The features of the amended Article 1(1) are, firstly, the addition of Article 1(1)(b) which states that:
""... there is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary".
This is an adoption of the much criticised approach of the Court of Justice in Suzen. In that case the Court of Justice defined the term ""entity" as an organised grouping of persons and assets (see above). The amended Directive is therefore likely to continue the weakening of the Directive's impact begun by the Court of Justice. The Suzen judgment was applied in Betts v. Brintel Helicopters. This concerned the re-tendering of a contract to supply helicopter services to North Sea oil rigs. The new contractor did not employ any of the previous contractor's staff or take over any tangible assets. Indeed, it set up its operation in a completely different location. As a result the Court of Appeal decided that the change of contractors following a re- tendering exercise was not a relevant transfer. It now seems that if the UK Government adopts this approach then at least second generation outsourcing contracts will be excluded. There must be a possibility of these same principles applying to initial contracts also as well as the taking back of contract work in-house.
*581 In its own consultation exercise the UK Government had predicted that obtaining agreement on an amendment to improve the present position would be difficult. The Law Society's Employment Law Committee had suggested that certainty could be best achieved by returning to the pre-Suzen position and relying on Spijker in that not any one factor could be decisive. Alternatively, they suggested that transfers of activities could be explicitly included.
Some employers' organisations were opposed to widening the scope of the Directive. One opposed any extension because, first, it meant an employer being required to take on an existing workforce, which might not be an efficient one and, secondly, that a successful contractor may have its own workforce available to undertake the work, and, lastly, because it was opposed to the freezing of existing pay and conditions. It is clear that the Directive has considerably limited the scope of its application. By adopting the latest view of the Court of Justice, a number of outsourcing situations will in future continue to be excluded.
The second change to Article 1(1) is the addition of Article 1(1)(c). This states that the Directive applies to private and public undertakings whether or not they are operating for gain or profit. The UK Government had originally included only those undertakings of a commercial nature in the TUPE Regulations. In a number of judgments, such as Dr Sophie Redmond Stitchting v. Bartol, the Court of Justice confirmed that the Directive applied to non-commercial undertakings also. In Commission v. United Kingdom the European Court of Justice had ruled that the exclusion of non-commercial undertakings was not a correct transposition of Community law. The UK Government had removed the qualification in the Trade Union Reform and Employment Rights Act 1993.
Article 1(1)(c) also excludes ""administrative re-organisations of public administrative authorities" and transfers of administrative functions between such bodies. This again appears to be a reflection of the judgment of the European Court of Justice in Henke which had concerned a re- organisation of local government in Germany. The Court of Justice took the view that the purpose of the Acquired Rights Directive was to protect employees against the ""potentially unfavourable consequences for them of changes in the structure of undertakings resulting from economic trends ..." and that, therefore, transfers of administrative functions within the public sector were not transfers within the meaning of the Directive. There was a view that this judgment did not have significance for the United Kingdom, but applied more in countries such as Germany where there was a strong body of public law. The amended Directive now applies this rule to all Member States.
It suggests that the application of the Directive to much of the public sector is in doubt. Would a future local authority re-organisation, e.g., the recent re-allocation of functions between county councils and unitary authorities, be a *582 ""relevant transfer"? It is difficult to understand how it could be under this amended Article. It does seem clear, however, that outsourcing of activities which were more than administrative, by public authorities, is included, subject to the definition in Article 1(1)(b). Presumably a future judicial decision may define what activities are administrative and what activities are not.
