in such a transfer. In order to materialize this danger which sometimes might be only theoretical, the intention of controlling companies to deploy practices for preventing the application of Directive 2001/23/EC or to diminish the protection which is granted to the employees´ rights by the directive will be presupposed in this study. By describing such practices , I will be able to determine which risks to employees´ rights arise out of a transfer of undertaking with involvement of a corporate group under the European law and hence to answer the research question. Therefore, the thesis addresses the carrying out of (aspects of) transfers, the use of which in practice is only possible or much more simplified when conducted with the involvement of a corporate group. In other words, the practices which might be carried out equally within a corporate group as well as during a “regular” transfer, where the transferor and the transferee are not related, with more or less the same effect to employees´ rights, are not included in this thesis.
For that purpose, the CJEU case law will be studied very closely, since the Court already dealt with a few cases concerning a transfer of undertaking involving a corporate group. Moreover, it has identified other concepts and practices belonging to this subject matter, which might be scrutinized from the perspective of possible use in the process of a transfer of undertaking with involvement of a corporate group and which might have under certain circumstances detrimental effect to employees´ rights. Apart from the case law, the books and articles written by the experts in the given field as well as the text of the directive itself and other relevant legal instruments are valuable sources of information for the thesis too. The research has been conducted only within the scope of the European law level with no intention to
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scrutinize domestic laws of individual member states, even though some references to national law systems of the EU states might be made for sake of exemplary description of a particular issue discussed in the thesis.
According to the stated research question and the topic at hand, the research will be carried out predominantly by the classic legal research method in a form of descriptive research. The aim of my master thesis is not to deliver an exhaustive list of all possible risks to employees’ rights arising out of a transfer of undertaking with involvement of a corporate group under European labour law, but to try to identify the most frequently used ones or the most likely to happen in the practice. The evaluation criterion for these aspects will be primarily the frequency of appearance of a particular phenomenon in the case law and the literature.
1.2 Brief description of Directive 2001/23/EC
First of all, it is worth providing a basic overview of the content of Directive 2001/23/EC. It was already mentioned above that Directive 2001/23/EC is “a successor” of Directive 77/187/EEC with its amendment in the form of Directive 98/50/EC. As the Preamble of Directive 2001/23/EC states, the reasons for the amendment were the necessity for a revision of Directive 77/187/EEC in the light of the impact of the internal market, the legislative tendencies of the EU member states with regard to the rescue of undertakings in economic difficulties, the case law of the CJEU, Directive 75/129/EEC on the collective redundancies and the legislation already in force in most EU member states.6
The directive applies in cases regarding any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger.7 Moreover, Article 1 (1) (b) stipulates that there is a transfer within the meaning of this directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.8 It is applicable to both private and public undertakings irrespective of whether they are operating for a gain or not.9
6 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; OJ L 82, 22.3.2001, p. 16–20; Preamble, par. 7.
7 Directive 2001/23/EC, Art. 1 (1) (a). 8 Ibid; Art. 1 (1) (b).
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Directive 2001/23/EC stands on the three pillars when it comes to the safeguarding of employees' rights in the event of a transfer of undertaking.10 First of all, Article 3 (1) of the directive entails the rule of an automatic transfer of the employment relationship with all of the rights and obligations which it contains from the transferor (any natural or legal person who, by reason of a transfer, ceases to be the employer in respect of the undertaking, business or part of the undertaking or business11) to the transferee (any natural or legal person who, by reason of a transfer, becomes the employer in respect of the undertaking, business or part of the undertaking or business12) by the reason of the transfer of undertaking, business or part of the undertaking or business. Secondly, the directive provides a protection for employees concerned with dismissals by the transferor or the transferee. The prohibition of dismissals by reason of the transfer is laid down in Article 4 (1) of Directive 2001/23/EC. Nonetheless, the same provision gives both the transferor and the transferee a possibility for layoffs that may take place for economic, technical or organisational reasons entailing changes in the workforce.13 The third pillar is an obligation imposed on the transferor and the transferee to inform and consult the representatives of the employees affected by the transfer (or the employees concerned directly, where there are no representatives). This obligation shall be applicable irrespective of whether the decision resulting in the transfer is taken by the employer or an undertaking controlling the employer.14
Furthermore, Directive 2001/23/EC is intended to achieve a partial harmonization, so it establishes a minimum level of protection, therefore the member states have a right to apply or introduce laws, regulations or administrative provisions which are more favourable to employees or to promote or permit collective agreements or agreements between social partners more favourable to employees.15 This fact along with a number of direct references to national legal systems of individual members states (e.g. the definition of “an employee”, “a contract of employment” or “an employment relationship“) inevitably leads to bigger diversity in a transposition of this directive into domestic laws of the member states, which create a certain divergence in the level of employees´ protection across the EU.16
10 In this part, where the three pillars of the Directive 2001/23/EC are discussed, I refer to: Barnard (n 1), p. 621-622.
11 Directive 2001/23/EC, Art. 2 (1) (a). 12 Ibid; Art. 2 (1) (b). 13 Ibid; Art. 4 (1). 14 Ibid; Art. 7 (4). 15 Ibid; Art. 8. 16 Barnard (n 1), p. 622.
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1.3 Corporate Group
Before the analysis of the topic at hand will be carried out, it is necessary to shortly discuss the characteristics of a corporate group in order to define which kind of a corporate affiliation will be dealt with in this thesis.
