Latest in Employment Law>Articles>TUPE Update: Failure to transfer tangible assets – determinative or not?
TUPE Update: Failure to transfer tangible assets – determinative or not?
Published on: 28/08/2019
Article Authors The main content of this article was provided by the following authors.
Dr John McMullen
Dr John McMullen

We devote this issue to a survey of some interesting cases in the European Court on the EU Acquired Rights Directive 2001/23. Our featured case is the fascinating opinion of Advocate General in Grafe and Pohle.

Reiner Grafe and Jürgen Pohle v Südbrandenburger Nahverkehrs GmbH, OSL Bus GmbH

In Reiner Grafe Pohle v Südbrandenburger Nahverkehrs GmbH, OSL Bus GmbH Case C‑298/18 ECJ Advocate General Sharpston has departed from the famous case of Oy Liikenne Ab v Pekka Liskojärvi and Pentti Juntunen C-172/99.

SBN held a contract with the local authority commencing on 1 August 2008 to operate the local public bus transport system in the locality. In September 2016 the local authority retendered the contract. SBN did not tender and ceased business. All its employees were given notice of termination of employment.  In January 2017, SBN agreed on a social plan with its works council. This provided that if employees did not receive an offer of re-employment from the new operator or if they suffered financial loss upon re-appointment, they were to receive severance payments of various amounts.

The new contract to provide local public bus services was awarded to Kraftverkehrsgesellschaft Dreiländereck mbH (‘KVG’) a wholly-owned subsidiary of Rhenus Veniro GmbH & Co. KG. The latter set up a new wholly-owned subsidiary, OSL Bus, to provide the transport service. OSL Bus recruited many of the bus drivers and some of the management staff from the former operator, SBN. But OSL informed SBN that it would not purchase lease or otherwise need SBN’s assets, which included buses, depots, workshops and operating facilities.

Mr Grafe was a bus driver who joined OSL Bus. But OSL declined to take account of his previous periods of service with SBN. He was therefore classified at the entry-level of the collective wage agreement with OSL Bus, as though he were a newly appointed employee. He argued that OSL had to take into account of his earlier period of service. This was because, he argued, his employment relationship was transferred to OSL Bus by way of a transfer of an undertaking.

Mr Pohle had been employed since 1979 by SBN as a bus driver and foreman. SBN terminated his employment before the new OSL service started. OSL did not offer Mr Pohle a job. He also challenged the position.

The following was clear. OSL Bus took over a public bus service from SBN. It took on some drivers, but not the buses. In Oy Liikenne the Court held that bus transport could not be regarded as an activity-based essentially on manpower. In a sector such as scheduled public transport by bus, where the assets contributed significantly to the performance of the activity, the absence of a transfer of assets must lead to the conclusion that the entity does not retain its identity. On that basis were the claims of Grafe and Pohle bound to fail?

Advocate General Sharpston, in her opinion for the Court, was not however of the mind to slavishly assume that the present case automatically led to the conclusion (no transfer) reached in not dissimilar circumstances in Oy Liikenne. Thus:

“It seems to me that it is not simply a question of whether the personnel or the tangible assets (the buses) were transferred to the new operator. Rather, the starting point of any assessment should be the objective of Directive 2001/23, which is to provide protection for employees in the event of a change of employer, in particular to safeguard their rights.  Thus, in my view, any determination requires a greater degree of nuance than that suggested by the parties to these proceedings.”

“… the mere fact that a transfer of tangible assets was a listed factor did not entitle one to conclude that, in the absence of such a transfer of assets, no transfer of an undertaking had taken place. The Court recalled that it had previously held (in Spijkers) that that factor was not decisive on its own. It therefore concluded that the purpose of the directive, namely worker protection, ‘cannot depend exclusively upon consideration of [that] factor”.

But here there was good reason not to take the assets. More stringent emissions requirements now applied. The vehicles had to be suitable for disabled access. Electric buses were the future. The new operator’s contract was for a 10 year period.

Thus:

“…OSL Bus taking over the bus fleet used by SBN was ruled out in practice, because the conditions that applied to operating bus routes for the Landkreis Oberspreewald-Lausitz had changed. More stringent emissions requirements now applied. Buses in service were not allowed to be more than 15 years old (on average SBN’s buses were 13 years old at the time that the new operator took over the bus service). A large proportion of the vehicles used had to be suitable for disabled access. There was a general move towards using electric buses rather than diesel or petrol-fuelled buses; and the referring court took account of the fact that the new operator’s contract was for a 10-year period. Regarding the staff, the referring court accepted SBN’s submission that ‘bus drivers are vital to the economic entity’. The tender specifications stipulated that ‘the contractor must guarantee that the driving staff comply with the requirements of an attractive local public passenger transport service with extensive service- and client-orientation”.

