2010/39: How to define "establishment" in collective redundancy directive (SP)

Summary

What is an establishment in the meaning of Directive 98/59 on collective redundancies? 

Facts

Mr Feliciano and Ms Dolores (the plaintiffs) were employed by Sociedad de Distribucion Aeroporutaria de Canarias, S.L. (Canariensis). This is a company that runs duty free shops in airports throughout the Canary Islands. At the time relevant to this case (March 2006), Canariensis operated a total of 25 shops at five airports, employing a total of approximately 300 employees. Of these employees, 27 including the plaintiffs worked in a duty free shop at Reina Sofia airport in Tenerife (the shop).1 

In Spain, all duty free shops at airports are owned, and leased out on a concession basis, by the public entity Aeropuertos Espaňolas y Navegacion Aerea ("Aena"). This entity had granted Canariensis a concession in respect of the shop that expired on 1 April 2006. Canariensis failed in its bid to get a new concession following this date, losing the concession to its competitor Dufry Islas Canarias, s.l. ("Dufry"). For a reason not relevant to this case, the transfer of the shop's activities from Canariensis to Dufry was considered not to constitute a transfer of undertaking as defined in the Spanish law transposing the Acquired Rights Directive.2 Accordingly, Canariensis terminated the employment of all 27 employees employed in the shop, including the plaintiffs, for business reasons. It did so on 15 March 2006, giving one month's notice, i.e. effective 15 April 2006, and paying the employees the statutory severance compensation of 20 days of salary for each year of employment.

The plaintiffs sued Dufry, Canariensis and Aena. Inasmuch as is relevant to this case report, they claimed (against Canariensis) that (1) their dismissal was null and void because it was in breach of the collective redundancy procedure or, in the alternative, (2) their dismissal was unfair, thus entitling them to additional severance compensation.

One of the issues the court needed to address was how interpret the Spanish provisions of the law transposing Directive 98/59/EC on collective redundancies. Article 1 of this directive defines "collective redundancies" as dismissals not related to the individual workers concerned where, according to the choice of the Member States, the number of redundancies is: 
(i) either, over a period of 30 days: 
- at least 10 in establishments normally employing more than 20 and less than 100 workers; 
- at least 10% of the number of workers in establishments normally employing at least 100 but less than 300 workers; 
- at least 30 in establishments normally employing 300 workers or more, 
(ii) or, over a period of 90 days, at least 20. The Directive does not define "establishments", nor does its preamble give any indication what this expression means. The Spanish version of the Directive uses the expression centros de trabajo (literally: work centres).

Spain transposed the Directive utilising option (i). Hence, the question of whether or not the dismissal of 27 employees by Canariensis qualified as a collective redundancy depended on the number of workers employed by the relevant ÒestablishmentÓ (20-100 or 100-300). The plaintiffs argued that the relevant establishment was the shop, which employed more than 20 but less than 100 workers (namely 27) and that therefore the dismissal of 27 employees (i.e. more than 10) qualified as a collective redundancy. Canariensis argued that the relevant establishment was its entire operation, which employed approximately 300 employees, so that the threshold for collective dismissal was 10%.3

The court of first instance subscribed to the plaintiffs' view and declared their dismissal to be null and void. On appeal, however, the High Court took the position that the total work force needed to be taken into consideration and that, therefore, 27 dismissals was less than 10% and there was no collective redundancy. The plaintiffs appealed to the Supreme Court.

Judgment 

The issue before the Supreme Court had to do with a difference of text between Directive 98/59/EC and Article 51.1 of the Spanish Workers Statute. In the English version, the Directive uses the expression "establishment". The Spanish version uses the expression centro de trabajo, literally "centre of work". Said Article 51.1, however, uses the word empresa, which is the Spanish word for "company".

The employees argued that Spanish law should be construed in accordance with the Directive, but the Supreme Court declined to do this, confirming the High Court's judgement. The Supreme Court reasoned as follows.

