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Yesterday (25th Jan) the ECJ handed down its decision in the TUPE case Oy Liikenne Ab v Liskojarivi & Juntunen, a case referred by the Supreme Court of Finland.
In summary, the ECJ follows Suzen and emphasises the need for the transfer of assets or, where there are few/no assets, the transfer of a significant part of the workforce. It relies heavily on Suzen and emphasises sections of the decision in Suzen that the English courts have been moving away from.
The Greater Helsinki Council tendered for the right to run seven local bus routes. The outgoing contractor lost the contract, and it was awarded to Oy Liikenne Ab ('the incoming contractor').
The outgoing contractor owned 26 buses and dismissed 45 people. The incoming contractor bought its own buses - ie not taking over the outgoing contractor's buses - and re-engaged all 33 of the 45 drivers who applied (hiring another 18 of their own) on less favourable terms. It therefore took over a majority of the workforce but no assets, with the exception of buying some (not all) of the bus drivers' uniforms from the outgoing contractor.
The incoming contractor argued that there was no transfer of undertaking because:
(a) it had no contractual relationship with the outgoing contractor, and there was no third party whom the undertaking could transfer 'through' because the Greater Helsinki Council never operated the bus routes;
(b) a bus route, or a group of routes, does not amount to an 'economic entity';
(c) the assets of the outgoing contractor were not taken over by the incoming contractor;
(d) the drivers who were engaged were taken over at their own request - the incoming contractor was free to hire who it wanted; and,
(e) because there is mandatory competitive tendering in the transport sector (under EC Directive 92/50), it is undesirable to apply the traditional transfer of undertaking approach because it acts as a disincentive to contractors in the tendering process.
Adopting the same enumeration:
(a) the absence of a direct contractual relationship may point to the lack of a transfer, but it is not conclusive;
(b) see below
(c) see below
(d) see below
(e) the aim of the Acquired Rights Directive is to protect the interests of workers when there is a change of ownership of an economic entity. The fact that this is pursuant to a competitive tendering exercise does not detract from that purpose - Directive 92/50 is not intended to exempt service providers from obligations that apply to all other employers. Contractors can take the effect of the Acquired Rights Directive into account when putting their tenders together.
The important part of the decision was the guidance on what is an economic entity, and whether a transfer has taken place. The court held:
(i) "the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract...The term 'entity' thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective." (para. 31)
COMMENT: this is a strong statement following Suzen, indicating that a mere grouping of staff, without any assets, for the purpose of a specific contract, may not be enough to amount to an 'undertaking' within the meaning of TUPE. However, the court then goes on to contradict itself - see (iii) below.
(ii) "...the degree of importance to be attached to the various criteria for determining whether or not there has been a transfer...will necessarily vary according to the activity carried on, and indeed the production or operating methods employed in the relevant undertaking, business or part of a business." (para. 35)
COMMENT: the court does recognise that some entities may be more person-orientated than asset-orientated, which should be taken into account when deciding whether there has been a transfer, but this does not seem to be relevant to the issue of WHETHER there is a discrete economic entity in the first place.
(iii) "The Court has indeed held that an economic entity may, in certain sectors, be able to function without any significant tangible or intangible assets, so that the maintenance of the identity of such an entity following the transaction affecting it cannot, logically, depend on the transfer of such assets." (para. 37)
COMMENT: This does not rest easily with the paragraph quoted at (i) above - however, this paragraph does reflect recent thinking on what constitutes an economic entity. It supports the argument that a person-orientated undertaking can transfer despite the lack of transfer of any assets.
(iv) "The Court has thus held that, since in certain sectors in which activities are based essentially on manpower, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaing 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 the employees specially assigned by his predecessor to that task..." (para. 38)
COMMENT: This is following the controversial element of Suzen, and uses almost identical wording to the equally controversial passage in Hernandez . It suggests that, in a person-orientated undertaking, the fact that the putative transferee does NOT take on any of the staff means that there is no transfer of an undertaking. No thought is given by the ECJ for the possibility of a putative transferee deliberately avoiding taking on staff so as to avoid TUPE. This is the problem with Suzen that the more recent Court of Appeal and EAT decisions (such as OCS Cleaning and ECM v Cox) have sought to move away from - however, it is now back in the spotlight.
On the facts, the ECJ held that (despite the majority of the workforce moving over), the lack of the transfer of the main assets (ie the buses) "must lead to the conclusion that the entity does not retain its identity" - ie no transfer!
The English text of the judgment is at: http://www.europa.eu.int/jurisp/cgi-bin/form.pl?lang=en&Submit=Submit&docrequire=alldocs&numaff=&datefs=2001-01-25&datefe=&nomusuel=&domaine=&mots=&resmax=100