In its preliminary ruling of today, the ECJ has followed its AG and decided that Council Directive 2001/23/EC (the ‘Directive’) must be interpreted as precluding national legislation, such as Article 61(3) of the Belgian WCO (now Article XX.86(3) WER), which, in the event of the transfer of an undertaking which has taken place in the context of proceedings for judicial restructuring by transfer under judicial supervision (‘GROG’) applied with a view to maintaining all or part of the transferor or its activity, entitles the transferee to choose the employees which it wishes to keep on.
On 23 April 2012, NV Echo entered into a judicial reorganisation proceeding. A collective agreement could not be reached and on 19 February 2013, a GROG was initiated. On 22 April 2013, NV Prefaco took over the business of NV Echo together with two-thirds of the total employees of the transferor.
Plessers, who was one of the dismissed employees, argued (among other things) that Article 61(3) WCO violates the Directive. According to Article 61(3) WCO, the transferee can choose which employees it wishes to keep on provided that the decision is dictated by technical, economic and organisational reasons and that the choice is carried out without unlawful distinction (the latter limitation basically adds a layer of protection to the benefit of the staff representatives). This provision indeed deviates from the principle that the transferor’s rights and obligations arising from a contract of employment existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee (Article 3(1) of the Directive). The question that the ECJ has been called to examine is whether the right of option for the transferee under Article 61(3) WCO, insofar as the GROG is applied with a view to maintain all or part of the transferor or its activities, falls under the derogations in Articles 5(1) or 4(1) of the Directive.
The ECJ’s decision
To fall under Article 5(1) of the Directive, the transferor must be (i) the subject of a bankruptcy proceeding or any analogous insolvency proceeding (ii) which has been instituted with a view to the liquidation of the assets of the transferor and (iii) is under the supervision of a competent public authority. The ECJ followed its AG and ruled that the GROG does not satisfy any of those three prongs. First, the GROG is not a bankruptcy proceeding or any analogues insolvency proceeding. The reasoning is that although a GROG can – and often will – result in a liquidation of the transferor, this is not always the case. Second, the primary objective of the GROG is the continuation of the undertaking, and not its liquidation. In this context, the AG refers to the Smallsteps-case, in which the Court clarified that although there may be some overlap of objectives within the aims of any given procedure, ‘the primary objective of a procedure aimed at ensuring the continuation of the undertaking is, in any event, the safeguarding of the undertaking concerned’. Third, the ECJ ruled that the supervision of a judicial trustee (‘mandataire de justice’) who has to organise a transfer ‘in the name of and on behalf of the debtor’ (Article 60 WCO) is insufficient to satisfy the third prong (since the supervision of a ‘mandataire de justice’ is more limited than the supervision of a liquidator in a liquidation proceeding).
In interpreting the facts-based derogation in Article 4(1), providing the permissible causes for dismissal (ETO reasons), the ECJ argued that the transferee should prove that the dismissals are caused by additional economic, technical or organisational circumstances such as the impossibility of transferring the staff to other stores (Kirtruna en Vigano). See §§58-59:
“While it is true that employees who are not kept on by the relevant transferee, and, accordingly, made redundant, are implicitly but necessarily those for which no technical, economic or organisational reasons require, from the transferee’s point of view, the transfer of the contract of employment, the fact remains that the transferee is not required to show that the redundancies arising from the transfer are due to technical, economic or organisational reasons.
It is therefore apparent that the application of national legislation such as that at issue in the main proceedings is liable seriously to compromise observance of the principal objective of Directive 2001/23, as set out in Article 4(1) thereof and referred to in paragraph 52 of the present judgment, namely the protection of employees against unjustified dismissal in the event of a transfer of an undertaking”. (emphasis added)
In other words, the ECJ has ruled that the safeguards currently provided in Article 61(3) WCO, such as the requirement that the decision to keep on certain employees is determined by ETO reasons, are inadequate to ensure that the dismissals conform with Article 4(1) of the Directive. To adequately protect employees, the national courts should be exhaustively informed of the justifications to assess the necessity of redundancies.
The referring court is faced with a dilemma. On the one hand, the Belgian court could try to interpret Article 61(3) WCO in accordance with Article 4(1) of the Directive. This could be done by interpreting Article 61(3) WCO in a way that it demands that the transferee proves that the dismissals are not caused by the mere desire to reduce the costs of taking over an enterprise but by additional ETO reasons. On the other hand, the Belgian court could rule that such an interpretation would be contra legem. If the court decides the latter, the dismissed employees can try to sue the Belgian state to claim compensation for the losses they suffered due to the wrong implementation of Article 61(3) WCO.
Whatever the decision of the national court may be, this does not alter the fact that it was not common practice for the transferee to prove that the dismissals were caused by ETO reasons. Hence, dismissed employees from previous GROGs could start suing the Belgian state to claim compensation. The state would be at fault, either (a) because it did not correctly implement Article 4(1) of the Directive or (b) because the national courts did not correctly interpret/apply Article 61(3) WCO. However, the dismissed employees will also have to show that they suffered damage because of this wrongful behaviour. This means that they will have to prove that there were no ETO reasons present at the time of the dismissal, which might prove to be a nearly insurmountable task. In any case, the transferee cannot be blamed (or sued) for the mistakes the Belgian legislator or courts have made.
To prevent further discussions concerning the new Article XX.86(3) WER, the legislator would act wisely by clarifying that the transferee must prove that the dismissals were caused by additional ETO reasons. In addition, other legal systems can serve as an example when reformulating Art. XX.86(3) WER. Since the ruling in Key2Law (UK), it has been clear that administration proceedings never fall under the categorical derogation in Regulation 8(7) TUPE (that implements Article 5(1) Directive). Furthermore, Regulation 7 TUPE uses a quasi-identical wording to the one used in Article 4(1) of the Directive, including (in §1) an explicit a priori limitation to the freedom of choice of the transferee – a safeguard the AG seems to find extremely important. In Germany, §613a(4) BGB (implementing Article 4(1) Directive) also applies to all insolvency proceedings. Just as Regulation 7 TUPE, this provision provides an explicit a priori safeguard by specifying that a termination of an employment relationship due to the transfer itself is ineffective (something which is not explicitly done in the Belgian Art. 61(3) WCO or XX.86(3) WER).