In Luís Manuel Piscarreta Ricardo v Portimão Urbis, E.M., SA, in liquidation, Município de Portimão Emarp – Empresa Municipal de Águas e Resíduos de Portimão, EM, SA (Case C-416/16) the European Court has discussed two important issues arising from a decision by a local council to wind up its trading company and continue its activities by other means.  Was this a transfer of an undertaking within the meaning of the EU Acquired Rights Directive?

The Municipality Portimão is a local authority on the Algarve in Portugal.  It had a trading company called Portimão Urbis.  It employed Mr Piscarreta Ricardo as a director.  Portimão Urbis was concerned with all manner of tourist matters, including street trading and cultural services.  The Council, as principal shareholder of Portimão Urbis, decided to wind it up.  Some of the activities were taken over by Portimão Council and the remainder of these activities were outsourced to Emarp (of which the Council was also the sole shareholder).  There was an arrangement to transfer the staff to the Council and Emarp, but Mr Ricardo was not included in these plans.  He was informed his employment would end on the final closure of Portimão Urbis.  He therefore brought an action arguing that there had been a transfer of an undertaking from Portimão Urbis to Portimão Council and Emarp.  A further complication was that he had been (at his request) on unpaid leave for the last three years.  So even if there were a transfer of a business, was he in scope to transfer because of the suspension of his employment contract?

The transfer of undertakings point

The essential question was whether a trading company owned by local authority, which was wound up at the insistence of the local authority, which had assumed part of the services previously carried out by the trading company and outsourced others, was a transfer of an undertaking. 

The essential distinction when considering transfers concerning public authorities is to examine whether there is a transfer of an economic entity (ie of an undertaking engaged in economic activities) or an administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities.  The first of these is a transfer of an undertaking.  The latter two are not. 

In Piscarreta Ricardo the Court usefully summarised the distinction between public sector transfers which are not covered by the Directive and those which are.  Thus:

"The Court has made clear in that regard that the notion of economic activity encompasses any activity consisting in offering goods or services on a given market. Activities which fall within the exercise of public powers are excluded as a matter of principle from classification as economic activity. However, services which are carried out in the public interest and without a profit motive and are in competition with those offered by operators who seek to make a profit may be classified as economic activities for the purposes of [the ARD]."

In the present case the court considered that the various activities engaged in by Portimão Urbis and taken over by Portimão Council and Emarp did not fall within the exercise of public powers, and so they were capable of being classified as economic activities for the purposes of the ARD.  Nor did it matter that the transfer resulted from a unilateral decision of the local authority rather than a consensual transfer.  Of course, said the Court:

"It is necessary in this regard to consider all the facts characterising the transaction at issue in the main proceedings, including, in particular, the type of undertaking or business in question, 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. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation."

This is a matter for the national court to determine. 

The employee status point

The next question was whether a person such as Mr Ricardo, who was suspended and not actually performing his duties, was covered by the concept of "employee" within the meaning of the ARD and whether his employment contract should transfer to the transferee. 

The Court noted that any person who, in the Member State concerned, is protected as an employee under national employment law is considered to be an "employee".  That employment contract of course must exist at the date of the transfer.  Whether there is a contract of employment in existence at the time of transfer must be assessed on the basis of national law, subject to the compliance with the mandatory provisions of the ARD concerning protection of employees from dismissal as a result of the transfer. 

Under Portuguese national law, Portuguese legislation provides that whilst an employment contract is suspended, the rights obligations and safeguards of parties who are not required to be in active service are maintained.  Therefore, said the Court, in such a case the ARD will protect an employee who is not actually performing his duties because his employment contract is suspended.  But this would always be a matter for the national court to verify.  Thus:

"…a person…who, because his employment contract is suspended, is not actually performing his duties is covered by the concept of "employee" insofar as that person is protected as an employee under the national law concerned…"