C-29/91

Those questions were raised in proceedings With effect from 1 January 1991, the Munici- brought by the plaintiff in the main proceed- pality of Groningen ceased to subsidize the ings, the Dr Sophie Redmond Stichting ('the Redmond Foundation. At the same time, it Redmond Foundation'), in order to have set decided to switch the subsidy for Surinamese aside certain contracts of employment and Antilles drug addicts to another founda- between it and members of its staff, includ- tion providing assistance to drug addicts, the ing the defendants in the main proceedings, Sigma Foundation ('Sigma'), on condition H . Bartol and others. that as a general foundation for the provision of assistance to drug addicts it should also be accessible to them. With effect from 1 Janu- ary 1991, the premises rented by the Munici- pality to the Redmond Foundation, which it Background to the case used both for the provision of assistance and for its social and recreational purposes, were leased to Sigma.

2. The Redmond Foundation is a foundation governed by Dutch law which is engaged

The Redmond Foundation and Sigma stated * Original language: Dutch. that they were prepared actively to cooperate 1 — OJ 1977 L 61, p. 26. on the transfer to Sigma of the Redmond

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Foundation's clients/patients. A working (a) undertaking means any business or ser- group on the 'incorporation of the Redmond vice; Foundation's activities in the Sigma Founda- tion' was set up. The Municipality of Groningen expressed the wish that when the (b) transfer of an undertaking means any provision of assistance was taken over by transfer of an undertaking or part of an Sigma 'use should be made of the knowledge undertaking pursuant to an agreement, in and resources (e. g. staff) of the Redmond particular an agreement of sale, hire, lease Foundation'. Sigma offered new employment or grant in usufruct ...'. contracts to a number of the Redmond Foundation's employees.

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national court therefore referred the follow- (c) Is it of any significance, for the purpose ing questions to the Court for a preliminary of answering Question (b), whether the ruling: untransferred inventory consists exclu- sively or well-nigh exclusively of aids for the purposes of the abovementioned social and recreational function?

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the subsidy paid to the first legal person Under Dutch law, a foundation is in princi- and to switch it to the second legal per- ple a non-profit-making legal person. By son?' design, the Dutch legislature sought to dis- tinguish foundations from companies, inter alia by prohibiting a foundation from including amongst its objects making distri- butions to its founders, members of its con- 5. The key question seems to me to be stituent bodies or other persons, unless in whether the transfer from the Redmond the latter case the distributions have a chari- Foundation to Sigma of (part of) the activity table or social purpose. 3 Although Dutch of the undertaking and the dismissals of staff foundations are often used in practice for related thereto fall within the scope of the commercial purposes and more specifically directive. That question is in two parts. First, in connection with groups of companies, 4 it is necessary to consider whether this case the question arises as to whether, where that involves a 'transfer of an undertaking' within is not the case, the directive nevertheless the meaning of the directive (see sections applies to a non-profit-making institution, 11 to 16 below). However, that part of the such as the Redmond Foundation, whose question is subject to a preliminary question, income consists exclusively of subsidies. namely whether the Redmond Foundation is an 'undertaking' within the meaning of the directive (see sections 6 to 10 below). The second part of the question is whether or not there was a legal transfer or a merger within the meaning of the directive (sections 17 to The Court has not yet gone into this. To 24 below). date it has considered only cases in which profit-making undertakings were transferred.

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'This directive shall apply to the transfer of title stresses the 'safeguarding of employees' an undertaking, business or part of a busi- rights' in the event of transfers of undertak- ness to another employer as a result of a ings; according to the preamble, it aims to legal transfer or merger.' provide for 'the protection of employees in the event of a change of employer', 9 and, still according to the preamble, the directive The actual text of the directive makes no dis- seeks through the approximation of national tinction depending on whether an undertak- laws to maintain the improvement described ing is commercial or non-commercial. There in Article 117 of the Treaty, which includes is one exception only to its scope ratione the improvement of working conditions. 10 materiae, that for sea-going vessels (Article 1(3)).