Sea-going vessels
Article 1(2) restricts the application of the Directive to the territorial scope of the Treaty. Article 1(3) excludes sea-going vessels. In its response to the 1998 consultation exercise the CBI reported that the Chamber of Shipping and its European body were in favour of continuing to treat shipping in a special manner by excluding the industry from the consultation requirements and by not treating the sale of a ship as a transfer of an undertaking. In the 1994 and the 1997 proposals, however, the Commission had stated that ""Member States need not apply Section III [consultation provisions] of this Directive to sea- going vessels". The House of Lords Select Committee on the European Communities, considering the proposal, had supported the inclusion of sea-going vessels within the terms of the Directive and had disagreed with the exclusion of the consultation provisions. The amended Directive, however, excludes all sea-going vessels from its application. This was applied in Addison v. Denholm Ship Management when the Employment Appeal Tribunal held that workers based on ""flotels" in the North Sea were excluded because such vessels could be defined as ships. The National Union of Maritime, Aviation and Shipping Transport Officers, in its submission to the House of Lords Committee had argued that:
""With the development of European integration; the continued globalisation of key markets; the need to develop modern transport links within the E.U.; and the advent of the channel tunnel, there is every reason to expect other such takeovers and mergers in Europe's maritime industry. It is therefore essential that Europe's seafarers and other maritime industry employees are protected in the same way as in other industries".
The UK Government had stated in its 1998 consultation that it hoped to bring sea-going vessels within the scope of the Directive, but agreement was obviously not reached on this point.
Share transfers
The House of Lords Committee (see above) also recommended that employees affected by a change of control as a result of a share transfer should also be included. This was a point of view supported by trade unions in the 1994 and the 1998 consultation exercises. One public sector union (in the 1998 exercise) argued *583 that such transfers should be included because the consequences for employees may be the same as in other relevant transfers. They cited an example of a case where a transferee company changed the form of a transfer transaction during the course of negotiations ""with the admitted specific and deliberate intention of avoiding the requirements of the Directive and the TUPE Regulations. The company immediately put into place changes which reduced the pay of the transferred employees". The union argued that the position of these employees was analogous to those of others protected by the Directive and the TUPE Regulations. The CBI disagreed and argued against inclusion in both 1994 and 1998. The Government was unenthusiastic about the idea and there is no mention of share transfers in the amended Directive.
Definitions
The definitions offered for the terms transferor, transferee and representatives of employees in Article 2 are little changed between 1977 and 1998. There is an additional definition offered in Article 2(1)(d), which is the term ""employee". This Article states that an employee is someone who is protected as an employee under national law. Thus Member States are left to decide who is an employee and who is not. Only those defined as employees by the Member State will receive the protection of the Acquired Rights Directive. The result of this is that some Member States have a much lower level of protection than others, e.g., Italy has approximately 21 per cent of its workforce as self-employed, and therefore not covered by the Directive, whilst Denmark and the Netherlands have between 8 and 9 per cent self-employed.
In Mikkelson, a case at the European Court of Justice concerning the application of the Directive, the Commission argued for a Community definition of employee without success, although for the purposes of the application of Articles 48-51 (now Articles 39-42 Treaty of Amsterdam) the Court of Justice had concluded that there could be such a Community meaning. The Commission failed in Mikkelson because the Court concluded that the Acquired Rights Directive was only aimed at partial harmonisation, i.e. extending the existing rights of employees in each country to include transfers. The Commission accepted the reality of this approach in its 1994 proposals which stated:
""... after long discussion with the social partners and national experts, the introduction of a Community-wide definition for the sole purposes of this Directive would create rather than solve problems".
Unequal treatment is therefore accepted between Member States. In the UK this means that some people, who might be treated as employees by the European Court of Justice in certain issues, are not treated as employees for the purposes of the Acquired Rights Directive.
*584 Article 2(2) states that the Directive shall be without prejudice to national definitions of contracts of employment or employment relationships, but ensures that there will be no exceptions made because people work part time, are on fixed term or temporary contracts.
The Transfer
Article 3 in the original and the amended Directives provides that a transferor's rights and obligations arising from a contract of employment or employment relationship existing at the date of transfer shall be transferred to the transferee. There is also an obligation for the transferee to continue to observe the terms of any collective agreement covering the transferred workers.
