Employees’ Financial Rights in the case of a Transfer of an Undertaking

The Interpretation of article 3 of the Transfers of Undertakings Directive 2001/23/EC provided by the European Court of Justice.

On the 6th April 2017, in the case C-336/15, the European Court of Justice (“ECJ”) provided an interpretation of article 3 of the Transfers of Undertakings Directive 2001/23/EC, with respect to the safeguarding of employees’ financial rights in the event of a transfer of undertaking.

The case submitted to the ECJ involved four employees, who were members of a Swedish trade union. When the employees were transferred to the new employer ISS Facility Services AB (hereinafter referred to as “ISS” or “the transferee”), the transferors, that is, Apoteket AB and AstraZeneca AB, were bound by collective agreements. Under these collective agreements, the period of notice was to be extended by a period of six (6) months, in relation to employees who at the time of termination on grounds of redundancy, are aged between 55 and 64 years and have a continuous period of service of 10 years. When the transfer and subsequent termination of the employment of the employees took place, the employees were 55 years of age or older and had been employed with the transferors for a period exceeding ten (10) years.

However, when the said employees were terminated on grounds of redundancy by ISS, the transferee did not grant them a period of notice extended by 6 months since, according to ISS, the employees did not have a continuous period of service of 10 years with ISS, and, for that reason, the employees did not satisfy the conditions which granted the extension of the notice period in terms of the applicable collective agreements.

The Swedish trade union brought the action before the ECJ claiming that ISS should compensate the employees for the loss sustained by the transferee’s failure to give the said employees adequate notice.

The case raised the question of the interpretation of the above-mentioned Article 3.

The ECJ, in accepting the Swedish trade union’s arguments, ruled that Article 3 must be interpreted as meaning that the transferee must, when terminating the employment of an employee more than one year after the transfer of the undertaking, include, in the calculation of that employee’s length of service which is relevant for determining the notice period, the length of service acquired by the employee with the transferor.

More specifically, the ECJ had previously ruled that, while length of service with the transferors is not in itself a right that the transferred employees may assert against the transferee, in certain cases, it is used to determine certain financial rights of employees.

Therefore, the Court held that article 3(1) must be interpreted as meaning that, in calculating rights of a financial nature, the transferee must take into account the entire length of service of the employees so transferred, in so far as such an obligation derives from the employment relationship between those employees and the transferor.

Since the right to obtain an extended notice period of 6 months conferred an entitlement to 6 months of wages, it follows that the said right is to be regarded as one of a financial nature in terms of article 3 (1).

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