9 — Second recital in the preamble to the directive. 5 — See the first and second recitals in the preamble to the direc- tive. 10 — Fifth recital in the preamble (OJ 1977 L 6 1 , p. 26); see also in this connection the judgment in Abels, cited above, para- 6 — Judgment in Case 135/83 Abels v Bedrijfsvereniging voor de graph 18. Metaalindustrie en de Electrotechnische Industrie f 1985] ECR 469, paragraph 18 in fine. 11 — Judgments in Case 287/86 Ny Mølle Kro [1987] ECR 5465, paragraph 12, in Case 324/86 Tellerup v Daddy's Dance 7 — Judgment in Case C-362/89 D'Urso [1991] ECR 1-4105, HaII[Vm] ECR 739, paragraph 9, in Joined Cases 144 and paragraph 23. 145/87 Berg v Besselsen [1988] ECR 2559, paragraph 12, in 8 — It was announced in the Council Resolution of 21 January Case 101/87 Bork International v Foreningen af Arbejdsle- 1974 concerning a social action programme (OJ 1974 C 13, dere i Danmark [1988] ECR 3057, paragraph 13, and in p. 1, more specifically at p. 4). D'Urso, cited above, paragraph 9.

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12 — Judgments in Berg, paragraph 13, and D'Uno, paragraph 9. 13 — Judgment in Ny Mølle Kro, paragraph 11; and see the ear- 15 — Judgment in Case C-7/90 Vandevenne [1991] ECR 1-4371, lier judgment in Case 19/83 Wendelboe [1985] ECR 457, paragraph 6. paragraph 15, and Berg, cited above, paragraph 13. 16 — Judgment in Case C-41/90 Höfner and Eher [1991] ECR 14 — OJ 1985 L 370, p. 1. 1-1979, paragraph 21.

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within the meaning of Article 3(1) of the the provision of assistance to drug addicts directive. Unlike the interpretation of the and other victims of substance abuse, was term 'worker' contained in Article 48 of the taken over. The fact that certain forms of Treaty, , 7 the term 'employee' in this case assistance or certain activities were not con- covers, according to the Court, any person tinued does not prevent there having been a who, in the Member State concerned, is pro- transfer of an undertaking or at least of part tected as an employee under national of an undertaking. employment law. 1 8

12. In the past, the Court has repeatedly ruled on the need for identity to be main- 'Transfer of an undertaking' within the tained in the event of the transfer of an meaning of the directive undertaking, business or part of a business within the meaning of the directive.

17 — See, inter alia, the judgments in Case 66/85 Lawrie-Blum [1986] E C R 2121, paragraph 17, in Case 197/86 Brown [1988] ECR 3205, paragraph 21, in Case 344/87 Bettray [1989] ECR 1621, paragraph 12, and in Case C-3/90 Ber- 19 — Judgments in Case 24/85 Spijkers v Benedik [1986] ECR nini [1992] E C R 1-1071, paragraph 14. 119, paragraphs 11 and 15, and in Ny Mølle Kro, cited 18 — Judgments in Case 105/84 Danmols Inventar [1985] ECR above, paragraph 18. 2639, paragraph 28, and in Case 237/84 Commission v Bel- 20 — Judgments in Spijkers, paragraph 12, and in Ny Mølle Kro, gium [1986] E C R 1247, paragraph 13. paragraph 18.

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According to Article 1(1), the directive is also applicable where, not all the undertak- As regards taking over the staff, counsel for ing, but only one or more of its businesses or the Redmond Foundation stated at the hear- parts of its businesses are transferred to ing that two or three employees had not another employer. Where such a partial been taken over and that four and a half (a transfer takes place, it is self-evident that part-time worker) had. That number is not those factors, establishing that the undertak- inconsistent per se with the undertaking's or ing has retained its identity, should be the business's retaining its identity in the applied only in respect of the business of the transfer: in the judgment in Bork Interna- undertaking or, as the case may be, the part tional the Court held that the directive was of such business which has been transferred. applicable in a situation in which, first, all the staff were dismissed and, subsequently, 'more than half' were taken on again. 22