The original Directive allowed Member States the option of providing for joint liability of the transferor and the transferee for obligations towards transferred employees. A Commission survey in 1990 established that seven Member States (Spain, France, Greece, Italy, the Netherlands, Portugal and Germany) had established some form of joint liability, whilst the remaining five (Belgium, Denmark, Ireland, Luxembourg and the United Kingdom) had not. There was also a divergence amongst the seven who had introduced joint liability. In some countries there were differing time limits for joint liability to remain in place, whilst in others there were none.
In the 1998 consultation exercise the Institute for Personnel and Development raised the issue of the subject matter of joint liability and what is being transferred. They proposed that it should be restricted to contractual rights and that liability for sex, race and discrimination claims should remain with the transferor only. The concern was that the TUPE Regulations had been interpreted by the British courts as transferring non-contractual matters, e.g., in Secretary of State v. Spence [FN27] the Court of Appeal had suggested that the TUPE Regulations:
""... clearly can have the effect of transferring obligations other than contractual obligations ... they may well embrace obligations in tort".
The Law Society, in their submission, expressed the concern that a transferee may be at a serious disadvantage in facing such claims, as they may have little access to witnesses or material necessary for their defence. The Society also raised the problem with regard to employers' liability insurance in that employers are unlikely to have cover for pre-transfer situations. Nevertheless in DJM International v. Nicholas the Employment Appeal Tribunal held that the liability for an alleged act of sex discrimination transferred to the transferee. It supported the view of an Industrial Tribunal that the Regulations applied not only to acts done in respect of a contract, but also acts done in relation to a person employed in the undertaking at the time of the transfer.
*585 The 1994 proposals from the Commission permitted Member States to allow transferors to continue to be liable for obligations incurred prior to the date of transfer. The 1997 proposals changed this to make joint and several liability for these obligations mandatory. The amended Directive (Article 3(1)) once again makes joint liability optional. There is a divergence amongst the Member States in their approach to the issue of joint liability. The Commission reported that seven Member States had introduced some form of joint liability. Within these seven States there were differences concerning the length of time during which the transferor remained jointly liable with the transferee, e.g., in Spain the period is three years, but only one year in the Netherlands and Germany. The concern at being liable for another's, perhaps unknown, debts was of special concern to local authorities, e.g., Gateshead Borough Council, in its response to the 1994 consultation exercise, stated that:
""The proposed joint liability on pre-transfer obligations was felt to be unhelpful as it appeared that a local authority could potentially be liable if an external contractor made staff redundant, even though it would no longer be under the Council's control".
Having, presumably, failed to agree a uniform approach, the Council of Ministers have maintained the position existing as a result of the 1977 Directive.
There is a new Article 3(2) in the amended Directive which obliges Member States to adopt measures to ensure that the transferor notifies the transferee of all rights and obligations which will be transferred, although failure to notify does not stop them transferring. This has been a particular problem in outsourcing situations. When there is a tendering exercise, the non-incumbent contractors may be at a disadvantage in preparing a tender if not given a full description of the liabilities that will transfer to them.
Pension rights
The Government's view, expressed in its 1998 consultation exercise, appears to be that there is an existing obligation for the provision of comparable pension schemes, rather than identical ones, by transferee employers to transferred employees. They accept, however, that this view is disputed. There is no doubt that the contractor offering a non-statutory pension scheme to its employees is at a considerable disadvantage in a tendering situation against a contractor who offers no such benefit and who, therefore, does not have to build such costs into a tender. The issue was one of concern for the Business Services Association, in the 1998 consultation, who are an organisation representing contractors in the cleaning and catering service sectors. They state that they have been in discussion with the Government to ""see if there is a way in which outsourced employees can remain in their public sector pension schemes" and appeared optimistic at the outcome. The Law Society supported the view that there should be an obligation to provide comparable pensions and suggested a code on what is meant by *586 broadly comparable. Some employers' organisations were opposed to any obligation to provide pensions. One stated clearly its view:
""We see no reason to oblige employers to provide an occupational pension just because there has been a transfer of an undertaking when such a requirement is not imposed on other employers. We do not believe that it is appropriate to impose either an obligation on employers to set up an occupational scheme or an obligation to continue with one where the employer does not wish to do so".
