Transfer of a business and labour law

The case involved an Austrian entrepreneur which rendered catering services to a hospital. The meals were prepared in the premises made available by the hospital specifically for that purpose. The service provider was also supplied by the hospital with media and necessary equipment. Eventually, the hospital rescinded the service agreement concluded with the entrepreneur who was replaced by another service provider (“successor”).

The successor refused to take over the employees of the entrepreneur. They, however, argued before an Austrian court that their employment should continue whereas the successor should also take on the entrepreneur’s duties as an employer. The latter refused to apply Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses (“Directive”), claiming that the facts of the case do not qualify as a transfer of an undertaking.

The ECJ pointed out that the Directive is meant to ensure continuity of employment in a given undertaking, regardless of the change of its ownership. For that reason, the decisive criterion, when assessing whether the Directive applies, should be whether the business entity in question retained its identity. That may be the case especially when the previous activities of the undertaking are continued or restored.

The ECJ took the position that the Directive should be applicable also when there are no legal relationships between the transferor and the acquirer of an undertaking. Such transfer may thus take place through a third party.

The ECJ explained that the Directive is clearly applicable also when – pursuant to contractual arrangements – there is a change of an individual or an entity in charge of certain services which, correspondingly, should step in the employer’s duties towards the employees of the undertaking, regardless of whether or not the ownership of the assets used for the relevant activity has been transferred.