Despite the fact that corporate groups are one of the most commonly used form of conducting business in practise, there have been basically no legal instruments on the EU level addressing this subject matter. Moreover, the majority of the national legal systems of the individual member states do not regulate this issue either. There are however some exceptions. For instance, probably the most worth mentioning legal regulation provides German law and its concept of “Konzernrecht”.17 The German “Konzernrecht” also served as a model for the attempt of the European law makers to codify the group law on the EU level.18 It was a proposal of the Ninth Directive on groups of companies drafted in the early 1980´s, which aimed to provide a unified regulation of this phenomenon, however the proposal was abandoned for a lack of support.19 In the current European law it is possible to find only marginal references to the corporate groups such as the one in Directive 2013/34/EU of the European Parliament and the Council on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.20
Even the theory does not provide with a unified definition of a corporate group, however a number of common features of this phenomenon might be identified. For instance, Haar defines a corporate group as “affiliations of enterprises which are composed of several
independent components that are integrated under the unitary control of a dominant enterprise.“21 She then continuous that “the determinants of a corporate group, in particular
in the case of a vertical integration, are the notion of control and the dominant influence of one company over another subsidiary company”22, which means that “as soon as one
company is subjected to the unitary control of another, the company policy as well as its
17 Another regulation of the group law can be also found for example in Portugal, Slovenia, the Czech Republic and Hungary.
18 The Report of the Reflection Group on the Future of the EU Company Law (n 5), p. 59. 19
Ibid.
20 This Directive defines a group as a parent undertaking and all its subsidiary undertakings. In Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC Text with EEA relevance; OJ L 182, 29.6.2013, p. 19–76; Art. 2 (11).
21 HAAR, Brigitte; Corporate Group Law; (Encyclopaedia of European Private Law, J. Basedow, Klaus J. Hopt, Reinhard Zimmermann, eds., Oxford University Press, 2011); p. 1.
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business perspectives are left up to the dominant company.”23 Furthermore, the aforementioned German regulation describes a corporate group in a similar manner: “If a
controlling and one or more controlled enterprises are subject to the common direction of the controlling enterprise, such enterprises shall constitute a group and the individual enterprises shall constitute members of such group. If enterprises are parties to a control agreement or if one enterprise has been integrated into the other, such enterprises shall be deemed to be subject to common management. A controlled enterprise and its controlling enterprise shall be presumed to constitute a group.“24
Typically, a corporate group consists of legally independent companies, which are however associated economically.25 Another important feature also is the fact that it might be made legally permissible for the controlling company to take measures which are detrimental to a particular subsidiary, which is a part of the group, in case the measure was taken in the interest of the group as a whole. Therefore, the interests of the individual subsidiaries might be subordinated to the interests of the group.26 For instance, French law in this respect developed the so called “Rozenblum Doctrine” derived from the domestic case law, according to which the primacy of the group interest requires the consolidation of the corporate group, the pursuit of a coherent company policy, as well as an equilibrium between advantages and disadvantages within the group.27
Nonetheless, it is not an intention to provide a thorough study on all of the existing concepts of the corporate group law. In light of what is mentioned above, a corporate group, for the purpose of this thesis, shall mean a group of companies, where at least one company is the controlling one (“a mother company”) carrying out a dominant influence over the rest of the companies within the group (“subsidiaries”). For the sake of the further research, a mother company will be also deemed to be legally permitted to take measures which are detrimental
23 Ibid. 24
German Stock Corporation Act (Aktiengesetz), § 18 (1); the English translation quoted from „German Stock Corporation Act (Aktiengesetz)“ – the material translated and provided by Norton Rose Fulbright available at:
http://www.nortonrosefulbright.com/files/german-stock-corporation-act-109100.pdf
25 MÖSLEIN, Florian; Towards an Organisational Law of the Polycorporate Enterprise? A Comparative
Analysis; (Corporate Ownership and Control, Forthcoming. Available at
SSRN: http://ssrn.com/abstract=887281); p. 3.
26 Haar (n 24), p. 4; similarly also Draft Proposal for a Ninth Council Directive pursuant to Article 54(3)(g) of the EEC Treaty relating to links between undertakings and in particular to groups, the Preamble p.2/21.
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to a subsidiary as long as the measures taken are conducted in the interest of the corporate group as a whole.
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2. Possible risks to employees’ rights arising out of a transfer of
undertaking with involvement of a corporate group
Firstly, it is necessary to clearly state that according to the interpretation of the CJEU, Directive 2001/23/EC applies to a transfer of undertaking between the transferor and the transferee, which belongs to the same corporate group. Such conclusion has been delivered by the CJEU in the Allen case28 and this outcome was confirmed in the Amatori case.29 However, it is also worth pointing out that the thesis does not analyse only intra-group transfers, but also the transfers from a group subsidiary to companies outside the group, where the danger for employees´ rights nonetheless derives from the existence of group structures as such (see for example the use of a central employer in chapter 2.1). This part therefore discusses particular aspects and tools which a mother company may use during the transfer of undertaking in order to avoid the application of Directive 2001/23/EC or for the purpose to diminish the employees´ rights protection. As already emphasized above, the intention is not to deliver an exhaustive list of all possible risks to employees’ rights arising out of a transfer of undertaking within a corporate group under European labour law, but to try to identify the most frequently used ones or the most likely to happen in the practice upon of the aforementioned evaluation criteria.