The Supreme Court made reference to the ECJ's rulings in Rockfon4 and Chartopoiia.5 In Rockfon the ECJ held that the term "establishment", as used in the Directive, "is a term of Community law and cannot be defined by reference to the Member States". The ECJ noted that the various language versions of the Directive use somewhat different terms to convey the concept in question and that a comparison of those terms "shows that they have different connotations signifying, according to the version in question, establishment, undertaking, work centre, local unit or place of work". In the case of divergence between the various language versions "the provision in question must therefore be interpreted by reference to the purpose and the general scheme of the rules of which it forms part". Following certain further observations, the ECJ held (at section 32): "The term "establishment" [...] must therefore be interpreted as designating, depending on the circumstances, the unit to which the workers made redundant are assigned to carry out their duties. It is not essential, in order for there to be an "establishment", for the unit in question to be endowed with a management which can independently effect collective redundancies." In Chartopoiia (at section 27) the ECJ held that an "establishment" "may consist of a distinct entity, having a certain permanence and stability, which is assigned to perform one or more given tasks and which has a workforce, technical means and a certain organisational structure allowing for the accomplishment of those tasks". Given that the ECJ allows for a flexible interpretation of the concept of establishment, the Spanish Supreme Court went to the purpose of the Directive, which is to protect employees (see the ECJ's ruling in the CGT case6). In line with this purpose, Article 5 of the Directive provides that the Directive "shall not affect the right of Member States to apply or to introduce laws, regulations or administrative provisions which are more favourable to workers [ ..]”. The Supreme Court proceeded to hold that the Spanish law regarding collective redundancies is, as a whole, more favourable for employees than what is provided in Article 5 of the Directive, in that it provides employees with certain protective measures over and above what the Directive requires. The Supreme Court refers to the fact that Spanish law requires employers to justify a collective redundancy and that it also requires an authorisation by the labour authorities. The Supreme Court admitted that there can be cases where application of the Directive - even though it is, taken as a whole, less favourable for employees than the national law - results in an effect that is less favourable than the national law. However, the fact remains that, taken as a whole, Spanish law is more favourable, and therefore should prevail.

Commentary

In this judgement, the Spanish Supreme Court ("the Court") has expressly and consciously diverged from the criteria of the ECJ, which has held that all decisions regarding the scope of Directive 98/59/EC fall under the competence of European Union institutions, and not under the competence of national authorities. The Court holds that to apply the Directive, the unit to consider is the company as a whole, rather than each work centre, in order to count the minimum employees affected by a redundancy. Although the Court acknowledges that its interpretation differs from that of the ECJ, it argues that its interpretation is justified, because it is more favourable to employees' interests. It also argues that all European directives allow domestic laws to include regulations that confer more rights on employees, and therefore, that the divergence of its judgement from European law is justified. The irony of this is clear: the employees were the plaintiffs in this lawsuit. The employees considered that the redundancy procedure was required in their case, and therefore that, in line with the wording of the Directive, the procedure outlined in the Directive did apply to their case. Given that their work centre (the duty free shop) was to be closed and a total of 27 employees were to be dismissed, 100% of the employees working in the shop were to be dismissed. However, in its judgement, the Court indicated that it was more in the interests of the employees not to apply the redundancy procedure. Therefore, the Court did not use any arguments, other than the assumed interest, or Òbest interpretation of the lawÓ, for the employees. The truth is that in some cases, considering the effects of a collective dismissal on the company as a whole will be more favourable to the employees, while in other cases, the opposite will be the case. As far as the employees in this case are concerned the use of the expression "company" instead of "work centre" operated against them. We can certainly conclude that the Spanish Supreme Court has taken a conservative viewpoint oriented towards abiding by the exact wording of the Workers Statute and using "empresa" (company) instead of "centro de trabajo" (work centre). A different conclusion could have brought about a "preliminary ruling" (Cuesti—n prejudicial) or forced an interpretation under domestic law that was compatible with the European Directive. The Supreme Court seems to have chosen the most convenient option, which appears contrary to the criteria of the ECJ.