The amended Directive differs from the original when, in Article 3(4)(a), it repeats the exclusion of pensions, but changes the words ""shall not cover" to ""unless Member States provide otherwise ... shall not apply ...". There is therefore an option which Member States may choose to take up.
Insolvency exceptions
Articles 4(1) and 4(2) are substantially the same in the original and the amended Directives. They make it clear that a transfer should not be grounds for a dismissal and that there is an exception for dismissals that may take place for economic, technical or organisational reasons entailing a change in the workforce (ETO reasons).
There is then an additional Article 4(a) which excludes certain insolvency situations. The subject of insolvency was omitted from the original Directive. The subsequent perceived underlying problem with offering protection to employees in transfers out of insolvency situations is that to insist on the transfer of existing terms and conditions of all employees may actually hinder the rescue of insolvent enterprises. The European Court of Justice developed its own solution in the case of Abels by distinguishing between those insolvencies whose purpose is liquidation and those whose purpose is the rescue of the enterprise. There has been a continuing debate as to whether there is evidence that the Directive and the TUPE Regulations hinder the rescue of insolvent enterprises.
Employers' organisations, such as the CBI in the 1998 consultation exercise, were in favour of excluding all insolvency situations from the scope of the Directive. If this were not possible then the CBI stated:
""If our argument that insolvency proceedings should be excluded altogether is not, in the event, supported, it should nevertheless be mandatory, and not a Member State option, that the transferor's outstanding debts in respect of employees do not pass to the transferee".
The Government's view, expressed in its consultation document, is that insolvency cases should not be excluded from the Directive as ""this would give Member States undue discretion to reduce protection for employees and would moreover be unnegotiable". It did accept, however, the possibility of not transferring employment debts to the transferee and the possibility of agreements *587 to change terms, with safeguards for employee representatives, to help rescue an undertaking.
Article 4(a) provides for the following:
- undertakings which are the subject of bankruptcy proceedings, or analogous insolvency proceedings, are excluded. This is provided that these proceedings are under the supervision of a competent public authority (which can be an insolvency practitioner);
- in all insolvency proceedings under the supervision of a competent public authority the Member State may provide that the transferor's debts arising from a contract of employment or employment relationship do not transfer. This is provided that there is adequate protection provided by Council Directive 80/987/EEC (the Insolvency Directive--see above);
- agreement may be reached between the transferor, the transferee or persons exercising the transferor's functions, on the one hand, and the representatives of the employees, on the other, on alterations to terms and conditions of employment. These changes are to be for the purpose of safeguarding employment opportunities by ensuring the survival of the undertaking.
There was concern amongst trade unions that any changes should not be agreed with employee representatives who were not trade unions (see below). One public sector union stated:
""Whilst it might be possible to reach real and binding agreements between employers and trade unions, we do not agree that this is so with the type of employee representatives proposed for consultation on transfers and redundancies. This is because there is no right of legal redress against such representatives, unlike the members of a trade union who have recourse to the rule book".
It does seem likely that, if the Government adopts this option and legislates in order to introduce the possibility of making change through consultation, some consultation and agreement will result from negotiations with non-trade union employee representatives. The alternative would be to stop the majority of employees being able to make use of this option.
Employee Representatives
Article 5 is similar to that in the original Directive which, provided the undertaking retains its autonomy, preserves the status and functions of the employee representatives. The amended Directive also provides, in Article 5(1), para. 3, that Member States may take measures to ensure the representation of employees in bankruptcy proceedings which have been instituted with a view to the liquidation of the assets.
*588 Information and Consultation
The Government completed another consultation exercise on consultation rights for employees in situations of collective redundancies and transfers of undertakings in 1998. The intention was to consult on proposals to harmonise and improve the consultation rights of employees in both these situations. Most of the suggestions were concerned with the rights of elected employee representatives and will be the subject of amendments to the TUPE Regulations in 1999.