2.1 Use of an undertaking as “a central employer”
The CJEU has dealt with a practice, where one company within a group serves as “a central employer” and seconds its employees to other companies belonging to the same group, in the
28 Case C-234/98 Allen (1999), para 17: „It is thus clear that the Directive is intended to cover any legal change
in the person of the employer if the other conditions it lays down are also met and that it can, therefore, apply to a transfer between two subsidiary companies in the same group, which are distinct legal persons each with specific employment relationships with their employees. The fact that the companies in question not only have the same ownership but also the same management and the same premises and that they are engaged in the same works makes no difference in this regard.“ And para 20: “Nothing justifies a parent company's and its subsidiaries' uniform conduct on the market having greater importance in the application of the Directive than the formal separation between those companies which have distinct legal personalities. That outcome, which would exclude transfers between companies in the same group from the scope of the Directive, would be precisely contrary to the Directive's aim, which is, according to the Court, to ensure, so far as possible, that the rights of employees are safeguarded in the event of a change of employer by allowing them to remain in employment with the new employer on the terms and conditions agreed with the transferor.“
29 Case C-458/12 Amatori (2014), para 50: “Therefore, a situation such as that at issue in the main proceedings,
in which the transferor undertaking exercises extensive, overriding powers over the transferor which manifests itself through a tight commercial bond and the commingling of business risk, cannot, in itself, prevent the application of Directive 2001/23.”
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Albron case.30 This case concerned Dutch corporate group Heineken International. Within the group all of staff was employed by the company called Heineken Nederlands Beheer BV (hereinafter referred to as “HNB”). The employee who later initiated the litigation in the main proceedings, Mr. Roest, had been employed by HNB from 17 July 1985 to 1 March 2005 as a staff member in the catering department. He was seconded on a permanent basis by HNB, along with about 70 other staff members in that department, to the company Heineken Nederland BV, which until 1 March 2005 supplied catering at various locations to employees of the Heineken group.31 As of 1 March 2005, the catering activities where transferred from Heineken Nederland BV to Albron Catering BV – an outside company, not being a part of the Heineken group. Mr. Roest along with a trade union, which he was a member of, then filed a lawsuit to a national court in order to determine as to whether the transfer in question falls within the scope of Directive 2001/23/EC.32
The crucial question referred to the CJEU for preliminary ruling in this case basically was as to whether the above outlined situation where employees conclude an employment contract with one company within a group (“contractual employer”) and are then assigned on a permanent basis to another company within a group (“the non-contractual employer”), which subsequently transfers its (catering) activities to a third company outside the group, constitutes the transfer of undertaking within the scope of Directive 2001/23/EC. In other words, can the non-contractual employer be treated as a transferor within the meaning of Directive 2001/23/EC?33 In the light of the above information, the practise identified by the CJEU in the Albron case, which could lead to the possible avoidance of the application of Directive 2001/23/EC, was the use of “a central employer”. Before the judgment was delivered, this concept under the circumstances at hand would suggest that the situation in the main proceeding does not constitute a transfer of undertaking according to Directive 2001/23/EC, because Mr. Roest had concluded an employment contract with HNB, therefore HNB was his employer and only this company could be regarded as the transferor within the meaning of the directive rather than Heineken Nederland BV, where Mr. Roest was “merely” seconded.34
30 Case C-242/09 Albron (2010). 31 Ibid, para 11.
32
The motivation of Mr. Roest for bringing an action to a court was retaining the same working conditions after the transfer – see Case C-242/09 Albron (2010), para 16.
33 See Case C-242/09 Albron (2010), para 19-20.
34 Similar argumentation submitted also by Albron and the Dutch Government in this case – see Opinion of AG Bot in C-242/09 Albron (2010), para 29-30.
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However, the CJEU took a completely different stand in this case by stating that “a
contractual link with the transferor is not required in all circumstances for employees to be able to benefit from the protection conferred by Directive 2001/23.”35 Under Article 3 (1) of this directive, “the transferor's rights and obligations arising from a contract of employment
or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.“36 The Court ruled that the requirement of the presence of either contract of employment or employment relationship must be interpreted as to be equivalent, hence it is not apparent from the text of the directive that the contractual employer must systematically be given greater weight.37 With this respect, the CJEU concluded that “in a context such as that in the main proceedings, Directive 2001/23 does not
prevent the non-contractual employer, to which employees are assigned on a permanent basis, from being likewise capable of being regarded as a ‘transferor’, within the meaning of Directive 2001/23.”38 Therefore, the Court adjudicated that the situation in the main proceeding constituted the transfer of undertaking within the scope of Directive 2001/23/EC.
Although the CJEU in the Albron case adopted a firm attitude against this practice, I am of the opinion that the use of a central employer cannot be completely ruled out as a possible tool for corporate groups in order to avoid the application of Directive 2001/23/EC. In the mentioned case, the employee was posted to the non-contractual employer on a permanent basis and that was also the situation which was addressed in the ruling. The CJEU however did not discuss the possibility when the employee´s assignment to a particular undertaking would be time-limited. It is fair to say that Advocate General Bot in his opinion in the Albron case deals with the whole practice of the use of a central employer quite extensively. He clearly recognized the danger of this practise to employees rights when stating: “If the Court were to consider
that the directive does not apply in the situation at issue, there would be a definite risk that groups of companies would adopt that method of organisation for their employment relationships in order to refrain from its application in the event of a transfer. The application of Directive 2001/23 could therefore be left to the discretion of groups of companies, which is contrary to the mandatory nature of the directive as well as to the objective that it pursues.”39
35
Case C-242/09 Albron (2010), para 24. 36 Directive 2001/23/EC, Art. 3 (1).
37 Case C-242/09 Albron (2010), para 24-25. 38 Ibid, para 26.
39
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Moreover, he clearly separates the issue in the Albron case from the situation when employees of temporary employment business are assigned for a definite period to the user undertakings.40
Nevertheless, what if an employee, who concluded an employment contract with a company serving as a central employer within a corporate group, was seconded to another company within the group for instance “only” for a period of five years and that undertaking were to be transferred to a company outside the group? Is this employee transferred as well and is he covered by the protection stipulated in Directive 2001/23/EC? I personally do not think that the directive is applicable to such a situation. From my point of view, one of the most important features of the Albron ruling was the permanency of the secondment. In case of posting for a limited period of time, even though this might be quite long lasting, the link between the seconded employee and non-contractual employer is much weaker than in the situation of permanent assignment, because the employee is expected at some point to come back to his contractual employer or to be assigned to another subsidiary (possibly even without ever performing any tasks for his contractual employer). The CJEU in the Albron case points out that it is not a rule that the contractual employer must, under all circumstances, be given greater weight. However, it does not mean that in most cases the contractual relationship would not prevail.
