When does service provision change amount to transfer of an economic entity?
31 January 2018
The European Court of Justice (“ECJ”) was recently required to consider whether the award of a service contract to a replacement contractor in Portugal amounted to the transfer of an economic entity under the EU Acquired Rights Directive (“ARD”). Portugal has no equivalent legislation to the UK’s service provision change (“SPC”) rules
Facts of the case
The dispute concerned 17 security guards employed by ICTS and assigned to a security services contract that ICTS had with one of its clients, Portos dos Acores SA. The guards were responsible for monitoring the entry and exit points of the client’s port via video surveillance. ICTS provided them with training and instruction on how to carry out their duties, together with uniforms and equipment.
When the contract was re-tendered, ICTS lost and the replacement contract was awarded to Securitas. ICTS informed its employees their employment would transfer to Securitas but Securitas refused to accept this. Securitas commenced providing services under its contract and issued its own staff with similar equipment and uniforms.
Interestingly, the underlying collective agreement for this sector purported to disapply any transfer that might otherwise apply in the context of a security contract being moved from one contractor to another. Nonetheless, the ICTS employees brought claims before the local labour court to establish whether they were employed by one or other contractor, also alleging wrongful dismissal.
The Portuguese courts found there had been a relevant transfer to Securitas and that the dismissals were wrongful. Securitas was ordered to reinstate the majority of the employees and pay compensation. The company appealed to the Portuguese Supreme Court, which referred various questions to the ECJ seeking clarity around whether these events and circumstances could amount to a transfer of an economic entity for the purposes of the EU Acquired Rights Directive.
The ECJ’s ruling
Unsurprisingly, the ECJ concluded there was no barrier in theory to a service provision change amounting to a transfer of an economic entity which retained its identity. Whether it did so in practice was a question of fact, having regard to well-established and familiar principles from previous cases in this area. These included: the type of business; the transfer (or not) of tangible and intangible assets; whether the majority of the staff were taken on; the transfer of customers; the degree of similarity between the activities; and the period (if any) during which those activities were suspended.
The ECJ reiterated that the weight to be given to each factor varied according to the nature of the undertaking. Where the activity relied very heavily on its workforce, the identity would not be retained if the majority of its staff were not taken on by the new contractor. Where the activity was more reliant on equipment or other assets, the fact that the former employees might not be taken on by the incoming contractor was of less consequence and did not preclude the existence of a transfer.
With regard to equipment, the ECJ said that the important point is whether the new contractor uses the same equipment to perform the services as its predecessor. There does not need to be any change in ownership of that equipment - it will suffice if the client owns the equipment and permits its use by successive contractors.
Finally, the ECJ confirmed that the collective agreement purporting to prevent any transfer was void. Any term which seeks to preclude the application of national law on the question of transfer is contrary to the Acquired Rights Directive.
This case does not really establish any new law, but serves as a useful reminder that a particular factual situation in the UK could potentially amount to both an SPC change and an “old-style” transfer of an undertaking. The test for an old-style transfer involves very careful analysis not only of what transfers, but also the nature of the activity and the relative degree of reliance on different assets to perform the services. That is not normally a straightforward task and was one of the main reasons why the UK introduced the alternative SPC test in the first place back in 2006.
Securitas v ICTS Portugal (C–200/16) – judgment available here