Article 6 of the Directive itself has a number of changes:
-- Article 6(1) itemises those issues on which the transferor and transferee are obliged to consult. These were the reasons for the transfer; the legal, economic and social implications of the transfer; and measures envisaged in relation to the employees. To this list is added, by the amended Directive, the date or proposed date of the transfer;
-- Article 6(2) provides that where measures are envisaged in relation to employees, then consultation will take place with a view to reaching an agreement. This is perhaps a stronger term than the 1977 Directive which obliged consultation to take place with a view to seeking agreement;
-- new Article 6(4) is aimed at multi-national firms; in future the information or consultation obligations are to be fulfilled whether the transfer decisions are taken by the employer or another undertaking controlled by the employer; it will not be an acceptable excuse to argue that a breach of the information and consultation procedures took place because information was not provided by a controlling body;
-- new Article 6(6) now itemises the issues of which employees are informed if, through no fault of their own, there are no employee representatives. These are the same as those in Article 6(1) (see above).
The need for obligations on firms controlled by non-EU bodies is illustrated by the fact that between 1988 and 1995 there were a total of 495 mergers and acquisitions in the United Kingdom involving North American companies, with a value of over <<PoundsSterling>>2 billion. It will not be acceptable for their EU subsidiaries to claim that the parent company has not provided the necessary information.
Other provisions
Article 7a provides that all employees and representatives of employees are able to make complaints about failure to comply with the terms of the Directive. That there is a need for action in this area was shown by Keane v. Clerical Medical Investment Group. In this case the company consulted a long established staff association about the sale of part of the business. All the members of the association were sworn to secrecy and the first that the affected employees heard *589 about it was on the day of the transfer. One of the employees brought a claim for failure to comply with the consultation requirements but lost because the TUPE Regulations only permitted employee representatives, where they existed, to bring such complaints.
All Member States have three years in which to transpose the amended Directive into national law. The UK Government has indicated that its amendments will come into force in 1999.
Conclusion
Article 7 provides that Member States have the right to introduce laws and regulations which are more favourable to employees. It is likely that, in several areas, the Government will wish to go further than the amended Directive. There must be a question as to whether this can be done in the form of Regulations or whether it ought to be done through primary legislation.
Perhaps the significant aspect of the new Acquired Rights Directive are the number of areas where there is discretion and the matter is left to the Member State. There is discretion for the Member State on whether to:
-- introduce joint liability;
-- have rules which ensure the transferor notifies the transferee of obligations to be transferred;
-- have rules limiting to one year the observance of the terms of collective agreements;
-- apply the Directive to statutory pension benefits;
-- exclude employees from the Directive who do not normally have protection against dismissal;
-- apply the Directive to undertakings which are the subject of bankruptcy proceedings;
-- stop the transfer of debts from an insolvent transferor;
-- allow employers and employees, or their representatives, to agree changes to terms and conditions of employment in order to rescue the undertaking;
-- ensure representation for employees during bankruptcy proceedings;
-- allow the setting of a minimum size of undertaking to which the consultation provisions apply;
-- provide that where there is no employee representation, the employees should be directly informed of aspects of the transfer.
The amount of discretion may be the result of an inability to reach a political agreement on the changes between the Member States. This is evident from the amount of time that it has taken to achieve any form of agreement. The UK Presidency should perhaps be congratulated on achieving this level of agreement.
The preamble to the original Directive included a statement which stated:
*590 ""Whereas differences still remain in the Member States as regards the extent of the protection of employees in this respect and these differences should be reduced".
This statement does not appear in the preamble to the new Directive. The amount of discretion may actually allow differences to be widened between Member States and it will be of great interest to see how the UK Government introduces its changes.
Summary of main changes to Directive 77/187
1. The definition of a transfer of an undertaking is changed to where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic entity, whether or not the activity is central or ancillary (Article 1(1)(b)).
2. The Directive applies to public and private undertakings engaged in economic activities, whether or not for gain (Article 1(1)(c)).