After all, it is in my opinion imaginable that the practice of posting an employee by a central employer to another subsidiary within a group for a definite term can be repeated for a number of times. It is possible that in case of necessity of selling the undertaking where those employees are assigned, such employees can be just simply withdrawn back to the central employer and by these means they might be prevented from being part of the transfer, which definitely might be sometimes very favourable for both the transferor and the transferee, but it may also have a detrimental effect to the employees. Therefore, I believe that the danger for the rights of the employees, who concluded an employment contract with a central employer within a corporate group, in case of a transfer of undertaking has been significantly diminished by the outcomes presented by the CJEU in the Albron ruling, however not extinguished completely.
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2.2 Autonomy of an economic entity
Another ruling where the CJEU dealt with a restructuring within a corporate group was the aforesaid Amatori case. As discussed above, a prerequisite for the transfer to happen is for the economic entity to retain its identity. In this case, the CJEU added another requirement by establishing that, for a transfer to be covered by Directive 2001/23/EC, it is necessary for the functional autonomy of the economic entity to be sufficient before the transfer occurs.41
In the Amatori case, the corporate group in question was Telecom Italia, which decided to carry out an internal reorganization.42 Telecom Italia consisted of a number of divisions, one of which was the “Technology and Operations Division”, composed of a number of sections and subsections. Within the reorganization, the IT Operations Section was created and numbers of units, including “Software and test Factory Unit”, were attached to this section. Therefore, employees of the particular units cooperated with each other. Subsequently, in 2010, Telecom Italia transferred the IT Operations Section to its subsidiary, TIIT. The applicants in the main proceedings (Mr. Amatori and others) continued, without having consented to it, their employment relationship with the transferee in accordance with the applicable Italian law. The applicants brought an action to the national court in order to seek “a declaration that the transfer could not be relied on against them and that, consequently,
their employment relationship with Telecom Italia had continued.”43
The issue in this case was whether the directive precludes national legislation that allows the transferee to take over the employment relationships from the transferor if that part of the undertaking does not constitute a functionally autonomous economic entity existing before the time of its transfer, because that is what the applicable Italian law stipulated.44 The CJEU ruled that such national provisions are in line with Directive 2001/23/EC, since its article 8 allows the member states to adopt measures which increase the protection of employees in the case of a transfer of undertaking. Furthermore, as indicated above, the Court explicitly emphasized the necessity of the existing autonomy of the economic entity before the transfer by stating that “if it should prove that the entity transferred did not, before the transfer, have
41
Case C-458/12 Amatori (2014), para 35.
42 In this part, where the background information about the dispute in the main proceedings are discussed, I refer to: Case C-458/12 Amatori (2014), para 12-18.
43 Ibid, para 18. 44 Ibid, para 22.
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sufficient functional autonomy, which it is for the national court to ascertain, that transfer would not be covered by Directive 2001/23. In such circumstances, there would be no obligation arising under that directive to safeguard the rights of the workers transferred.”45
With reference to its previous case law, the CJEU also commented on the content of the concept of autonomy as follows: “…the economic entity concerned must have a sufficient
degree of functional autonomy, the concept of autonomy referring to the powers granted to those in charge of the group of workers concerned, to organise, relatively freely and independently, the work within that group and, more particularly, to give instructions and allocate tasks to subordinates within the group, without direct intervention from other organisational structures of the employer.“46
Quite interestingly, the CJEU justified this outcome by the text of Article 6 (1) of Directive 2001/23/EC, which uses the expression “if the undertaking, business or part of an
undertaking or business preserves its autonomy”.47 Although this provision primarily regulates retaining the status and the function of the employees’ representatives, the Court saw in a word “preserves” the crucial point for delivering the interpretation that there must be some prior autonomy to actually be preserved after the transfer.48 It is worth mentioning that this ruling to some extent responds to the Klarenberg case, where the CJEU scrutinized the opposite situation, i.e. whether Directive 2001/23/EC applies to the situation where the transferred undertaking lost its organizational autonomy after the transfer. Unlike in Amatori, the Court concluded in Klarenberg that such situations must be regarded as a transfer of undertaking in the meaning of Directive 2001/23/EC and stated that the directive may also apply where the part of the undertaking or business transferred does not retain its organisational autonomy, provided that the functional link between the various elements of production transferred is preserved, and that the link enables the transferee to use those elements to pursue an identical or analogous economic activity, a matter which it is for the national court to determine.49
The practice identified in the Amatori ruling hence basically allows avoiding the application of Directive 2001/23/EC in cases where the economic entity lacks sufficient functional
45 Ibid, para 35. 46
Ibid, para 32. In this relation see also a discussion over the concept of autonomy according to Article 6 of the directive in Chapter 2.7 of this thesis.
