C-343/98

1. The present reference for a preliminary ruling chiefly concerns the question whe- 'Section I ther Directive 77/187/EEC on the safe- guarding of employees' rights in the event of transfers of undertakings may also be applied in the event of privatisation of public entities. The main issue in this Scope and definitions regard is the interpretation of Articles 1 and 3 of the directive. Article 1 refers to a legal transfer of a company, whereas the transfer which gave rise to the dispute in the main proceedings took place under Article 1 statute; Article 3 refers to employees, whereas the plaintiffs in the main proceed- ings were probably civil servants at the time (1) This Directive shall apply to the transfer of the transfer in 1993. of an undertaking, business or part of a

* Original language: German. 1 — OJ 1977 L 61, p. 26.

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business to another employer as a result of Section II a legal transfer or merger.

Safeguarding employees' rights

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the provision that it shall not be less than private bodies, unless there are special one year. provisions specifying otherwise. In the view of the national court, 'Law No 58/92 of 29.1.1992 laid down in respect of the transfer of ASST's telecommunications ser- vice activities [ASST being a state enter- prise] to the company then known as Iritel [a private company] special rules derogat- ing from the general rule on transfers of undertakings contained in Article 2112', since the law, unlike Article 2112, 'does not provide for the employment relation- ship to continue'. Law No 58/92 merely provides that management and labour are Article 4 responsible for ensuring that former ASST employees receive, through collective bar- gaining, overall financial terms not less favourable than those previously enjoyed. 1. The transfer of an undertaking, business Law No 58/92 also entitles employees of or part of a business shall not in itself ASST to claim a length-of-service payment. constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organizational reasons entailing changes in the work-force.

...’

II — National law 4. Law No 58/92, Article 4, provided that Iritel SpA (Iritel) was to continue employ- ing for one year in its activities the staff 3. Italy transposed the directive into previously employed by ASST. At the end national law by way of an amendment to of that year, those workers who had not Article 2112 of the Codice Civile (Civil requested to remain in the public service Code). As the order for reference explains, (where they would be assigned a new job in the substantive scope of Article 2112 of the the public administration and within the Codice Civile was subsequently extended to territory of the province) would become the transfer of activities from public to employees of Iritel.

5. The plaintiffs in the main proceedings, Renato Collino and Luisella Chiappero (the plaintiffs), were employed from 6 Decem- 7. The defendant submits, and the plaintiffs ber 1965 and 11 December 1966 respec- do not dispute, that under Italian law the tively until 31 October 1993 by Azienda di length-of-service payment following the Stato per i Servizi Telefonici (ASST), a State end of the period of employment with the institution which undertook the manage- former employer, ASST, could be paid in to ment, installation and running of public the new employer, Iritel, within 30 days for telecommunications systems throughout the purpose of uniform calculation. the country. In the course of the privatisa- tion of telecommunications services and the winding-up of ASST, the Minister for Posts and Telecommunications, by a decree of 29 December 1992 and on the basis of Law No 58/92, granted Iritel, a private com- pany, an exclusive concession to take over 8. According to the order for reference and continue the activities previously car- from the Pretura Circondariale di Pinerolo ried on by ASST. Iritel had been founded, (the Pretura), in the action lodged on also on the basis of Law No 58/92, by the 16 October 1977 against Telecom Italia Instituto per la Ricostruzione Industriale SpA (the defendant) the plaintiffs are (IRI), a State-owned holding company, and pursuing two objectives, both in reliance its entire capital was owned by the State. on the identity of their employment rela- tionship with the former and the current employer. They are requesting recalculation of the salary and wage increases since 1 November 1993 which are dependent on their length of service, taking into account their service with the former employer. Secondly, they are applying to be allowed to pay in to the defendant the 6. The plaintiffs continued to be employed length-of-service payment which they by Iritel with effect from 1 November 1993 received after leaving the public service on in the same jobs as they had held with 31 October 1993, in order to obtain a more ASST, having been paid the length-of- favourable length-of-service payment cal- service payment which was due to them culated according to their entire period of from ASST. On 16 May 1994 they were employment until retirement. In the view of transferred to the Società Italiana per le the plaintiffs, the transfer of the functions Telecomunicazione p.a. (SIP), which also of ASST, initially to Iritel and then to SIP, belonged to IRI, when Iritel was taken over was a transfer of an undertaking, so that by SIP. SIP was later renamed Telecom their entire period of employment from

