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European News: Transfer of undertakings regulations and group companies
PRACTICE AREA GROUP: Employment, Pensions and Benefits
The European Court of Justice (the “ECJ”) decision in the case of Albron Catering -v- Bondgenoten & John Roest (C-242/09) raises an important question about the effect of the transfer of undertakings regulations on employers who have purchased assets or services from group companies.
Within the Heineken group, all staff are employed by Heineken Nederlands Beheer BV (“HNB”). Thereafter they are assigned on a permanent basis to the various operating companies within the group. John Roest was employed by HNB in a catering role and had been assigned from 1985 to 2005 to an operating company within the group, Heineken Nederland BV (“Heineken Nederland”).
On 1 March 2005, the catering activities carried out by Heineken Nederland were transferred by contract to Albron Catering BV (“Albron”) and from this date Mr Roest was employed by Albron on a new contract of employment which did not recognise his previous service. Mr Roest subsequently brought a claim in the Dutch Cantonal Court that the transfer of the catering business from Heineken Nederland to Albron constituted the transfer of an undertaking within the meaning of the Acquired Rights Directive and that employees of HNB who were assigned to Heineken Nederland automatically transferred to Albron on that date on the same terms and conditions as they had with HNB.
Decision of the ECJ
The ECJ held that the Directive can cover employees who work for that company even if they are technically employed by another group company. In doing so, the ECJ was prepared to look behind the formal corporate and contractual structure in order to protect employees’ rights when their employer changed.
The ECJ held that the Directive provided protection to such employees as it was possible to regard the “transferor” as being the group operating company to which the employees were assigned on a permanent basis irrespective of whether or not there was a contract of employment between the transferor and the employees concerned.
In Ireland, the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (the “2003 Regulations”) appear to be more narrowly defined than the Directive as they provide that transferring employees must be employed by the transferor “under a contract of employment” with no mention of an “employment relationship”. However as the purpose of the 2003 Regulations is to give effect to the Directive, and as the definition given to “Contract of Employment” includes both “express and implied” contracts, in a similar situation the EAT may consider that the employees had an implied contract with the non-contractual employer for work done with that entity.
In addition, the 2003 Regulations apply to these employees “wholly or mainly” involved in the business which is transferring. In light of this ruling, care should be taken when dealing with large group companies as employees who are not directly employed by the transferor may have a right to transfer to the new purchaser or service provider by virtue of working for that company notwithstanding the fact that their strict employment relationship may lay elsewhere within the group. It is also important to note that as the ECJ's decision has retrospective effect, it will apply to outsourcing agreements currently in force.