Telecom Italia carried out an internal reorganisation, and created an IT Operations Section. 10 weeks later, Telecom Italia transferred that section to its subsidiary TIIT. The applicant employees brought proceedings for a declaration notwithstanding the purported transfer they continued to be employed by Telecom Italia. They argued that; firstly, before the “transfer”, the IT Operations Section had not constituted a functionally autonomous entity. Secondly, the overriding power exercised by the parent Telecom Italia prevented the change being classified as a transfer of an undertaking.
The District Court in Trento referred two questions for CJEU.
As regards the “transfer of a part of a business”, does Art. 1(1)(a) and (b) of Directive 2001/23, read in conjunction with Art. 3(1) precludes a rule of national law, which permits the transferee to take over employment relationships of the transferor, without employee consent, where:
- The business transferred is not a functionally autonomous economic entity already existing before the transfer (this was permitted under Italian law)?
- After the transfer, the transferor exercises extensive and overriding powers of the transferee?
The CJEU answered “no” to both questions.
The use of the word ‘preserved’ in the first and fourth subparagraphs of Art. 6(1) meant that the autonomy of the entity must, as a matter of EU law, exist before the transfer. However, the objective of the Directive at Recital 3 combined with Art. 8 reserve a right for Member States to introduce laws more favourable to employees. Thus, “the mere lack of functional autonomy of the entity transferred cannot, in itself, prevent a Member State from ensuring in its national law for the safeguarding of employees’ rights after the change of employer”. The Directive achieves only “partial harmonisation”. Member States are therefore free to enact more generous protection.
There is nothing in the Directive that contemplates that its application is conditional on the autonomy of the transferee vis-à-vis the transferor. The Directive can apply to a transfer between subsidiaries or parent and subsidiary. The CJEU observed that any other interpretation would allow the Directive “to be circumvented with ease” (Klarenberg  ECR I-803, para 40).
In English law, the first question is unlikely to have any direct impact, since the economic entity must exist before the transfer. The CJEU’s robust answer to the second question closes off any idea of a “loophole” in respect of transfers between subsidiaries, and demonstrates the CJEU’s teleological approach to interpretation of the Directive.