13. It appears from the facts of the case, in so far as I am aware of them, that a number of factors mentioned by the Court were Continuity has also been established with present in this instance. regard to the clients: both the Redmond Foundation and Sigma declared that they were willing to transfer the former's clients/patients to the latter. The activities of the two foundations, that is to say, receiving and assisting drug addicts, are substantially the same. In my view, it is Lastly, although this aspect does not appear not of fundamental importance that, as the amongst the factors listed by the Court — in Redmond Foundation maintains, the target any case solely by way of example and not groups did not correspond entirely (Suri- exhaustively — it seems to me in this case namese and Antilles drug addicts, alcoholics that the transferral of the funding of the entity is of decisive importance. The subsidy

14. The ultimate appraisal as to whether, having regard to the facts described above, 15. Accordingly, it is also for the national there has been a continuation, under a new court to determine the importance to be employer, of the same undertaking or at least attached to the circumstance adverted to in of a substantial part of the undertaking falls the fourth question, according to which to the national court. As the Court held in Sigma no longer provides the social and rec- the judgment in Spijkers, reational services offered by the Redmond Foundation. I would also observe, however, that it is by no means essential for the appli- cation of the directive that the undertaking's activity before and after the transfer should 'It is for the national court to make the nec- be the same. To require this would run essary factual appraisal, in the light of the counter to the broad scope of the directive criteria set out above, in order to establish and to its wording, according to which, I whether or not there is a transfer in the sense repeat, both the transfer of a business and of indicated above'. 23 part of a business of an undertaking are cov- ered. It seems to me that, apart from the social and recreational services which are no longer provided, that which remains of the activity of the undertaking can undeniably Accordingly, it is the national court which is be described as part of the activity of the best placed to assess, having regard to the Redmond Foundation, which 'retains its aforementioned evaluation criterion and to identity'. the connecting factors mentioned, the impor- tance of the facts mentioned in its second and third questions, namely the fact that the Redmond Foundation's inventory was not transferred to Sigma and the fact that the In addition, the directive expressly contem- Redmond Foundation's inventory consisted plates the possible reorientation of the exclusively or almost exclusively of aids undertaking's activity following the transfer. intended for the social and recreational func- In that regard, Article 4(1) makes clear that tion which it performed and which was not the protection afforded to employees in con- nection with a transfer of an undertaking does not stand in the way of 'dismissals that 23 — Judgment in Spijkers, paragraph 14. may take place for economic, technical or

In case the Court should nevertheless wish 16. At the hearing, counsel for the Redmond to consider this argument, suffice it to say Foundation expanded an argument which that none of the evidence in the documents does not appear from the national court's before the Court suggests that, at the time questions. when its activities were transferred to Sigma, the Redmond Foundation had suspended payment of its debts, let alone that any pro- According to that argument, the decision of ceedings for insolvency or suspension of the Municipality of Groningen to cease pay- payments had been brought against it. I need ing the subsidy meant that the Redmond only refer to the Court's judgment in Dan- Foundation's Board had to wind it up. That mols Inventar, which was concerned with a task was entrusted to its lawyer in September transfer of an undertaking after the trans- 1990. A plan was subsequently drawn up feror had suspended payment of its debts but with the Redmond Foundation's accountant before it was declared insolvent. The Court with a view, in the context of the winding considered that the fact that the transfer had up, to terminate the contract to lease its pre- occurred after the transferor had suspended mises concluded with the Municipality of payment of its debts was in itself not enough Groningen and to set aside the employment to exclude the transfer from the scope of the contacts concluded with its employees, in directive. 26 I conclude therefore that a forti- each case with effect from 1 January 1991. It ori nothing in this case prevents the directive follows that since September 1990 the Red- from applying. mond Foundation has in fact been in liquida- tion, a situation which should be equated with insolvency. Consequently, in the light of the judgment in Abels, the directive is not The absence of a 'legal transfer' or a 'mer- applicable. ger'

