Tue 28 Aug 2018

TUPE transfer can take place after 5 month break

The ECJ has recently considered whether a 5 month break in activities prevented a TUPE transfer taking place.

The case of Colino Sigüenza v Ayuntamiento de Valladolid and others arose under Spanish law and related to the Acquired Rights Directive ("ARD").  Had it been heard in a tribunal in the UK it would have been considered to be a service provision change but that is not a concept that exists under the ARD and, accordingly, it was treated as a transfer of an undertaking where there is a transfer of an economic entity that retains its identity.  

The facts of the case were that the running of a school had been outsourced by a Spanish public authority to Musicos y Escuela SL ("Musicos") in 1997.  Musicos had been set up solely to tender for and run the school.  However, after becoming unprofitable they dismissed all the staff and closed the school in April 2013 and the company was subsequently put into administration.  The public authority terminated its contract with Musicos.  Employee representatives unsuccessfully raised claims on behalf of the dismissed employees.  Five months later, following a retendering process, a new contract was awarded to In-pulso Sociedad Cooperative ("In-pulso"). 

A number of the original employees, including Mr Siguenza, then claimed unfair dismissal but the claims were struck out on the basis that this was a second bite at the cherry following the unsuccessful claims made by the employee reps.  The court also held that the 5 month cessation of activities prevented a TUPE transfer taking place.  When Mr Siguenza appealed, the court sought a preliminary ruling from the ECJ on whether a transfer had taken place, and, if so, whether the dismissals were for an economical, technical or organisational (ETO) reason. 

An Advocate General's opinion given in December 2017 concluded that once the contract with Musicos came to an end there could no longer be an economic entity for the purposes of a transfer of an undertaking.   The AG found that "the Directive concerns transfers but does not provide for 'resurrections'".  The AG also found that even if there had been a transfer there was no doubt that the dismissals were for economic reasons - Musicos having no longer been financially viable at the time of the dismissals. 

The case has now been considered by the ECJ and their view has differed, in some regards, to the opinion of the AG.  The Court held that the economic activity in question was the management of the school and it was the resources such as musical instruments, facilities and premises that were essential to the conduct of the economic acitivity - it was an "asset reliant" case and therefore the fact the staff did not transfer did not preclude the existence of a transfer.  The assets were owned by the public authority and had been used by Musicos and then transferred to In-pulso.  The fact the school was temporarily closed and had no employees at the time of the transfer is a relevant factor, but not determinative, as to whether a TUPE transfer had taken place.  In this case, the fact that 3 months of the closure occurred during the school holidays was also relevant. 

On this basis, the ECJ concluded it was possible for a TUPE transfer to have taken place albeit it was for the Spanish courts to give a final determination on this.  However, unfortunately for Mr Siguenza, the Court agreed with the Opinion of the AG when it came to the question of whether the dismissals were for an ETO reason.  Mr Siguenza had been dismissed well before the date of the transfer to In-pulso and the reason for the dismissal was Musicos inability to pay its staff. 

Although under domestic law this would have been treated as a service provision change, the ECJ's approach is consistent with the approach taken in recent EAT judgements which have held that neither a break in the provision of a service nor the fact that employees may not be actively working at the time of the change prevents a service provision change taking place.

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