47 Directive 2001/23/EC, Art. 6 (1).
48 See Case C-458/12 Amatori (2014), para 34. 49 Case C-466/07 Klarenberg (2007), para 53.
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autonomy before the projected transfer. It might be argued that this practice does not depend on the existence of the corporate group and might equally be deployed in a transfer between the two unrelated undertakings. Nonetheless, I am of the opinion that the group structure significantly facilitates the use of such a tool. As it was outlined in the Amatori case, a group might undergo a reorganization during which individual sections or departments may lose their autonomy. In my view, there are no means to prevent a mother company from carrying out such reorganization with the purpose of depriving some independent sections of their autonomy in order to prepare such sections for transfer to a transferee, which might be a subsidiary as well as an outside company, since the directive would not apply in such situation. It can therefore be concluded that the outcome of the Amatori ruling presented by the CJEU poses a substantial risk to employees´ rights related to the possible avoidance of application of Directive 2001/23/EC when a transferred economic entity does not have sufficient functional autonomy before a transfer.50
2.3 Asset-based businesses and Labour intensive businesses
In 1986, the CJEU delivered one of the ground-breaking decisions in this area. It was the famous Spijkers case, where the CJEU defined aspects that must be considered in order to determine whether a particular situation constitutes a transfer in the meaning of the directive or not. According to the Court, it is therefore necessary to asses all the facts characterizing the transaction in question, including the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended.51 It is also worth mentioning that all of those aspects are merely single factors in the overall evaluation which must be made and cannot therefore be considered in isolation.52 Theoretically, each of the enumerated aspects (in combination or in their absence) could under certain circumstances break the link constituting the transfer of undertaking.
50
The outcome of this decision will endanger the rights of employees in those countries whose national law does not extend the protection as defined by Directive 2001/23/EC in a similar manner to Italy in the case in the main proceeding.
51 Case 24/85 Spijkers (1986), para 13. 52
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However, the CJEU case law following the Spijkers case appears to have somewhat simplified these requirements. Watson points out that the case law subsequent to Spijkers divides businesses into two categories: those which operate on the basis of assets (asset-based businesses) and those which are dependant for their operation on manpower (labour intensive businesses).53 This division is then crucial for possibly precluding the application of Directive 2001/23/EC, as will be demonstrated later in this chapter. Probably the decisive judgement, where the CJEU laid down the ground for such division, is the Süzen case.54 This ruling dealt with a transfer of cleaning services in a secondary school in Germany where Mrs. Süzen worked as a cleaner. She was, however, in an employment relationship with a company, which was contracted by the secondary school to clean their premises. When the secondary school concluded a new contract for cleaning services with a different company, Mrs. Süzen and seven of her colleagues were fired. She then started proceedings before the court in Bonn for a declaration that the notice of dismissal served on her by her employer had not brought her employment relationship with this employer to an end.
The question referred to the CJEU for preliminary ruling by the German court was whether the directive also applies to a situation in which a person who had entrusted the cleaning of his premises to a first undertaking terminates his contract with the latter and, for the performance of similar work, enters into a new contract with a second undertaking without any concomitant transfer of tangible or intangible business assets from one undertaking to the other.55 The CJEU with reference to “Spijkers criteria” emphasized that “the degree of
importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business.”56 The Court followed with the observation that in certain labour intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, which is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of
53 WATSON, Philippa. EU social and employment law: policy and practice in an enlarged Europe; (New York: Oxford University Press, 2009, xl, p. 195 ISBN 19-045-0153-2); Chapter 12, 12.114.
54 In this part, where the background information about the dispute in the main proceedings are discussed, I refer to: Case C-13/95 Süzen (1996), para 3-6.
55 Case C-13/95 Süzen (1996), para 9. 56
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the employees specially assigned by his predecessor to that task.57 In that respect, the CJEU answered the above question in the negative in circumstances where “…there is no
concomitant transfer from one undertaking to the other of significant tangible or intangible assets or taking over by the new employer of a major part of the workforce, in terms of their numbers and skills, assigned by his predecessor to the performance of the contract.”58
It can therefore be concluded that, in cases of asset-based businesses, it is essential for the transfer in the meaning of the directive to happen that the transferee takes over the assets, as this is necessary to carry out the particular business or at least these assets must be made available to him in the same manner as they had been made available to the transferor; in cases of labour intensive businesses, a majority of the transferor´s staff, not only in terms of numbers but also taking into account skills, must be transferred to the transferee.59 In other words, on the basis of this concept of businesses division derived from the Süzen case and subsequent decision making practise of the CJEU, it is possible to avoid the application of Directive 2001/23/EC by not transferring the essential assets in cases of asset-based businesses or by not taking over the major part of the transferor´s employees in labour intense businesses respectively.60
It is, therefore, crucial to ascertain which businesses can be considered to be based on assets and for which ones manpower is essential. Even though this issue seems to be rather easy to solve, the opposite is true. The case law of the CJEU does not provide any guidelines in order to determine asset-based and labour intensive businesses. We have discovered from the Court´s rulings that public transport can be regarded as an asset-based service61 as well as including catering activities62 and the driving of underground tunnels for mining.63 On the other hand, the outcomes of Süzen, Hernández Vidal64 and Temco65 suggest that cleaning services will be considered to be based on manpower under certain circumstances. In this relation, it is worth mentioning one of the latest verdicts of the CJEU concerning the
57 Ibid, para 21. 58
Ibid, para 23.
59 Similarly, Watson (n 53).
60 Similarly: Barnard (n 1), p. 642; and DAVIS, Paul; Taken to the Cleaners? Contracting Out of Services Yet
Again; (Industrial Law Journal, Volume 26, June 1997); p. 196-197.
61 Case C-172/99 Oy Liikenne (2001), para 39. 62 Case C-340/01 Sodexho (2003), para 38. 63 Case C-234/98 Allen (1999), para 30.