The Redmond Foundation considers that it Next, it clearly appears from the case-law should be inferred from the lack of any that, as regards the scope of the directive agreement (even an indirect agreement) and, in particular, the question as to when a between itself, Sigma and the Municipality of legal transfer is involved, the Court has Groningen that the directive is not applic- always used a teleological approach. The able. It denies the existence of any agreements beginnings of this approach are to be found as to the way in which the assistance would in the judgment in Abels, where, for the first be provided by Sigma after 1 January 1991, time, the Court came up against major termi- as the relevant negotiations came to naught. nological differences between the various language versions of the relevant provision. Whereas most of the versions, including the Dutch, refer only to contractual transfers, 28 For their part, the defendants consider that the English ('legal transfer') and Danish the relationship between the Municipality of ('overdragelse') in particular indicate a wider Groningen and the institutions which it sub- scope. In view of those divergences, the sidizes must be regarded as a contractual Court held that relationship. Given that immediately after the Municipality terminated its relationship with the Redmond Foundation it entered into relations with Sigma, there was a trans- 'the scope of the provision at issue cannot be fer of an undertaking or at least of part of an appraised solely on the basis of a textual undertaking within the meaning of the direc- interpretation. Its meaning must therefore be tive. clarified in the light of the scheme of the directive ... and its purpose'. 29

The first of those cases was concerned with 'where, following a legal transfer or merger, the transfer of an establishment under a there is a change in the legal or natural per- son who is responsible for carrying on the business and who by virtue of that fact 28 — In particular the German ('vertragliche Übertragung'), incurs the obligations of an employer vis- French ('cession conventionnelle'), Greek ('συμβατική εκχώρηση'), Italian ('cessione contrattuale') and Dutch à-vis the employees of the undertaking'. 27 ('overdracht krachtens overeenkomst'): see the judgment in Abels, paragraph 11. 29 — Paragraph 13. More specifically with regard to the question referrea for a preliminary ruling, the Court added that the meaning of the provision had to be clarified in the light of 27 — Judgments in Ny Mølle Kro, paragraph 12, Daddy's Dance 'its place in the system of Community law in relation to the Hau, paragraph 9, and Berg, paragraph 17. rules on insolvency', ibid.

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lease-purchase agreement, followed by the see to the owner and the latter then transfers restoration of the establishment to the ven- it to the new lessee, does nót prevent the dor pursuant to a court ruling terminating directive from applying, provided that the the agreement on the ground of the purchas- economic unit in question retains its identity; ers' non-performance. The Court answered that is so in particular when, as in this case, the argument that the directive was not the business is carried on without interrup- applicable to a transfer effected by a judicial tion by the new lessee with the same staff as decision terminating an agreement by stating were employed in the business before the that it is irrelevant transfer'. 31

Here, I would draw a parallel with the Court's case-law in competition cases. The 'The fact that in such a case the transfer is Court interprets the term 'agreement' within effected in two stages, in that the undertak- the meaning of Article 85(1) of the Treaty ing is first retransferred from the original les-

31 — Judgment in Daddy's Dance Hall, paragraph 10; cf. para- 30 — Judgment in Berg, paragraph 19. graph 14 of the judgment in Bork International.

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'intended by and agreed between the two legal persons and the subsidizing body not only that, so far as possible, the clients/patients of the first legal person should be "switched" to the second legal person but also that, thereupon, a lease It seems to me that agreement between the should be granted to the second legal person parties also plays a decisive role in assessing of the immovable property leased by the first the requirement of a 'contractual basis' for legal person from the subsidizing body and the purposes of the directive at issue, in so that, so far as is possible (and desirable), use far as the rules laid down in the directive should be made of the "knowledge and the have to be made as effective as possible. If it resources (e. g. staff)" of the first legal per- appears that agreements have been concluded son'. between the parties concerning the transfer of the undertaking in question or of a busi- ness or a part of a business, I consider that the directive is applicable even where, as in the case of Berg (see sections 19 and 20 above), the transfer results in part from unilateral declarations by one of the parties In addition, the national court finds (in sec- or from acts (in that case, a judicial decision) tion 11(g)) that, as mentioned above (in sec- tion 2), the Redmond Foundation and Sigma