And recruitment of staff in this case had a greater significance because drivers were scarce in rural areas (such as in the area in question in this case, Landkreis Oberspreewald-Lausitz).

So, where the transfer of assets is, in practice, precluded by the existence of such legal, technical and environmental constraints, the national court should not regard that aspect of the transaction as necessarily determinative in deciding whether or not there has been a transfer of an undertaking. AG Sharpston characterised the enquiry thus:

 “The transfer of an undertaking does not happen in the abstract. On the contrary: the elements mentioned by the referring court are consistent with the factors identified as relevant by this Court in its extensive case-law. It is precisely because the transfer of an undertaking has real and practical effects not only for the entities involved but also for their employees that the EU legislature decided to act in this sphere. It would therefore be perverse to examine such cases from a purely abstract perspective. The test the Court applies is quintessentially a practical real-world test: is there ‘a transfer of an economic entity which retains its identity’ within the meaning of Article 1(1)(b) of Directive 2001/23? That assessment cannot be reduced to determining whether the tangible assets are transferred from the old to the new operator”

The operative part of the Opinion is as follows:

“In determining whether an economic entity has retained its identity, and thus whether there is a transfer of an undertaking for the purposes of Article 1(1)(b) of 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, business or parts of undertakings or businesses, the national court should:

–        take full account of the main objective of that directive to protect employees and to safeguard their rights in the event of a change of employer; and

–        assess all the facts and circumstances relating to the transaction at issue including any legal technical and environmental constraints relating to the operation of the business activity in question.

Where the transfer of significant tangible assets is in practice precluded by the existence of such legal, technical and environmental constraints, the national court should not regard that aspect of the transaction as necessarily determinative in deciding whether or not there has been a transfer of an undertaking for the purposes of Article 1(1)(b) of Directive 2001/23.”

If the facts of this case were to arise in Northern Ireland, they would have of course be captured by the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006.

Other activity in the Court

In Cátia Correia Moreira v Município de PortimãoDirective C-317/18 the Court has held that the Directive must be interpreted as meaning that it precludes national legislation which purports to provide that, in the context of a local authority transfer, the affected potentially transferring employees must undergo a public competitive selection procedure and agree a new (even if less beneficial) employment contract with the transferee before they are taken on.

In Christa Plessers v Prefaco NV, Belgische Staat C-509/17 the Court has taken the view that the Belgian judicial reorganisation procedure (“judicial reorganisation by transfer under judicial supervision”) is not a procedure the purpose of which is the liquidation of the assets of the transferor.That means derogation from Articles 3 (transfer of employment) and 4 (protection of employment) of the EU Acquired Rights Directive is not allowed. The purpose of the Belgian procedure is to ensure maintenance, or continuity, of the insolvent transferor company’s activities. So, the basic protections of the ARD must be applied in the case of a transferor transferring its business following this procedure.

A few of the central concerns of the Court in Ellinika Nafpigeia AE v Panagiotis Anagnostopoulos and Οthers  C-664/17 were whether there was a transfer of an economic entity, whether loss of organisational autonomy affected this, and whether there had been a transfer of a “stable” economic entity as is required by European Court jurisprudence.

On the former, it considered that, as the functional autonomy of an economic entity is inherent in its identity, this must be retained after the transfer. But the Court stated that “autonomy does not have to be total”.  In this case the transferee was largely dependent on a third-party company’s production divisions and of its administrative and financial services. But sufficient autonomy could still exist provided that there were safeguards in place, such as contracts and guarantees, which prevented the transferee from being dependent from economic choices unilaterally made by the third party. On the question of economic stability of the transferring entity, the Court intimated that this condition would not be satisfied “if the activity of the entity transferred were limited to the completion of certain specific contracts or programmes”

Continue reading

We help hundreds of people like you understand how the latest changes in employment law impact your business.

Already a subscriber?

Please log in to view the full article.

What you'll get:

  • Help understand the ramifications of each important case from NI, GB and Europe
  • Ensure your organisation's policies and procedures are fully compliant with NI law
  • 24/7 access to all the content in the Legal Island Vault for research case law and HR issues
  • Receive free preliminary advice on workplace issues from the employment team

Already a subscriber? Log in now or start a free trial

Disclaimer The information in this article is provided as part of Legal Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article. This article is correct at 28/08/2019