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will be considered in connection with the why the plaintiffs in the original action had legal assessment of the case. not paid in their severance payment, this was a factual, not a legal question.

14. The Finnish Government has pointed D — Legal assessment out in this connection that it is for the national court alone to determine whether a question referred for a ruling is material to its decision.

I — Questions of admissibility

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77/187 and upon the same rule of Italian problem of direct effect as between private law, namely Article 2112 of the Codice parties does not arise. Civile. In its judgment in that case, the Court rejected a plea of inadmissibility in reference to interpretation in conformity with the directive.

Opinion

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inferred from the order itself. It depends on of the State. The definition of a State the interpretation of the directive whether comprises not only State authorities, 8State and how a national rule such as Law institutions 9 and local authorities 10 but No 58/92 is to be applied by the national also State undertakings. 1 1The Court has court. explained that the possibility of relying as against a State on a rule contained in a directive exists 'regardless of the capacity in which the latter is acting, whether as employer or as public authority. In either case it is necessary to prevent the State from 20. On the other hand, the question whe- taking advantage of its own failure to ther the directive can be applied at all in comply with Community law.' 12 The this case, because the dispute is one Court has therefore ruled that 'a body, between private parties, is not really a whatever its legal form, which has been problem of admissibility. It is more a made responsible, pursuant to a measure question of the effect of directives, and adopted by the State, for providing a public especially the effect in national law of service under the control of the State and directives which may not have been com- has for that purpose special powers beyond pletely transposed. those which result from the normal rules applicable in relations between individuals is included in any event among the bodies against which the provisions of a directive capable of having direct effect may be relied upon.' 13 21. Since two private law subjects were involved in the initial dispute, the defen- dant is apparently assuming that direct application of the directive in the present case would result in what is called the 'direct horizontal effect' of directives, which is ruled out by the case-law of the Court 7 and must therefore be disallowed.

acting. Whenever in fact the State, directly the Court has consistently held that a or indirectly, stands behind an institution directive cannot of itself impose obligations or undertaking and controls it, then it is no on an individual and cannot therefore be longer a private individual. It is according relied upon as such against an individual to these criteria that the national court has (see, in particular, the judgment in Case to determine whether Iritel, whose legal C-91/92 Faccini Dori [1994] ECR I-3325, successor is the defendant, is to be regarded paragraph 20), it has also held that, when as a private person at all. applying national law, whether adopted before or after the directive, the national court called upon to interpret that law must do so, as far as possible, in the light of the wording and the purpose of the directive so as to achieve the result it has in view and thereby comply with the third paragraph of Article 189 of the Treaty (judgment in 24. The order for reference shows that Faccini Dori, paragraph 26)'. 14 although Iritel was organised as a private law body, all its shares belonged to a public institution. Moreover, the activity taken over by Iritel was dependent on the grant of an administrative concession. Both these factors suggest the presumption that Iritel was State-controlled and State-run. Since 27. On the other hand, the Commission's according to the information supplied by reference to the judgment in Case the Commission this is also true of the C-131/97 15 is only relevant to the extent present defendant, this conclusion would that the national court had inquired in that apply to the defendant just as to Iritel. case about the direct effect of a directive, and the Court, in its decision, ultimately referred to the possibility of an interpreta- tion in conformity with the directive. Apart from this, the judgment does not offer any further clues for resolving the present case, as the underlying facts are quite dissimilar.

