In this case three questions were referred to the ECJ by the Lisbon High Court. The second and third questions concerned the circumstances in which a national court is required to make a reference to the ECJ, the first however concerns the Acquired Rights Directive (‘the Directive’) and it is this with which this post is concerned.
Does the concept of the ‘transfer of a business’ within Art 1(1) of the Directive encompass the situation where an undertaking is wound up by its major shareholder and the major shareholder then takes over significant functions of the business.
The facts go back to 1993. In February 1993, AIA, a non scheduled airline charter business in the air transport sector, was wound up. The employees were dismissed pursuant to a collective redundancy. From the 1 May 1993, TAP, the main shareholder AIA, began to operate some of the flights that AIA had contracted to operate. It also operated a number of charter flights. In doing so TAP used four aeroplanes which AIA had used, TAP also assumed responsibility for payment of charges under leasing contracts related to those aircraft. TAP took over office equipment which belonged to AIA in Lisbon and Faro as well as other moveable property. It also took on some former AIA employees.
The redundant employees brought proceedings in the Lisbon Employment Tribunal claiming there was a transfer and seeking reinstatement. In 2007 they succeeded. The Lisbon ET determined that there was the transfer of part of business that had retained its identity and its activities had continued.
TAP successfully appealed to the Lisbon Court of Appeal and the employees then appealed to the Supreme Court of Portugal. The Supreme Court of Portugal held that there was no transfer. It held that the fact that a commercial activity is ‘merely continued’ is not sufficient to support the conclusion that there has been a transfer of a business, since the identity of the business must also be retained. As TAP did not use an entity with the same identity as that belonging to AIA, no transfer could have occurred, this was because the entities concerned were not identical in structure and organisation. Further no customers had transferred because on the facts AIA’s business was linked to one specific asset, namely, a licence which was no transferable.
The Supreme Court of Portugal refused to make a reference to the ECJ saying EU law on this issue was reasonably clear and free from doubt (acte clair). The second and third questions considered by the ECJ relate to this refusal to make a reference. (In short, the employees brought a further claim in Portugal against the state on the basis that Supreme Court had plainly misapplied EU law and Art (1) of the Directive – this resulted in the eventual reference to the ECJ by the Lisbon High Court.)
The ECJ Decision
Unsurprisingly the ECJ (Second Chamber) held that the Supreme Court of Portugal had not properly applied Art 1(1) of the Directive and there was a transfer. However, it gave a useful reminder of the principles relating to the issue of retention of identity in business transfers under the Directive (and hence under Reg 3(1)(a) of TUPE). It held:
Restatement of Principles
(i) Art 1(1) applies wherever, in the context of contractual relations, there is a change in the natural or legal person responsible for carrying on the business who incurs the obligations of an employer towards employees of the undertaking (see Merckx and Neuhuys, C‑171/94 and C‑172/94, paragraph 28; Hernández Vidal and Others, C‑127/96, C‑229/96 and C‑74/97, paragraph 23; and Amatori and Others, C‑458/12, paragraph 29 ).
(ii) The purpose of the Directive is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of that directive is, therefore, the fact that the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (see judgments in Spijkers, C-24/85, paragraphs 11 and 12; Güney-Görres and Demir, C‑232/04 and C‑233/04, paragraph 31 and the case-law cited; and Amatori and Others, C‑458/12, paragraph 30 and the case-law cited).
(iii) In order to determine whether the identity of the business is retained, it is necessary to consider all the facts characterising the transaction concerned, including in particular the type of undertaking or business concerned, 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. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see Spijkers, 24/85, paragraph 13; Redmond Stichting, C‑29/91, paragraph 24; Süzen, C‑13/95, paragraph 14; and Abler and Others, C‑340/01, paragraph 33).
(iv) The degree of importance to be attached to each criterion will necessarily vary according to the activity carried on and the production or operating methods employed in the undertaking, business or part of a business (see judgments in Süzen, C‑13/95, paragraph 18; Hernández Vidal and Others, C‑127/96, C‑229/96 and C‑74/97, paragraph 31; Hidalgo and Others, C‑173/96 and C‑247/96, paragraph 31; and, to that effect, UGT-FSP, C‑151/09, paragraph 28).
(v) What is relevant for the purpose of finding that the identity of the transferred entity has been preserved is not the retention of the specific organisation imposed by the undertaking on the various elements of production which are transferred, but rather the retention of the functional link of interdependence and complementarity between those elements. (paragraphs 46 and 47 of Klarenberg (C‑466/07).
(vi) The retention of a functional link of that kind between the various elements transferred allows the transferee to use them — even if they are integrated, after the transfer, in a new and different organisational structure — to pursue an identical or analogous economic activity (see Klarenberg, C‑466/07, paragraph 48).
The decision on the facts
The ECJ held that in a case such as this concerning the air transport sector, the fact that tangible assets are transferred must be regarded as a key factor for the purpose of determining whether there is a ‘transfer of a business’ within the meaning of Art 1(1) (see, to that effect, judgment in Liikenne, C‑172/99, paragraph 39). Here TAP replaced AIA in the aircraft leasing contracts and actually used the aircraft concerned, which demonstrated that it took over assets that were essential for pursuing the activity previously carried on by AIA. In addition, a certain amount of other equipment was taken over.
Other factors also demonstrated that that there as the ‘transfer of a business’ within the meaning of Art 1(1). For example: (i) TAP replaced AIA in the ongoing charter flight contracts with tour operators, which indicated that AIA’s customers were taken over by TAP; (ii) TAP developed charter flight business on routes previously served by AIA, which reflected the fact that TAP was pursuing activities previously carried on by AIA; (iii) employees who had been seconded to AIA were brought back into TAP for the purpose of carrying out identical tasks to those performed within AIA, which indicated that TAP took over some of the staff who worked for AIA, and; (iv) TAP, from 1 May 1993, began operating some of the charter flight business that had been carried on by AIA until its winding up in February 1993, hence there was virtually no suspension of the activities transferred.
The ECJ further held that in those circumstances, the fact that the entity whose assets and a part of whose staff were taken over was integrated into TAP’s structure, without that entity retaining an autonomous organisational structure, is irrelevant for the purposes of applying Art 1(1) as a link was preserved between, on the one hand, the assets and staff transferred to TAP and, on the other, the pursuit of activities previously carried on by the company that had been wound up. Against that background, it was immaterial that the assets concerned were used for operating scheduled flights as well as charter flights, given that the flights in issue were, in any event, air transport operations and that TAP honoured AIA’s contractual obligations with regard to those charter flights.