32 — See the three judgments in Case 41/69 A CF Chemiefarma v Commission [1970] ECR 661, paragraph 112, in Case 44/69 Buckler v Commission [1970] ECR 733, paragraph 25, and in Case 45/69 Boehringer v Commission [1970] ECR 769, paragraph 28. 33 — See also section 11 of my Opinion in Case C-279/87 'declared themselves ready to cooperate Tipp-Ex v Commission [1990] ECR 1-261 (summary publication, opinion not published in the ECR). actively in the "transfer" of the plaintiff's

clients/patients to the Sigma Foundation and Nor do I attach any importance to the argu- a working party for the "Incorporation of ment developed by counsel for the Redmond the Activities of the Redmond Foundation Foundation at the hearing to the effect that into the Sigma Foundation" has come into there could be no question of a consensus being'. having been reached, as the relationship between the Municipality of Groningen and the Redmond Foundation was characterized by the latter's complete dependence: the Do those findings not contain sufficient evi- Redmond Foundation's income came solely dence that the transfer of the undertaking from the grant of subsidies by the Munici- occurred 'on the basis of a contract' in view pality. It was argued that a contractual rela- more specifically of the agreement in princi- tionship can be involved only where 'the ple between the transferor and the transferee parties are in principle on an equal footing'. to cooperate on the most essential aspect of That view is not convincing.

directive. Foundation. This applies in the first place to the Redmond Foundation's objection to the effect that the negotiations which took place between itself and Sigma with regard to the organization of assistance after 1 January 1991 came to naught. First, that argument Lastly, the argument of the Redmond Foun- does not detract from the existence of the dation that the relationship between a subsi- aforementioned agreement in principle to dized institution and the subsidizing body is cooperate with a view to transferring the not of a contractual nature under national provision of services. Secondly, it merely law does not detract from the applicability of confirms that consultations on the transfer the directive. The expression 'legal transfer' actually did take place between the parties [in Dutch: overdracht krachtens overeenko- (presumably within the aforementioned mst — transfer pursuant to an agreement] in

undertaking. 34 35 — Thus, in order for there to be an agreement within the meaning of Article 85(1) of the Treaty, it is not necessary for it to constitute a valid and binding contract under national law: judgment in Case C-277/87 Sandoz v Com- 34 — See also as regards the need for an overall view of the con- mission [1990] ECR 1-45 (summary publication), at the end tractual relationship between the parties, section 8 of my of paragraph 2 of the summary of the judgment; see also the Opinion in Case C-277/87 Sandoz v Commission [1990] judgment in Joined Cases 209/78 to 215/78 and 218/78 Van ECR 1-45 (summary publication, Opinion not published in Landewyck v Commission [1980] ECR 3125, paragraphs the ECR). 85 and 86.

In the absence of a more precise definition of the term 'merger' in the directive itself 36 or in the Court's case-law, its usual meaning in In order to determine whether the transfer of the context of undertakings should be taken an undertaking is the result of a merger as the starting point: there it refers to two or within the meaning of the directive, there- more previously independent undertakings fore, the fact that it is part of a restructuring which join or merge together resulting in a operation which gives rise to a concentration concentration in the broad sense of the of previously independent undertakings, word. That meaning is borne out by the pre- irrespective of the legal technique (contractu- amble to the directive, which mentions trans- al or otherwise) used to that end, is of deci- fers of undertakings as a result of legal trans- sive importance. According to the Court's fers or mergers as reflections of 'changes in case-law, if this results in a change of the structure of undertakings' brought about employer — in the sense of the natural or legal person who has obligations as an employer vis-à-vis the workers employed — the directive must apply (see section 36 — For definitions coming under company law and revenue law, respectively, see Articles 3(1) and 4(1) of the Third 8 above). Council Directive 78/855/EEC of 9 October 1978 based on Article 54(3)(g) of the Treaty concerning mergers of public limited companies (OJ 1978 L 295, p. 36) and Article 2(l)(a) of Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divi- sions, transfers of assets and exchanges of shares concerning 37 — First recital in the preamble to the directive. companies of different Member States (OJ 1990 L 225, p. 1). 38 — OJ 1989 L 395, p. 1.

(3) It is for the national court to determine whether the transfer is the result of a legal transfer or a merger. In order for there to be a legal transfer, it is suffi- cient for the transfer to have taken place on the basis of a contract, which refers to the existence of an agreement in principle between the transferor and the transferee and their readiness to cooperate, even if the transfer is, in part, effected by unilateral declarations by the parties and/or by acts of third parties and even if no takeover agreement is concluded between the transferor and the ultimate transferee. In order for there to have been a transfer resulting from a merger, it is sufficient for the transfer to have taken place in the context of a restructuring operation resulting in a concentration of previously independent undertakings, even if that transaction does not arise from an actual merger agreement.

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