3. Administrative re-organisations of public administrative functions is not a transfer of an undertaking (Article 1(1)(c)).
4. ""Employee" means any person protected by national laws as an employee (Article 2(1)(d)).
5. Part-time, fixed-term and temporary contracts of employment should not be excluded because they are part-time, fixed-term or temporary (Article 2(2)).
6. There must be measures to ensure that the transferor notifies the transferee of all the rights and obligations to be transferred, in so far as they are known or ought to have been known. Failure to do so will not stop those rights and obligations transferring (Article 3(2)).
7. Exclusion of undertakings or businesses subject to bankruptcy proceedings (Article 4(a)), provided that they are under the supervision of a competent public authority.
8. Option to stop debts transferring to the transferee in insolvency situations (Article 4(a)2(a)).
9. May allow employers and employees' representatives or employees to agree changes to terms and conditions in order to safeguard the undertaking.
10. Obligations contained in the Directive apply irrespective of whether the decisions are made by the employer or an undertaking controlling the employer. It is not an excuse that information was not provided by the controlling employer (Article 6(4)).
11. There must be legislation that enables all affected employees and representatives of employees to pursue claims.
[FNcentre] for Research in Industrial and Commercial Law, Middlesex University.
Council Directive 77/187 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of a transfer of an undertaking [1977] O.J. L61/26.
The amended Directive refers to the transfer of an undertaking, business, or part of an undertaking or business. For the sake of simplicity these four categories will be referred to as undertakings in this article.
Council Directive 75/129 on the approximation of the laws of the Member States relating to collective redundancies [1975] O.J. L48/29, amended by Directive 92/56 L245/3.
Council Directive 80/987 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer [1980] O.J. L245/23.
Figures from the Office for National Statistics ONS (96) 36 May 14, 1996.
Transfer of Undertakings (Protection of Employment) Regulations 1981, S.I. 1981 No. 1794.
COM(94) 300 of September 8, 1994.
COM(97) 60 of February 24, 1997.
Case 24/85, Spijkers v. Gebroeders Benedik Abbatoir 1986 E.C.R. 1119.
Case 29/91, Dr Sophie Redmond Stichting v. Bartol 1992 E.C.R. 3189.
Case 392[ ], Schmidt v. Spar und Leihkasse 1994 E.C.R. 1311.
Case 209/91, Rask and Christensen v. ISS Kantineservice 1992 E.C.R. 5755.
Memorandum from the Commission on acquired rights of workers in cases of transfers of undertakings COM(97) 85.
Case 13/95, Suzen v. Zehnacker Gebaudereinigung [1997] I.R.L.R. 255.
ibid. at 259.
Discussed at Malcolm Sargeant, ""European Court of Justice limits the scope of the Acquired Rights Directive" (1997) J.B.L. November p. 568.
[1997] I.R.L.R. 361.
A number of participants in the 1998 consultation exercise have kindly let me have copies of their submissions, although not all of them wished to be quoted.
Above n. 10.
Case 382/92, 1994 E.C.R. 2435.
Case 298/94, Henke v. Gemeinde Schierke [1996] I.R.L.R. 701.
HL Paper 38 Session 1995-96 5th Report, Transfer of Undertakings: Acquired Rights.
[1997] I.R.L.R. 389.
Above n. 22.
Case 105/84, Foreningen Arbejdsledere I Danmark v. Danmols Inventar 1985 E.C.R. 2639.
See Case 53/81, Levin v. Staatssecretaris van Justitie 1982 E.C.R. 1035.
[1986] I.R.L.R. 248.
[1996] I.R.L.R. 76.
Above n. 7.
Case 135/83, Abels v. The Administrative Board of the Bedrijfsvereniging voor de Metaal Industrie 1985, E.C.R. 469.
Department of Trade and Industry URN 97/988; completed on April 9, 1998.
Office for National Statistics ONS (96) 36, May 14, 1996.
IDS Brief 595/August 1997.
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