Background 

Within the EU and wider EEA significant employment legislation often derives from EU directives which individual member states are then required to implement into their national law. Of particular significance is the Acquired Rights Directive (ARD). This legislation, implemented in the UK through the TUPE Regulations, serves to protect employee rights upon the transfer of a business. The ARD provides for an automatic transfer of staff, as well as, providing staff with enhanced dismissal rights and requiring consultation with staff. Its impact, therefore, can be significant.   

The ARD is particularly significant when a business is acquired within the EEA through an acquisition of the assets of a business. This involves a change of employer and, therefore, the ARD applies. By contrast, where there is an acquisition of shares, the identity of the employing entity (the company whose shares are acquired) does not change and, therefore, the ARD does not apply.   

The ARD can also apply, however, in other scenarios such as in the context of a group re-structure following the winding-up of a group company. As the latest European Court of Justice (CJEU) case on this issue, Ferreira Da Silva v Estado Portugue, makes clear, the ARD is particularly likely to apply in the aviation or wider transport sector where a restructure involves the transfer of significant tangible assets such as aircraft or other transport assets.

Facts of the Case

The Ferreira Da Silva case involved a Portuguese company, Air Atlantis SA (AIA). AIA was wound up and, in the course of the winding-up, its employees were dismissed by reason of redundancy. A couple of months later, TAP, the main Shareholder in AIA, began to operate some of the flights which AIA had contracted to provide using some of the assets which AIA had used; that being four aircraft. TAP also assumed responsibility for payment of charges under leasing contracts relating to the aircraft, took over office equipment and other property and employed a number of former AIA employees. The employees made redundant by AIA initiated proceedings seeking their reinstatement.   

Decision of CJEU

The CJEU found that there was a transfer of a business within the ARD, meaning that the dismissed employees had valid claims against TAP.   

In particular, the CJEU applied the long-standing “retention of business identity” test; that the decisive criterion for establishing the existence of a transfer within the ARD is whether the entity in question retains its identity. This test being applied by considering, 

“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 moveable property, are transferred, the value of its intangible assets at the time of 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”.

The CJEU also made clear that, in the air transport sector, the fact that tangible assets are transferred, “must be regarded as a key factor for determining whether there is a transfer of a business”, within the ARD.   

This decision follows previous case law, particularly the case of Oy Liikenne. In that case, involving a takeover of Swedish bus routes, the ECJ made clear that, in an asset reliant type of business, a transfer of assets may be decisive as to whether there is a transfer. On the facts in Oy Liikenne, the takeover of bus routes did not involve a transfer of buses and, therefore, the ARD was found not to apply.

Applying the retention of business identity test in the Ferreira Da Silva case, the CJEU decided there was a transfer for the purposes of ARD. This was a result of the transfer of significant tangible assets - the aircraft, the taking over of charter flight contracts (indicating that there was a takeover of customers), the development of charter flight business on routes previously served by AIA, the pursuit by TAP of activities previously carried on by AIA and hiring of some AIA staff. Also of significance, was the fact that there was virtually no suspension of activities transferred; the gap being less than three months.

Practical Implications 

This case is an important decision particularly for entities within the aviation and wider transport sector. It makes clear that re-organisations within the EEA are likely to be caught by the ARD where there is a transfer of significant assets, for example aircraft/the takeover of routes/leasing obligations. This is significant as it means that the employees affected by such re-organisations will benefit from the significant protection of the ARD including enhanced protection against dismissal and required processes of staff consultation.