64 Joined Cases C-127/96, C-229/96 and C-74/97 Hernández Vidal (1998), para 27. 65
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scrutinized matter, where the Court ruled on the obligation of the national courts of higher instances to submit a preliminary question in order to identify the European law conforming interpretation of the concept of a transfer of a business. In the AIA case, the CJEU stated that “in circumstances … characterised both by the fact that there are conflicting decisions of
lower courts or tribunals regarding the interpretation of the concept of a ‘transfer of a business’ within the meaning of Article 1(1) of Directive 2001/23 and by the fact that that concept frequently gives rise to difficulties of interpretation in the various Member States, the third paragraph of Article 267 TFEU must be construed as meaning that a court or tribunal against whose decisions there is no judicial remedy under national law is obliged to make a reference to the Court for a preliminary ruling concerning the interpretation of that concept.”66
As Advocate General Geelhoed argues in his Opinion in the Temco case, companies tend to contract out tasks which do not form part of their core activities to companies specialised in providing ancillary services. There is quite a large number of such services, which are often contracted out, for instance cleaning operations, surveillance services, catering activities, customer service, education and training, hardware and software provision, product development, etc.67 It is, therefore, highly likely that the contracting-out of services might also be used between companies that are members of the same corporate group.
On the basis of the above outlined concept of division of businesses as to whether they are asset-based or labour intensive, those companies, and the mother company in particular, have a strong tool to influence whether the transfer in the meaning of the directive actually happens or not. As implied above, it is sufficient not to transfer the essential assets or the majority of the personnel respectively in order to avoid the application of Directive 2001/23/EC. Such a procedure can also be used in a “regular” transfer between companies not forming any corporate group. However, I am of the opinion that it is again easier to ensure avoidance of the application of the directive by the described means within the corporate group. The difference is in my point of view especially noticeable when we compare the feasibility of conducting the transfer of asset-based services within the group and off this structure.
66 Case C-160/14 AIA (2015), para 45.
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In the event of a regular transfer of an asset-based business, the transferor (or the contract awarder) and the transferee might often have no choice other than to transfer the assets in order, for instance, to keep the costs of the transfer low or to meet the requirements of public tenders. On the other hand, such obstacles are usually easier to overcome in a corporate group, since the cooperation between group member companies is likely to be much higher. Furthermore, it is likely that such a transfer would not be beneficial from a financial perspective for either transferor or transferee, especially if it is necessary to acquire new assets in order to preclude the application of the directive. However, the group as a whole can usually afford such a financial loss for one of the parties, since such detrimental measures are permissible within a group, as long as it is taken in the interest of the entire group as delimited above.
In the light of the above mentioned, I believe that the danger for employees’ rights might be more pronounced in intra-group transfers of undertakings than in cases of a “regular” transfer and that this situation deserves special attention. Although the European case law is not crystal clear in the matter of the transfer of asset-based and labour intensive businesses and many questions remain unanswered, it can be concluded that a practice of not transferring the essential assets or the majority of the staff, which might be rather easily carried out within a corporate group, poses a substantive risk to employees´ rights.
2.4 Use of one-off projects - Stable economic entity
Directive 2001/23/EC is not applicable to one-off projects of limited duration,68 because an undertaking, a business or their parts have to be transferred as a stable economic entity whose activity is not limited to performing one specific works contract. This concept was defined by the CJEU in the Rygaard case. In this matter, Mr. Rygaard worked for a construction company Svend Pedersen A/S (hereinafter referred to as “Pedersen”), which was awarded with a contract for construction of a canteen.69 This company, however, informed the contract awarder that it wished part of the work to be completed by another company called Strø Mølle Akustik A/S (hereinafter referred to as “Strø Mølle”). The contract awarder agreed and Strø Mølle took over materials used at the building site by its processor as well as taking on two apprentices. For some time, both Pedersen and Strø Mølle worked at the construction site
68 Similarly, Barnard (n 1), p. 640.
69 In this part, where the background information about the dispute in the main proceedings are discussed, I refer to: Case C-48/94 Rygaard (1994), para 5-13.
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together. Mr. Rygaard was given a notice from Pedersen and was informed that the company was to be wound up and that he was transferred to Strø Mølle, so that he continued to work at the construction site until the end of the employment relationship with this company, which actually took effect several months after the transfer. Subsequently, Mr. Rygaard contested the dismissal at court.
The national court then asked the CJEU in its preliminary question whether the taking over, with a view to completing works, with the consent of the awarder of the main building contract, started by another undertaking, of two apprentices and an employee, together with the materials assigned to those works, constitutes a transfer of an undertaking, business or part of a business, within the meaning of Article 1(1) of the directive.70 The Court stated, as pointed out above, that the transfer within the meaning of the directive must relate to a stable economic entity whose activity is not limited to performing one specific works contract.71 However, this was exactly the case in the main proceedings, where an undertaking transferred to another undertaking one of its building works with a view to the completion of that particular work.72 Moreover, the CJEU reminded the national courts of the member states of the importance of the transfer of a body of assets enabling the activities or certain activities of the transferor being carried on in a stable way. Only the fulfilment of this requirement might trigger the application of Directive 2001/23/EC.73 Nevertheless, in this matter, the transferor merely made available to the new contractor certain workers and material for carrying out the works in question, so it could not be considered as a transfer of the body of assets.74 Therefore, the Court concluded that the situation in the main proceedings had not constituted the transfer in the meaning of the directive.
In summary, employees are usually assigned to a particular project to work on it with a view of its completion. Although such projects are temporary by nature, some of them – those in construction industry in particular, might be quite long in duration. However, it was decided that, in the event of a transfer of such one-off projects with a view to the completion of that project, such a transfer could come within the terms of the directive only if it includes the transfer of a body of assets enabling the activities or certain activities of the transferor
70
Case C-48/94 Rygaard (1994), para 14. 71 Ibid, para 20.
