ECJ 20 July 2017, case C-416/16 (Piscarreta Ricardo), Transfer of undertaking

Question (1)

The ECJ found that the ARD applied to public and private undertakings engaged in economic activities whether or not they are operating for gain. However, it also found that the administrative reorganisation of public administrative authorities, or the transfer of administrative functions between public administrative authorities, was not a transfer within the meaning of the ARD.

In the case at hand, there was a transfer of the activities of a municipal body, in part to a municipality and in part, to another municipal body. However, in the Court’s view, this did not, in itself, prevent the ARD from applying. Previous ECJ case law had ruled that the fact the transferee was a public law body was not good grounds for excluding the existence of a transfer within the scope of the ARD, whether the body was a public undertaking responsible for a public service (e.g. Aira Pascual and Algeposa Terminales Ferroviarios, C-509/14) or a municipal authority (e.g. CLECE, C-463/09).

Next, in order for the ARD to apply, the transfer must concern an entity engaged in economic activities, whether or not for gain. Economic activity includes any activity consisting in offering goods or services on a market. Activities within the exercise of public powers are excluded from classification as economic activities. However, services carried out in the public interest without gain, which are in competition with services offered by operators who do seek to make a profit, may be classified as economic activities for the purposes of Article 1(1)(c) of the ARD (e.g. Scattolon, C-108/10). In the case at hand, the various activities engaged in by Portimão Urbis and taken over by the Municipality of Portimão and Emarp, did not appear to the Court to fall within the exercise of public powers and could therefore be classified as economic activities.

Moreover, the ARD applies to 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. The Court pointed out that because of the differences between the language versions of the ARD and in the laws of the Member States with regard to when a legal transfer occurs, it has traditionally interpreted the ARD flexibly, in a way that protects employees in the event of a change of employer (CLECE). It has therefore ruled that the ARD will still apply, whether the transfer is carried out based on a unilateral decision of a public authority or an agreement (UGT-FSP, C-151/09). In the case at hand, the transfer came about because a municipal undertaking was being wound up pursuant to a decision of the executive body of the municipality. However, this should not, in itself, prevent there being a transfer within the meaning of the ARD, as the result was a change of employer.

Finally, for the ARD to apply, the transfer must involve an economic entity which retains its identity after being taken over by the new employer. This must be considered on the facts, by looking, for example, at the type of business in question; whether or not its tangible assets, such as buildings and movable property, transfer; 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 transfer; the degree of similarity between the activities carried on before and after the transfer; and the period, if any, during which those activities were suspended. But, all those factors should be considered as a whole and not in isolation. The degree of importance to be attached to any one factor will also vary on the facts (e.g. Aira Pascual and Algeposa Terminales Ferroviarios, C-509/14).

The Court also pointed out that the mere fact that one economic entity takes over the economic activity of another is not grounds for concluding that the latter has retained its identity. Identity cannot be reduced to the activity itself. Identity emerges from several factors taken together, such as the workforce, management, the way the work is organised, the operating methods and possibly also the resources available to it (e.g. CLECE, C-463/09). The Court has also held that, where identity is concerned, the most important element is retention of a functional link of interdependence and complementarity between all the various factors. This means, that, for example, the transferee could use the various elements transferred in a new and different organisational structure — but to pursue an identical or analogous economic activity (e.g. Klarenberg, C-466/07, and Ferreira da Silva e Brito and Others, C-160/14).

Question (2)

In terms of whether someone whose contract is suspended because he is on long term leave transfers, the Court noted that everyone who is protected as an employee under national employment law is considered to be an ‘employee’. However, the protection that the ARD gives only extends to workers who have an employment contract or employment relationship existing at the date of the transfer (Briot, C-386/09). Whether or not such a contract or relationship exists at that time must be assessed on the basis of national law, subject, to compliance with the mandatory provisions of Directive 77/187 (Briot, C-386/09).

In the case at hand, although at the date of dissolution of Portimão Urbis Mr Piscarreta Ricardo was linked to that organisation by an employment contract of indefinite duration, he was not actually working at that point because he was on unpaid leave and, under Portuguese law, this had the effect of suspending his employment contract. However, the referring court had explained the law provided that while an employment contract is suspended, all rights, obligations and safeguards are maintained. This would seem to protect Mr Piscarreta Ricardo, although this was a matter for the referring court to verify. Subject to that, the Court’s view was that Mr Piscarreta Ricardo should have been treated as transferring to the transferee in accordance with Article 3(1) of the ARD.