The European Court of Justice (the ECJ), in Albron Catering BV v. FNV Bondgenoten and Roest, has confirmed on 21 October 2010 that employees employed by a service company who are assigned to a business will automatically transfer their employment to the acquirer of the business even though they are not employed by the “transferor” of the business. The decision confirms the purposive interpretation of the Acquired Rights Directive, implemented in the UK by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), and the fact that the ECJ is prepared to pierce the corporate veil to protect employees.

Background

Under TUPE, employees employed by the “transferor” of the business will transfer to the acquirer of the business. The “transferor” is usually the seller of the business, usually the operating company. Many group companies utilise service companies to employ personnel. The issue many sellers have faced is whether employees assigned to the business being sold by a group company, but employed by a separate service company, will also transfer to the buyer. If these employees do not transfer employment automatically, the seller group will face redundancy costs and, potentially collective redundancy consultation obligations if 20 or more employees are at risk of dismissal.

Group company structure

The Heineken group employed its staff through a service company, Heineken Nederlands Beheer BV (HNB). Mr. Roest was employed by HNB and assigned to the catering function of the Heineken group. This catering function was sold by a Heineken group company (not HNB) to Albron Catering BV (Albron) in 2005. Mr. Roest became employed by Albron under a new contract of employment. Both he and his union, FNV Bondgenoten, claimed that his employment had transferred automatically under Dutch laws implementing the Acquired Rights Directive. The implications of this claim were that Mr. Roest’s continuous service with HNB would be preserved with Albron and he would be entitled to the same terms and conditions of employment, except for occupational pension rights, as he enjoyed with HNB.

Albron argued that as HNB was not the transferor of the catering business, the Acquired Rights Directive did not apply to the sale and Mr. Roest’s continuous service was broken by the sale. He was also, therefore, employed on the new Albron contract rather than his old HNB contract.

ECJ decision

The ECJ decided that group companies can be “non-contractual employers” of employees who are assigned to a particular business under the Acquired Rights Directive. Therefore, employees employed by a service company and who are assigned to a business operated by a “non-contractual employer” within the group will have rights to transfer employment, retain their continuous service and their employment terms and conditions against the acquirer of the business. UK companies should note that employees may have alternative rights to argue that their continuous service is preserved even if they have not transferred under TUPE. This principle should also apply to the provision of services in the UK, as service provision changes are also subject to TUPE.  

Comment

This case clarifies that the intention of the Acquired Rights Directive is to protect employees employed by the seller of a business or who are otherwise assigned to a business or service. Companies utilising service companies should, therefore, be aware of their obligations under TUPE or other laws implementing the Acquired Rights Directive, to do the following prior to the transfer of a business:  

  • Inform or consult employee representatives of the affected employees (including service company employees assigned to the business being sold);  
  • Disclose employment information about the transferring employees; and  
  • Consider reassigning any key employees to other functions or otherwise agreeing with them that they do not transfer to the acquirer of the business.

Acquirers of a business should do the following prior to the transfer:  

  • Provide information about proposed changes or other measures regarding all transferring employees (including service company employees who are assigned to the business);  
  • Consider obtaining a list of all transferring employees and indemnity protection against any nondisclosed employees who claim to transfer; and  
  • Consider a price adjustment or severance cost contribution if severance costs are increased as a result of more employees transferring on close.