Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, business or parts of undertakings or businesses aims to protect employees in case of a transfer of undertaking, by ensuring they can remain in employment with the new employer under the same employment terms.

In 1997, a municipal administration decided to entrust a contractor with the direct management of its municipal music academy, following a public tender process. The management of the premises, of the furniture and the musical instruments required for running the music academy was taken over by that contractor. Part of the employees that had initially been hired by the municipal administration were also taken over. Moreover, the services offered to the citizens continued to be perceived as services offered by the municipal administration.

In the course of August 2013, following a new public tender process, the municipal administration awarded the direct management of its municipal music academy to another contractor for the year 2013-2014 (as of September 2013) and entrusted the use of the same premises, musical instruments and resources needed to that contractor.

One of the dismissed employees brought an action before the courts in order to challenge his dismissal. In the context of the action pending before the appellate court, the latter referred the following questions to the Court of Justice of the European Union (CJEU) for a preliminary ruling (judgment of the CJEU dated 7 August 2018, Case C-472/16):

  • Can the situation at hand be considered a transfer of undertaking for the purposes of Directive 2001/23/ EC, since the first contractor stopped managing the municipal music academy directly on 1 April 2013 and the direct management was (only) taken over by the second contractor in September 2013?
  • If so, can the employee’s dismissal be considered to have occurred for economic reasons or has it been caused by the transfer? According to Directive 2001/23/EC, a transfer of undertaking shall not in itself constitute grounds for dismissal. It is different however if the dismissal has taken place for economic, technical or organizational reasons entailing changes in the workforce.

According to the CJEU, the case at hand might be considered a transfer of undertaking within the meaning of Directive 2001/23/EC. In drawing this conclusion, the CJEU kept in mind the fact that the municipal administration had supplied the first contractor with all resources required for running the music academy (premises, musical instruments, etc.) and that these same resources were subsequently supplied to the other contractor. Moreover, the other contractor had taken over the students of the academy in September 2013. According to the CJEU, the temporary interruption of the academy’s activities from April to August 2013 (including the school holidays) does not in itself preclude the possibility that there has been a transfer of undertaking.

If the situation at hand can actually be considered a transfer of undertaking according to the CJEU, can the employee’s dismissal be justified by economic reasons or is it solely motivated by the transfer? In order to answer this question, the objective circumstances of the dismissal shall be looked into. In the case at hand, the first contractor was unable to pay its staff and had been declared insolvent in July 2013. According to the CJEU, even if the economic nature of the dismissal seems justified, it is for the referring court to ascertain whether the circumstances which gave rise to the dismissal and the delayed appointment of a second contractor were a deliberate measure intended to deprive the employees of the rights conferred on them by Directive 2001/23/EC.