Comments from other jurisdictions

Germany (Elisabeth Hšller, Paul Schreiner): The German statutory provision concerning collective redundancies in transposition of Directive 98/59/EC is to be found in section 17 of the Unfair Dismissal Protection Act (KSchG). According to this provision the employer is obliged to give notification to the competent Employment Agency before termination of employment: 
- in business establishments (in German "Betrieb") with regularly more than 20 and less than 60 employees, if the employment of more than five employees is to be terminated within 30 calendar days 
- in business establishments with regularly more than 60 and less than 500 employees, if the employment of at least 10% of the regularly employed employees or more than 25 employees is to be terminated within 30 calendar days 
- in business establishments with regularly more than 500 employees, if the employment of at least 30 employees is to be terminated within 30 calendar days.

Further subsections of this provision describe the special procedure that the employer has to observe before the individual termination of employment.

Note however, that the term "business establishments" ("Betrieb") in which the abovementioned thresholds must be exceeded is not defined in section 17 KSchG. However, both the High Court and much of the legal literature refers to the same definition of business establishment as is used in the context of the German Works Constitution Act (BetrVG). Here a business establishment is defined as an organisational unit in which the employer and the employees pursue special work-related purposes with the aid of material and immaterial assets. In addition there needs to be a management and administrative structure to enable business to be conducted in this operational unit. In the case at hand a German Court would therefore have asked whether or not the duty free shop constituted a business establishment in this sense. For these purposes it would have assessed the organisational structure of the company to find out if the 27 employees were employed in a single business establishment or if other parts of the workforce needed to be taken into account.

United Kingdom (Hannah Vertigen): Directive 98/59/EC was transposed into legislation using the second option for the definition of collective redundancies under Article 1(1)(a) (i.e. where 20 or more dismissals are proposed over a period of 90 days). However, the UK legislation requires the 20 or more dismissals to be "at one establishment", whilst the Directive's definition applies even where the dismissals are at different establishments. The relevant UK provisions have been held, in this respect, to be incompatible with the Directive (MSF – v – Refuge Assurance Plc [2002] IRLR 324 EAT). As a result, defining what constitutes an establishment in the UK is somewhat difficult in practice and very largely a question of fact for the court or tribunal (see, for example, Mills and Allen Ltd – v – Bulwich, EAT/154/99, unreported).

Ireland (Paul Glenfield): As in Spain, Ireland transposed the Directive utilising option (i) outlined in the case report above. Under the Protection of Employment Act 1977, as amended by Article 5 of the Protection of Employment Order 1996 (Statutory Instrument 370 of 1996), an "Establishment" is defined in Ireland as “an employer or a company, or a subsidiary company, or a company within a group of companies which can independently effect redundancies”. Based on the facts outlined in Feliciano, where the specific concession of 27 employees was run as a subsidiary or separate company, it could be argued that the concession should be treated as a separate ÒestablishmentÓ and apply collective redundancy measures accordingly. However, it would have to be shown that that subsidiary company could effect the redundancies independently of the rest of the Group. In this regard, the Irish implementation of the Directive seems to be more in line with Spain's and contrary to the ECJ decision in Rockfon.

^{Footnotes
1 In total, Canariensis ran 11 shops at this airport. The ten other shops played no role in this dispute. 
2 This was mainly because no physical assets transferred and the tender document provided explicitly that a change of concession holder would not qualify as a transfer of undertaking. 
3 It is not clear from the judgement, nor is it relevant for this case report, whether Canariensis employed just over or just under 300 staff at the relevant time. 
4 ECJ 7 December 1995, Case C-449/93 (Rockfon). 
5 ECJ 15 February 2007, Case C-270/05 (Athinaiki Chartopoiia AE – v – Panagiotidis et al). 
6 ECJ 18 January 2007, Case C-385/05 (CGT et al – v – France).}

Subject: Collective redundancy 
Court: Supreme Court (Tribunal Supremo)
Date: 18 March 2009 
Parties: Mr Feliciano and Ms Dolores - v - Dufry Islas Canarias, s.l., Sociedad de Distribucion Aeroportuaria de Canarias, s.l. and Aeropuertos Espa–oles y Navegacion Aerea (AENA) 
Case number: 1878/2008 
Hard copy publication: RJ 2009\4163 (Westlaw Database) 
Internet publication: www.eelc-online.com