Five month gap cessation of activities did not mean there could not be a transfer of an undertaking

Colino Siguenza v Ayuntamiento de Valladolid and others C-472/16

Why care?

The ECJ decided a five month gap between the dismissal of employees, the cessation of activity at a Spanish music school and then its reopening under a new provider did not mean that there could not be a transfer.

The EU's Acquired Rights Directive protects employees' rights and 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". To apply to a transfer, the economic entity must retain its identity after the transfer as "an organised grouping of resources which has the objective of pursuing an economic activity".

Unlike the UK's Transfer of Undertakings (Protection of Employment) Regulations (TUPE), there is no express concept of a service provision change in the Directive itself. However – as was the case in the UK before the TUPE Regulations were amended – case law has established that the Directive can apply to outsourcing situations so long as there is an economic entity which retains its identity after the transfer.

The case

Mr Siguenza was a music teacher at a music school in Valladolid. The school was once run by the municipal authority (and its buildings and resources remained owned by the authority), but in 1997 its operation was outsourced to Musicos y Escuela SL (Musicos).

By 2013, there were fewer students and the school was no longer profitable. In April 2013, Musicos ceased all activities and dismissed all the staff following a collective dismissal procedure. Musicos was wound up in July 2013 and the authority terminated the contract for non-performance.

A new contract to operate the school was awarded to In-pulso Musical Sociedad Cooperative (In-pulso) and in September 2013 the school reopened using the same premises, instruments and resources. In-pulso did not hire any of Musicos' former employees.

The Spanish labour court held that there was no transfer of an undertaking because there had been five months between the cessation of Musicos' activities, and the reopening of the school.

The appeal court referred two questions to the ECJ:

• Was there a transfer of an undertaking in these circumstances?
• If so, were the dismissals by Musicos for an economic, organisational or technical (ETO) reason entailing changes in the workforce, or were they caused by the transfer?

The ECJ held that the situation was capable of being a transfer of an undertaking under the Directive. The economic activity was the management of the municipal music school. Essential to the activity were the material resources (the instruments, the facilities and premises). Both companies used the same resources and it was irrelevant that at all times they had remained the property of the municipal authority. In such an asset-reliant case, the fact that In-pulso did not take on the workers did not preclude it from being a transfer within the Directive.

It was relevant, but not determinative that the school had been temporarily closed at the time of the transfer and had no employees. For three of the five months, it would have been closed for the school holidays in any case.

While the final decision on both issues will be for the Spanish courts to determine, the ECJ noted that if the reason for the dismissal was solely the transfer, they would be void unless there was an ETO reason. Given that the dismissals took place well before the date of the putative transfer, and at a point where Musicos could no longer pay its staff, in the ECJ's view this pointed there being a valid ETO reason.

The ECJ did say, however, that the Spanish courts would have to determine whether the circumstances of the dismissals and the delayed appointment of In-pulso were a deliberate measure to avoid a transfer.

What to take away

As the UK's TUPE Regulations include service provision changes, it would be simpler to find a transfer of an undertaking as there is no need to show a transfer of significant assets or a major part of the workforce.

There have been previous UK cases on how long a gap in service can be before it is no longer a transfer. TUPE does not require the organised grouping of employees to be actually engaged in the relevant activity immediately before the service provision change, but the purpose and length of any cessation is relevant to determine whether or not the grouping still exists.