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08 May 2020 / article

Transfer of undertaking: employee transfers to multiple employers

On 26 March 2020, the European Court of Justice (ECJ) ruled in the Belgian case ISS/Govaerts on the employment law implications of a transfer of an undertaking to two transferees. The main question is whether the rights and obligations arising from an employment contract will transfer to each of the transferees; in other words is a division of the employment contract possible?

Facts

A project manager of cleaning company ISS performed administrative and organizational tasks for three lots in the city of Gent (Belgium). After a new tender in 2013, the tender submitted by ISS was unsuccessful. Lots 1 and 3 were awarded to the cleaning company Atalian while lot 2 was awarded to Cleaning Masters. On the basis of the applicable (Belgian) collective labor agreement, all employees performing cleaning work on the lots transfer by operation of law to the new contractors. The question whether the employment contract of the project manager will (also) transfer to the two contractors on the basis of a transfer of undertaking has been referred to the ECJ. If this is indeed the case, the question is whether the project manager will transfer pro rata to each of the contractors (for 85% to Atalian and for 15% to Cleaning Masters) or only to the contractor for which the project manager was principally employed.

Decision ECJ

The ECJ ruled – in short – when an economic entity for which the employee is assigned transfers, the question whether the transfer is to one or multiple transferees is not relevant for the transfer of the rights and obligations. In case of a transfer of undertaking to multiple transferees, the rights and obligations will transfer pro rata to each transferee. In the opinion of the ECJ, this ensures a fair balance between the protection of the employees' interests and the protection of the interest of the transferees. The employee retains his/her rights arising from the employment contract and the transferees are not subject to obligations that are greater than those entailed by the transfer to them of the undertaking concerned.

Furthermore, the ECJ ruled that it is for the national courts to determine how any distribution of the employment contract might take place. In that regard, the referring court may take into consideration the economic value of the lots to which the employee is assigned or the time that the employee actually devotes to each lot.

Finally, the ECJ ruled that if the division of the employment contract is impossible or it would adversely affect the rights of the employee, the employee can terminate the employment contract. In such case the termination is regarded as a termination by the transferee(s), even if it takes place on the initiative of the employee. This can have substantial financial consequences for the transferees.

How are these rules applied in practice?

Based on the ECJ’s decision in ISS/Govaerts, a transfer of an undertaking to multiple transferees can result in a division of (the rights and obligations arising from) the employment contract to the transferees. In such scenario, it is important to determine how any division of the employment contract might take place. It is not yet clear how this should take place. The most reasonable approach seems to be a division on the basis of the time the employee actually devotes to each part of the undertaking.

Furthermore, it is important for a transferee to realize that an employee may terminate his/her employment contract if the division of the employment contract would adversely affect the employee’s employment conditions. Especially as the consequences will be for the account of the transferees and may therefore have far-reaching financial consequences for them (such as severance pay the employee may be entitled to).

We will continue to monitor the developments regarding the employment law implications of a transfer of undertaking. The specialists of our Employment & Benefits Team will be happy to advise you on any questions you may have in this regard.
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