72 Ibid, para 21. 73 Ibid.
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undertaking to be carried on in a stable way.75 The Rygaard case dealt with a rather small construction works, but what if there had been a large project for construction of a shopping mall for example? In such a case there is likely to be many employees working on the project, not just one employee and two apprentices as the situation was in the discussed ruling. If we imagine that the remaining circumstances were the same, and the Court maintained its reasoning as delivered in the Rygaard case, such a scenario would not constitute a transfer in meaning of the directive either. Many people working on such a “shopping mall project” would be left uncertain about the future of their jobs.
The use of one-off projects therefore poses in my opinion a danger for employees´ rights to some extent in a similar manner to the use of a central employer as discussed above. Companies might use multiple secondments of employees to one-off projects, which are naturally limited in time because, in cases of permanent assignment, the employer might be faced with the risk that in the event of a transfer of the undertaking or business where the employees are posted, Directive 2001/23/EC would under certain circumstances apply as an outcome of the Albron ruling analysed above. The employer therefore might prefer to flexibly post employees back and forth to various one-off projects with reasonable certainty that, where it is necessary to transfer some works to another undertaking, it is likely that the directive would not apply. However, the use of such a scheme and the length of the posting would probably in practise largely depend also on the type of a work performed.
This non-application of Directive 2001/23/EC, when a stable economic entity does not exist in a particular case, gives significant flexibility to a corporate group in how to organize its projects. Some of the projects might therefore be started by one subsidiary, but finished by another company, which is also part of the group, in case the mother company for instance decides that the former subsidiary should focus on a different task, or such uncompleted projects might be sold to outside companies as well. However, all of these transfers are likely to fall outside the scope of Directive 2001/23/EC if the pattern presented in the Rygaard case is followed. Moreover, as discussed above, the higher degree of cooperation between the companies forming a corporate group and its greater financial flexibility (e.g. intra group solidarity and financial loss covering) must be taken into account when assessing the feasibility of conducting this practice with the involvement of the group. For those reasons, I
75
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am of the opinion that the use of one-off projects in order to avoid the application of Directive 2001/23/EC is more likely to happen in a corporate group than during a “regular” transfer and, accordingly, this topic needs to be addressed in this thesis.
2.5 Dismissals for “ETO” reasons
As mentioned in the Introduction, one of the fundamental pillars of Directive 2001/23/EC is protection of employees against dismissals by reason of the transfer, which is regulated in Article 4 (1). Nonetheless, the same provision gives both the transferor and the transferee a possibility for layoffs that may take place for economic, technical or organisational reasons (hereinafter referred to as “ETO reasons”) entailing changes in the workforce.76 Somewhat surprisingly, the CJEU case law regarding ETO reasons is sparse. In the d´Urso case, the CJEU merely confirmed that, although Article 4(1) of the directive states that the transfer is not in itself to constitute grounds for a dismissal by the transferor or the transferee, it goes on to state that this provision is not to stand in the way of dismissals that may take place for economic, technical or organizational reasons entailing changes in the workforce.77 Furthermore, in the Vigano case the CJEU argued that dismissals, which occurred due to additional circumstances (such as the failure of the transferee and the landlords to agree a new lease, the impossibility of finding other commercial premises or the impossibility of transferring the staff to other stores) cannot be considered to happen solely because of the transfer and therefore can be covered by the notion of the ETO reasons.78
Accordingly, if a mother company decides to transfer an undertaking (or part thereof) or a business (or part thereof) within a corporate group with no intention for the transferee to take on the employees belonging the transferred undertaking/business, it has means to arrange circumstances in such a manner as to give the transferee the option to dismiss the employees concerned for one of the ETO reasons. For example, if the transferee is not able to assign work to the transferred employees or it will not be possible to find office space where they could work, such a situation might give a rise to a reason to dismiss those employees according to Article 4 (1) of the directive. However, it should be noted that the CJEU in the
Oy Liikenne case stated that a potential transferee who makes a bid must also be able to assess
whether, if his bid is accepted, it will be in his interests to acquire significant assets from the
76 Directive 2001/23/EC, Art. 4 (1). 77 Case C-362/89 d´Urso (1991), para 19. 78
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present contractor and take over some or all of his staff, or whether he will be obliged to do so, and, if so, whether he will be in a situation of a transfer of an undertaking within the meaning of the directive.79 This Court´s statement somewhat weakens the argument regarding the possible use of this dismissal strategy in practice. However, importantly, the often mentioned close degree of cooperation between the companies within a group and controlling role of mother companies can have substantive and decisive influence on the circumstances in a particular transfer so that it would still be possible to conduct such layoffs of some (not necessarily all) of the staff and make it compatible with Directive 2001/23/EC.
The practice of the use of the ETO reasons for dismissals in the event of the transfer in the meaning of the directive could in theory also be applied within a transnational corporate group when one subsidiary based in the member state with very rigid employment law, which perhaps does not regulate a possibility for an employer to dismiss employees for (some equivalent of) ETO reasons,80 wants to dismiss some its employees in a particular (part of an) undertaking or (part of a) business. In such a situation, the undertaking or business in question could be transferred on the basis of a contract of sale or a lease contract81 to another subsidiary of the group in a different member state, where the dismissal for the ETO reason would be possible to undertake and the business could be transferred back with significantly lower number of staff.
