TUPE: ECJ decides a classic business transfer case

A recent ruling by the European Court of Justice provides a classic example for HR practitioners of what constitutes a TUPE business transfer. Dr John McMullen explains.

In Ferreira da Silva e Brito & others v Estado Português Case C-160/14, the European Court of Justice (ECJ) considered the winding-up of Air Atlantis (referred to in the judgment as AIA) and the taking over of its activities by its major shareholder, TAP. TAP disputed that there was a transfer of an undertaking. But TAP took over the routes previously served by Air Atlantis and used significant assets, including four aeroplanes.

TAP also assumed responsibility for the payment of charges under the leasing contracts relating to those aircraft and took over the office equipment that belonged to Air Atlantis and which had been used at Air Atlantis’ premises in Lisbon and Faro. TAP also took on a number of former Air Atlantis employees.

The Portuguese Court had taken the view that TAP had simply taken over Air Atlantis’ licence to operate. The ECJ, however, considered that there had been a transfer of an undertaking.

What constitutes a business transfer under TUPE?

The ECJ reiterated its incremental jurisprudence that the Acquired Rights Directive is applicable where, in the context of contractual relations, there is a change in the natural or legal person responsible for carrying on the business, who incurs the obligations of an employer towards employees of the undertaking (see recently, Amatori and Other Case C-458/12).

The ECJ stated (para.25): “According to settled case law, the aim of Directive 2001/23 is to ensure continuity of employment relationships within an economic entity irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of that Directive is, therefore, the fact that the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed.”

In order to determine whether that condition is met it is necessary to consider, as a whole, the facts characterising the transaction concerned, depending on the type of undertaking or business concerned, which might involve consideration of whether tangible assets, intangible assets, the majority of employees, the circle of customers and so forth are transferred. The importance to be attached to each criterion will necessarily vary depending on the type of activity concerned.

Of paramount importance was that this case concerned the air transport sector, so the transfer of the assets necessary to operate Air Atlantis’ business was crucial. In this regard the Court referred to the authority of Oy Liikenne, a case involving the bus transport sector, where a high degree of importance was attached to whether the assets of the business, namely the bus fleet, were transferred. Thus: “In that regard the order for reference indicates that TAP replaced AIA in the aircraft leasing contracts and actually used the aircraft concerned, which shows that it took over assets that were essential for pursuing the activity previously carried on by AIA. In addition, a certain amount of other equipment was taken over.”

Second, it was immaterial that Air Atlantis lost its autonomy following the TAP takeover. Following the case of Klarenberg, the ECJ confirmed that a loss of autonomy does not prevent a TUPE transfer. This is provided that the various elements of production remain the same, and are used by the new employer to carry out the same or similar activities.

The final point of constitutional interest is the view of the Court that where there are conflicting decisions of lower courts or tribunals regarding the interpretation of the concept of a transfer of a business, and if that concept frequently gives rise to difficulties of interpretation in the various member states, article 267 of the Treaty on the Functioning of the European Union must be construed as meaning that a court or tribunal against whose decisions there is no judicial remedy under national law is obliged to make a reference to the Court of Justice for a preliminary ruling concerning the interpretation of the concept of a business transfer.

In conclusion, if HR practitioners want an example of a classic business transfer under TUPE, then this case provides it.