Business transfer or no business transfer?

A business transfer does not in principle affect the employment contracts of the workforce. The transfer of an undertaking is contingent upon an economic entity transferring on preservation of its identity, “economic entity” being defined in this context as a set of organised resources aimed at enabling the performance of particular operations.

The regime in question has been created for the purpose of protecting the staff in the event of a transfer of the business they work for. According to established case law of the European Court of Justice, the notion of “transfer by virtue of agreement” should be given such liberal interpretation as to ensure that it is not the lack of a contractual tie between the divesting party and the acquiring party but rather, the preservation of the business’ identity which is regarded as the decisive factor in answering the question as to whether or not there has been a question of the business transferring. This would call for an investigation to be carried out into whether the operation of the business by its new owners is being continued using the same or similar operating resources, and involve allowances being made for all kinds of considerations such as the nature of the business, the transfer (or not) of tangible assets such as buildings and moveable assets, the value of the intangible assets, the transition (or not) of the staff, the transfer (or not) of the client base, the degree to which the operations have remained the same, and the extent of business interruption if any.

Case:
A garden centre employee worked as a sales assistant in the pet supplies section. When the garden centre went under, the neighbouring angling supplies shop – whose owner was the brother of the landlord of the garden centre’s former premises – launched a pet supplies department. It was not long until the sale of pet supplies was discontinued. The employee had since become occupationally disabled. A new-build property was erected where the garden centre had once been and the owner launched a franchise store selling garden and pet supplies. Although there was no direct connection, according to the former employee there had been a question of business transfer by virtue of which she was entitled to continued salary payment.

The Amsterdam Court of Appeal rejected the employee’s point of view, arguing that no stocks had been taken over while the new store was being operated from different premises and the store fixtures were also different. The Supreme Court in turn ruled that the Court of Appeal had not properly substantiated its judgment, as it had failed to address the question as to whether the sale of pet supplies constituted an economic entity, which the Supreme Court presumed it did. The mere fact that no assets had transferred could not be taken to imply that there had been no question of business transfer, as there was the possibility of the identity of the business having been preserved. According to the Supreme Court, the Court of Appeal should have made allowances for the consideration that the current store was situated one plot over from that of the angling supplies shop, in the very plot that used to house the garden centre. The Court of Appeal in its ruling had failed to show that it had made due allowances for this in arriving at its decision. The next stage will be that of the Hague Court of Appeal addressing the question as to whether the business’ identity has been preserved.

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