Indeed, such practice is entirely conceivable when the two subsidiaries of the group – the transferor and the transferee – are situated in neighbouring member states, since otherwise it is not foreseeable that the employees concerned would be willing to move with the undertaking across Europe. On the other hand, such back to back transfer between two subsidiaries within one corporate group that are further apart could serve the purpose to encourage the employees concerned to decide not to continue to work at the transferred undertaking or business. The CJEU respects the right of an employee to choose his own employer and, therefore, the employee does not have an obligation to continue in the employment relationship with the new employer, the transferee. 82 If the employee refuses to be transferred with the undertaking, it is up to the domestic law of the member state
79 Case C-172/99 Oy Liikenne (2001), para 23. 80
Such an omission of the regulation of the ETO reasons for dismissals could be based on Article 8 of Directive 2001/23/EC stipulating a right for the member state adopt a regulation, which is more favourable for employees. 81 A lease of the undertaking, part of the undertaking, the business or part of the business can also constitute a transfer in the meaning of the directive, see case 287/86 Ny Molle Kro (1987).
82
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concerned to determine what the fate of such an employee is.83 However, when the employee decides of his own accord not to continue with the contract of employment or employment relationship with the transferee, the directive does not require the member states to provide that the contract or relationship is to be maintained with the transferor.84 Therefore, it is possible that under some national laws of the member states such an employee could be dismissed unless the employer is able to accommodate him in some position within its company.
The practices outlined above are theoretical and require several conditions to be fulfilled in order to be “successfully” carried out. Nevertheless, ETO reasons provide a corporate group with some opportunities to dismiss employees by means of the transfer under the provisions of Directive 2001/23/EC.
2.6 Limitation of the validity of collective agreements
Directive 2001/23/EC stipulates that the transferred employees retain the working conditions applicable to them on the basis of the collective agreement valid at the time of the transfer after they start to work for a new employer. The applicability of such working conditions is, however, not unlimited. According to the directive, following the transfer the transferee will continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement.85 Moreover, the EU member states are provided with an opportunity to include in their national laws the limitation period for observing such terms and conditions, which shall not be less than one year.86 Nevertheless, this limitation is subsidiary, since it is applicable if none of the aforementioned situations, i.e. termination or expiry of the existing collective agreement, or entry into force or application of a new collective agreement, arises within a period of one year after the transfer.87 Precisely those kinds of restraints on the validity of collective agreements might be effectively used during a corporate group´s restructuring with
83
Ibid, para 35. 84 Ibid.
85 Directive 2001/23/EC, Art. 3 (3). 86 Ibid.
87
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the purpose of shortening the period when the concluded collective agreement is legally binding for a particular employer.88
This is especially the case in the member states adopting the aforementioned measure relating to the “1 year +” limit for the validity of the collective agreement with the transferee because, significantly, the period for which this agreement was originally concluded with the transferor is irrelevant. For a better understanding of this issue, the following scenario is instructive:
A mother company concludes a collective agreement with the appropriate trade union, which is applicable also to all of its existing subsidiaries (exhaustively enumerated in the text of the agreement) forming the group, with the duration of seven years. After one year of the collective agreement being in effect, the board of the mother company comes to a conclusion that this agreement is not very beneficial from an economic and business perspective for a major part of one of its most important subsidiaries (this part fulfils the definition requirements of the part of undertaking in the meaning of Directive 2001/23/EC), even though the agreement works just fine for the rest of the undertakings within the group. The subsidiary in question is located in an EU member state providing a limit of the one year for the transferee to observe the collective agreement applicable to the transferred employees at the time of the transfer of undertaking.
So, what are the options for the mother company? The mother company can simply divide the subsidiary by separating the part of the undertaking concerned to create a new, independent company not covered by the collective agreement in question (not mentioned in the collective agreement as a signing party), while the original company (or the rest of it) would remain observing the terms of the agreement in the same manner as before the separation. The separated company might then either conclude a new collective agreement, which is more suitable for the needs of the newly established subsidiary, with an appropriate trade union or wait for one year until the obligation to adhere to the agreement is over for this new company. Either way, the length of the period for which the terms and working conditions enshrined in the original collective agreement (concluded for seven years) are applicable to the separated
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part of the undertaking could be substantially reduced in this case by such restructuring tools unilaterally carried out by the employer, or by the mother company respectively.
At this point it is worth emphasizing that the same practice can be used for limiting the legally binding effect of collective agreements at both company and sectoral levels. The CJEU in its case law89 discussed the situation where the transferor was the member of an employers´ association, which concluded a sectoral collective agreement with its trade union counterpart applicable to the transferred employees (a reference to this agreement was included in their employment contracts). However, the transferee was not a member of such an employer´s association. The issue was whether the transferee was bound by sectoral collective agreements subsequent to the one in force at the time of that transfer. The CJEU articulated that freedom of association, which is a fundamental right, also includes the right not to join an association or union.90 In order to safeguard this right, the transferee who is not a party to the sectoral collective agreement is thus not bound by future changes to that agreement.91
Therefore, in a similar manner to the scenario above outlined, there may be a case where the board of the mother company finds out that the higher level collective agreement applicable to the company and its subsidiaries as the consequence of their membership in a particular employers’ association works well for the most of the group except for several undertakings (it might not be a very suitable agreement for the activity carried out in the undertakings). Those undertakings might, however, be transferred to a newly established company within the group, which is not a member of the employers’ association. On the one hand, such a procedure keeps most of the group as members of the employers’ association (it might still be very beneficial for the rest of the group in general) and, on the other hand, it allows the group to exclude “non-fitting” undertakings out of the reach of the sectoral collective agreement as soon as the reduced binding period expires or the fresh collective agreement for the new company is agreed upon. It can be therefore concluded that this practice of reducing the binding period of a collective agreement by way of the transfer of undertaking is quite effective. However, since it allows a controlling company to unilaterally shorten this period for observing the terms and conditions entailed in a collective agreement, it also poses a substantive risk for employees´ rights.
89 Cases C-499/04 Werhof and C-426/11 Alemo-Herron. 90 Case C-499/04 Werhof, para 33.
91
