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Transfer window of 5 months approved by ECJ

Transfer window of 5 months approved by ECJ

The Spanish case of Colino Sigüenza v Ayuntamiento de Valladolid and others was recently referred to the ECJ for a preliminary ruling on the following questions:

  • Was there a transfer of an undertaking for the purposes of The Acquired Rights Directive (ARD) when there had been a 5-month gap between contracts?
  • If so, were the dismissals for an economic, technical or organisational reason (ETO) entailing changes in the workforce, or were the dismissals caused by the transfer, and therefore void?

The ARD protects employees' rights on a transfer of an undertaking, business or part of an undertaking or business:

Mr Colino Sigüenza worked as a music teacher at a municipal music school in Valladolid, Spain (Ayuntamiento). From 1997 to 2013, the school was outsourced to Músicos y Escuela S.L. (Musicos). Musicos took over the facilities, premises and resources for providing the services and continued to operate the music school as the municipal music school.

In 2012/13, there was a sharp decline in the number of pupils which meant that the school was no longer profitable and Ayuntamiento refused to pay the sums agreed to Musicos under the contract. Consequently, Musicos dismissed its entire staff and ceased all activities in April 2013, whilst claiming damages against Ayuntamiento.

Musicos was subsequently wound up in July 2013, and Ayuntamiento claimed damages for non-performance as Musicos had ceased its activities before the contractual end-date. The employee representatives unsuccessfully challenged the dismissal in a tribunal.

Following a further tender process, a new contract to operate the music school was awarded to In-pulso Musical Sociedad Cooperative (In-pulso), five months after the closure of the school (albeit three months were school holidays). The new contract began in September 2013, when the school re-opened, using the same premises, instruments and resources, but with an entirely different staff.

Mr Sigüenza and some of his colleagues brought fresh unfair dismissal claims against all three parties.  They argued that a TUPE transfer had taken place, rendering their dismissals unfair.  Mr Colino Sigüenza appealed, and the appellate court referred the matter to the ECJ for a preliminary ruling.

Was there a transfer of an undertaking?

In order for there to be such a transfer, there had to be an organised grouping of persons and assets, organised with a view to carrying on an economic activity.

In this case, the ECJ found that there had been a transfer of an undertaking or business.  It found that the economic activity in question was the management of the municipal music school and that it was the material resources, such as musical instruments, facilities and premises that appeared to be essential to the conduct of the economic activity.

Further, the economic activity at issue did not appear able to be regarded as an activity based essentially on manpower, since it required a significant amount of equipment. The ECJ held that the mere fact that In-pulso Musical did not take over the workers from Musicos did not preclude the existence of a transfer of undertaking within the meaning of the ARD.

In light of these considerations, the court concluded that it was possible that there had been the transfer of an entity within the meaning of the ARD.

Would there have been an ETO reason?

The ECJ noted that in order to determine if the reason for the dismissal was solely the transfer, contrary to the ARD, it was necessary to take into consideration the objective circumstances in which the dismissal occurred.

In that regard, the court noted that Mr Colino Sigüenza's dismissal took place well before the date of the transfer to In-pulso and that the reason for the termination was the fact that it was impossible for Musicos to pay its staff (because of lack of payment from the Ayuntamiento). Musicos had become insolvent, and in these circumstances, it suggested that the dismissals arose as a result of this economic reality.

The court added that its conclusion was subject to assessment of whether the circumstances of dismissal and the delayed appointment of In-pulso were a deliberate measure to avoid the effect of the ARD, but that was a question for the Spanish courts to determine.

The practical implications...

The decision provides further guidance regarding the length of time in which a cessation of activities will not preclude a transfer. It is evident that in certain circumstances a 5-month gap will not preclude a transfer, however, it is noteworthy that the ECJ stated that it was particularly relevant that three of the five months' closure, in this case, were school holidays. Therefore, the ECJ could have potentially reached a different outcome if the school had only been closed for a shorter period of time.

The decision, in this case, is in alignment with domestic cases where gaps in contracts in relation to transfers have been considered. The EAT has previously pointed out that there is nothing in any of the authorities, that suggests that a temporary cessation of activities would preclude a transfer taking place. Therefore, the outcome of this decision is likely to have been the same under the domestic law.

In light of the above, the decision illustrates that long gaps between contracts won’t preclude a transfer but as each case is fact-specific it needs to be judged on its own merits. As such, caution is advised for businesses who are relying on a gap between contracts to avoid a transfer taking place. The case also demonstrates that it will be imperative for businesses to understand the circumstances regarding the gap before deciding whether it believes a transfer has taken place.

Sarah Evans assisted by Dominic Coyle

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