In Ferreira da Silva e Brito and others v Estado portuges (C-160/14) the European Court of Justice (the ECJ) considered the meaning of a "transfer of a business" under the Acquired Rights Directive (the Directive) in relation to a situation whereby a majority shareholder assumed significant functions of a former subsidiary, which had been wound up.
In the UK, the Directive is implemented by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). As those familiar with TUPE will know, the Directive (and TUPE) protect employment rights on any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger. A transfer for these purposes is defined as 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.
In February 1993, Air Atlantis (AIA), a company founded in 1985 and operating in the charter flights market, was wound up. In the course of the winding up, Mr Ferreira da Silva e Brito and 96 other individuals were dismissed as part of a collective redundancy exercise. From May 1993, TAP, the Portuguese airline and main shareholder in AIA, began operating some of the flights that AIA had contracted to provide over the period from 1 May to 31 October 1993. TAP also operated a number of charter flights, a market in which it had not previously been active, as the routes concerned had, until then, been served by AIA. In operating those flights, TAP used some of the equipment and assets that AIA had used for its business, in particular four aeroplanes. TAP also assumed responsibility for the leasing of those aircraft and took over AIA’s office equipment, as well as other assets. In addition, TAP recruited a number of former AIA employees.
The applicants brought proceedings seeking reinstatement and compensation and the matter was ultimately referred to the ECJ to decide, amongst other things, whether the Directive (in particular Article 1(1)) covers a situation such as this where an undertaking is wound up by its major shareholder, which then takes on certain activities, uses certain equipment and employs former employees of the business.
The ECJ held that the Directive would apply in this situation, as the circumstances here amounted to a transfer of a business.
In deciding this case, the ECJ took account of various factors that ultimately meant that the entity in question retained its identity. In particular, the ECJ considered what are often referred to as the “shopping list” of factors that were developed following the case of Spijkers where the ECJ listed the following matters as relevant to the question of whether an economic entity retained its identity:
- 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.
In this case, TAP had replaced AIA in the ongoing charter flight routes and had acquired certain assets including aircraft leases. It had also offered employment to a number of AIA employees, all of which showed that a “functional link” between the assets and staff, and the activities which they carried out, had been preserved. As such, this allowed TAP to carry out the same activity. It was irrelevant that they were integrated into TAP's structure and did not retain an autonomous organisational structure. The presence of these particular factors was sufficient, in the Court’s view, that there was an economic entity that retained its identity and accordingly, the Directive would apply to protect the employees’ rights.
The ECJ also gave some guidance on the circumstances in which a national court is obliged to make a reference to the ECJ in relation to the Directive. In the circumstances of this case, as there were both conflicting decisions at national level and difficulties of interpretation among member states, a final appellate court was obliged to make a reference to the ECJ for a preliminary ruling, in order to avoid the risk of an incorrect interpretation of EU law.
UK courts are required to interpret TUPE in line with the Directive. However, this decision is unlikely to have any dramatic effect on businesses in the UK and the way in which TUPE is applied. It is also worth bearing in mind that this decision will not impact on the interpretation of a service provision change under TUPE, as this concept does not appear in the Directive. The case does, however, serve as a useful reminder of the key principles that have been established from various cases regarding the definition of a “transfer of a business” and in particular the factors that employment tribunals will need to take into account in deciding whether TUPE applies.
The guidance on the circumstances in which a national court of last instance must make a reference to the ECJ relates specifically to Article 1(1) of the Directive but may also be applied to other provisions of EU law, in which case we may see more referrals to the ECJ.