Transfer of business & employment relationships
The entrepreneur has the right, in the context of their business freedom and action, to make the best decisions. Some of their decisions can significantly change the current state of their business. Others may even mean the change of the person who operates and exploits it. Sale, acquisitions, mergers, and secessions are (not infrequently) business decisions, which may mean what the law considers a “transfer of business”. However, when the “transfer of business” occurs, its legal consequences occur automatically. Some of them also concern the automatic transfer of employment relations to the new business. This possibility can be positive. But it can also be dangerous. Especially for the one who acquires them.
The regulatory framework of the institution of the transfer of business
The first attempt to regulate the issue of business transfer at the level of the European Union took place in 1977 with Directive 77/187. It was subsequently amended in 1998 by Directive 98/50. It was finally codified with the current 2001/23.
The central goal of the first Directive (: 77/187) was the protection of employees and the maintenance of jobs and working conditions. And all this in the case of the change in the structure of the business that is carried out through the transfer of businesses, facilities or parts of facilities to other entrepreneurs. Also, the convergence of the level of protection between the rights of the Member States, and eventually the regulation of a single market.
In its recent decisions, however, the ECJ, deviating from its till then established case law, accepts that the Directive also seeks to protect the interests of the person acquiring the business. It has characteristically considered that the Directive “… does not have the sole purpose of safeguarding, in the event of a business transfer, the interests of employees, but seeks to ensure a fair balance between their interests on the one hand and the interests of the transferee, on the other…” ECJ C-426/11, Alemo-Herron etc).
The legislator’s concern for the protection of employees’ rights, in case of transfer of the business, was manifested early (and) at the level of national law. With the provisions, specifically, of articles 6 §1 L. 2112/1920 and 9 §1 Royal Decree 16 / 18.7.1920 which provide that the change in any way of the employer’s person does not affect the application of the provisions which have been adopted in favor of the employees for the termination of the employment contract. Article 8 of the Presidential Decree of 8.12.1928 stipulated that, in case of enlistment, when a change of the employer’s person occurs, the obligations established by this legislation for employers are automatically transferred to the new employer. Furthermore, according to article 6 par. 2 L. 3239/1955, the obligations and rights arising from a collective employment contract are automatically transferred to the successors of the employer bound by it.
In addition to the above fragmentary arrangements the P.D. 572/2002 was initially issued, in order for the Greek legislation to be harmonized with Directive 77/187. Then, in view of the newer Directive 98/50, the current P.D. no. 178/2002 was issued. (which abolished the previous PD 527/1988).
The conditions of the “business transfer”
Directive 2001/23 provides that: “… as transfer, within the meaning of this Directive, we consider the transfer of an entity that retains its identity, which is understood as a set of organized resources for the purpose of conducting economic activity, either main or secondary. (Article 1 §1 b).
In order for there to be a “transfer of business” and for the implementation of the specific Directive and the P.D. 178/2002, the following conditions must be met:
(a) The transferee shall be an “economic entity” prior to the transfer.
(b) For this economic entity a transfer should take place, which presupposes on the one hand the change of the control and on the other hand the preservation of its identity.
The designation of a unit as an economic entity
From article 1 §1.b. of the Directive and the established case law of the ECJ, it appears that there are two elements that characterize a unit as an economic entity. Specifically:
(a) it should be a set of organized resources, ie a set consisting of human resources, materials and intangibles; and
(b) the organized resources should pursue a certain economic purpose (even non-profit).
The ECJ, in addition, considers that the transfer should concern a, on a permanent basis, organized economic unit. That is, the activity of the latter should not be limited to the execution of a specific project only.
It should also be noted that the ECJ has ruled that the entity is not identified with the very activity it carries out. This assumption leads to the conclusion that if we have a transfer of activity it does not mean, without a doubt, that there is a transfer of the entity.
The concept of an economic entity, in addition to the business as a whole, also includes its individual parts. The division of the business, however, according to the ECJ, must have functional autonomy without, necessarily, being required to be complete (ECJ, C-664/17, Hellenic Shipyards).
The concept of the transfer of the entity
After the existence of the entity is confirmed, based on the two, above-mentioned criteria, the verification of the existence of its transfer follows. Specifically, it is verified:
(a) Whether the transferred entity retains its identity after the transfer.
(b) Whether there is a change in the entity. That is, if the person in charge of the operation of the business changes, without it mattering whether its ownership is transferred.
Maintaining the identity of the entity
According to the case law of the ECJ, the decision to maintain (or not) the identity of the entity depends on the overall assessment of the circumstances of each case. In the above context, the ECJ considers some elements as crucial for the establishment of identity retention.
(i) the transfer or not of tangible assets (equipment and facilities);
(ii) the transfer or not of intangible assets and their value (including: trade marks, patents, distinctive titles);
(iii) the hiring or not of a significant part of the workforce by the new entrepreneur,
(iv) the transfer or not of the customers,
(v) the degree of similarity of the activities carried out before and after the transfer; and
(vi) the duration of any interruptions of the specific (under v) activities.
The above elements do not need to be cumulative. Instead, they are taken as indications in the context of the specific circumstances that apply in each individual case.
It is crucial, however, to distinguish whether an entity that survives the change of its control is transferred. Conversely, if some assets of the business are simply sold without continuing to operate with each other, then a transfer is not considered to take place.
Change in the control of the economic entity
The transfer of a business presupposes the change of its operator. The operator of the economic entity means the natural or legal person who exploits it and operates it in its name and on its behalf (1553/2002 Supreme Court). The operator is also the employer of the employees of the business. When there is a change of the operator, the employer also changes.
Consequences of the transfer of business
The automatic transfer of the employment relationship
According to our national law (: article 4 §1 PD 178/2002), through the transfer of the economic entity-and from the time of its realization, all the (existing) rights and obligations that the transferor has from the employment contracts (or relationships), are transferred to the successor. This is a transfer by law of all the employment relationships (1478/2006 Supreme Court). From the time of the transfer, then, the successor employer automatically enters the position of the previous one (employer), in terms of rights and obligations arising from the employment relationships. At the same time, with the transfer of employment relations, the new employer is obliged to comply with the working conditions provided by collective labor agreements, arbitration decisions and labor regulations (: article 4 §2 PD 178/2002).
Protection against dismissals
The transfer of a business or establishment does not in itself constitute a reason for dismissal of employees (article 5 §1 PD 178/2002). This regulation introduces, therefore, an independent reason for the invalidity of the dismissal and complements the protection provided by the general provision (: article 4 §1 PD 178/2002).
It is argued, of course, that the provision of article 5 §1 PD 178/2002 does not prohibit dismissals, when they are a consequence of taking measures in order to rationalize and consolidate the business, in view of improving its sales prospects. In any case, however, the violation of article 5 §1 by the successor brings all the consequences of the invalid termination (obligation to pay arrears of wages, claim for actual employment, etc.).
The entrepreneur, of course, is the one to plan for the future of their business. However, their adoption of the best, according to them, relevant options is not, in principle, without consequences. Employment relations are important and should, in this context, be taken into account.
However, it is important to point out that the adoption of one or the other option does not only concern the entrepreneur who, possibly, transfers their business. It concerns, respectively, perhaps even more, the businessman that acquires the business.
The evaluation of the individual data, based on the assumptions mentioned above, is crucial in this context. It is absolutely necessary to reduce the “legal risk” and, consequently, to reduce the related business risk.
It is absolutely necessary, therefore, to dispassionately assess the (legal) data, in order to make the best possible (and of course more ensuring-for everyone) decisions.-
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 23, 2021).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.