Five-month cessation of activities does not prevent transfer of undertaking under EU law
04 September 2018
In a Spanish case, the European Court of Justice (“ECJ”) has ruled that a five-month break in activities between outsourcing contracts did not prevent the transfer of an undertaking under the 2001 EU Acquired Rights Directive (“ARD”).
Unlike in TUPE, there is no specific concept of “service provision change” (“SPC”) in the ARD, but ECJ case law has established that the ARD can apply to outsourcing situations in appropriate circumstances.
Facts of the case
Mr Colino Sigüenza worked as a teacher in a music school which was initially run by the Ayuntamiento de Valladolid, a public authority (the Ayuntamiento). Following a tender process, from 2007 to 2013 the school was outsourced to a private company, Músicos y Escuela (“Músicos”). Músicos used premises and other resources (e.g. musical instruments) provided by the Ayuntamiento.
There was a drop in the number of pupils during 2012/13 and the school became unprofitable. This led to Músicos dismissing all the staff, after which it ceased operating. Músicos was wound up in July 2013 and the Ayuntamiento terminated its contract with the school for non-performance. Employee representatives unsuccessfully challenged the dismissals in a tribunal.
Following this, the Ayuntamiento ran a new tender process and awarded a contract to run the music school to In-pulso Musical Sociedad Cooperativa (“In-pulso”), starting in September 2013. In-pulso used the same premises and facilities provided by the Ayuntamiento as Músicos had done, but it did not take on any of the original staff.
Mr Sigüenza and other ex-employees brought unfair dismissal claims against Músicos, the Ayuntamiento and In-pulso, which were dismissed on the basis of the previous proceedings – the court found that the doctrine of res judicata applied. The court also ruled that there had been no transfer of an undertaking because of a five-month gap between the dismissals and the start of the new outsourcing contract.
Mr Sigüenza appealed, and the appeal court referred the following questions to the ECJ:
- Was there a transfer of an undertaking for the purposes of the ARD in these circumstances?
- If so, were the dismissals by Músicos by reason of the transfer and therefore void? Or were they for economic, technical or organisational (“ETO”) reasons entailing changes in the workforce?
The ECJ’s judgment
The ECJ decided that this scenario was capable of being a transfer of an undertaking, notwithstanding the gap of five months, but Mr Sigüenza’s dismissal was likely to have been for an ETO reason entailing changes in the workforce and therefore not unfair.
The ECJ considered that the relevant economic activity was managing a music school, which was an “asset intensive” undertaking. The musical instruments, premises and other facilities provided by the Ayuntamiento were necessary for running the school. This meant that the issue of whether or not any employees transferred was not relevant to the question of whether there was a transfer of an undertaking.
The ECJ said it was also irrelevant to the question of transfer that at all times the assets remained owned by the Ayuntamiento. The fact that an undertaking was temporarily closed and had no employees at the date of the transfer was relevant but not determinative of the question of whether there was a transfer of an undertaking. It was also relevant that three of the five months were school holidays in any event.
The ECJ noted that Mr Sigüenza’s dismissal occurred before the date of the transfer and that the reason for it was because Músicos could not afford to pay its employees. This indicated that the dismissal may well have been for an ETO reason, provided that the circumstances surrounding the dismissals and the delay in appointing the new service provider were not a deliberate attempt to try to avoid a transfer and deprive the employees of their rights.
The ECJ referred the case back to the Spanish courts to decide whether or not there had been a transfer and also to decide on the question of any ETO reason.
This case is interesting on its facts and also because the ECJ adopted a different approach from the Advocate General’s opinion – best summarised by his contention that the ARD “concerns transfers but does not provide for ‘resurrections’”.
In truth, though, the ECJ’s judgment does not have significant implications for UK law. Under the SPC provisions in TUPE, there is no need for a transfer of significant assets or staff. The provisions merely state that immediately before the SPC there must be “an organised grouping of employees which has as its principal purpose the carrying out of activities on behalf of the client”.
Previous UK case law has established that a temporary break between service providers will not prevent a transfer of an undertaking - see, for example, Inex Home Improvements Ltd v Hodgkins and others  IRLR 13. In that case, the Employment Appeal Tribunal held that there was nothing in TUPE that said that the employees had to be actively engaged in the activity immediately before the SPC. The length of the break and its reason are, however, relevant to the question of whether or not the organised grouping continued in existence.
Colino Sigüenza v Ayuntamiento de Valladolid (C-472/16) – judgment available here