that in the past the Court has extended this national law. Rather, the issue in the possibility very broadly, but there are limits present dispute is whether a special rule in some cases even to an interpretation in laid down in national law should be conformity with the directive. According to disregarded if it is incompatible with the the Court's case-law, there will always be a directive, applying instead the general limit where an obligation in a directive national transposition measure, which which has not been transposed is invoked complies with Community law. against an individual. 16 Further limits on such a duty are the general principles of Community law, especially the principle of legal certainty and non-retroactivity, to which the Court has referred in criminal law cases. 17 In this respect the duty of the courts in the Member States to interpret their law in conformity with the directives 30. According to the consistent case-law of is subject to the same limitations as the the Court, all the authorities of a Member direct effect of rules contained in a direc- State are bound by Community law to take tive. This is because the Court has decided, all appropriate steps, within their field of as regards direct effect as well, that a rule in competence, to comply with the obligations a directive may not itself give rise to any arising from the directive. 19 The Court's obligations for individuals. 18 If in the jurisprudence warrants the conclusion that present case the national court were told this results in a duty not to apply national merely to apply the law in conformity with law which is contrary to the directive. 20 Of the directive, this might not be of sufficient course, indirect or actual burdens or obli- assistance in resolving the national dispute, gations could arise for the individual if the as is intended in Article 177 of the EC directive is complied with in this fashion. Treaty (now Article 234 EC). But from the viewpoint of Community law this is harmless, as long as the legal effect for the individual which is derived from the directive is mediated through national law.

clear from the Pretura's order for a refer- — Arguments of the parties ence that this would do away with the rule under Law No 58/92, that is, the special rule on Article 2112 of the Codice Civile, and the latter general rule by which the directive was transposed into national law would then apply. The duty to preserve the rights of employees therefore arises from the application of the national civil law 33. According to the plaintiffs, the direc- which was enacted in order to transpose tive is applicable in the present case. The the directive. This does not involve obliga- transfer to Iritel of the responsibilities tions for the individual being based directly discharged by ASST in the field of public on the directive itself. telecommunications services is a transfer of a business within the meaning of Article 1 of the directive, since the transfer took place for value and the identity of the economic entity transferred was preserved. All the business assets and rights passed to Iritel on the basis of Law No 58/92. Like- wise, virtually all the employees of ASST were taken over by Iritel and performed the same functions, on the same premises, as they had done previously for ASST. The plaintiffs rely in this respect on the Court's II — Question a judgment of 18 March 1986 in Case 24/85 Spijkers. 21

32. This question deals with the applicabil- ity of the directive to the privatisation of 34. In the view of the plaintiffs, as far as State-owned public entities (in the field of the applicability of the directive is con- telecommunications services) where the cerned it is irrelevant that the transfer took activity previously carried on by a public place as a consequence of the grant of a entity is now exercised by a private com- concession, rather than through a contract pany in which the sole shareholder is between the transferor and the transferee. another public entity. As the Court found in its judgment of 10 February 1988 in Case 324/86 Daddy's Dance Hall, the directive also applies 'where, upon the termination of a non- transferable lease, the owner of an under- taking leases it to a new lessee who carries on the business without interruption with

39. The Austrian and Finnish Governments emphasise that the decisive criterion in determining that a business has been trans- 36. The defendant denies that the directive ferred is the preservation of an economic applies to the case in issue. It argues that entity which existed before the transfer. Article 1(1) of the directive poses, as an The statements of the national court show unconditional requirement for its applica- that this condition was fulfilled. tion, a transfer by means of a contractual takeover or merger. Since the transfer of ASST's functions to Iritel took place on the basis of Law No 58/92 and the ministerial grant of a concession, hence on the basis of 40. In the view of all three participating State measures, this condition was not Governments and the Commission, the fact fulfilled. Admittedly, the Court has always that ASST was part of the public adminis- made a broad interpretation of the concept tration makes no difference when deciding of a 'legal transfer'. However, in the whether the directive is applicable. The defendant's view the act of transfer must Court's judgment of 15 October 1996 in be traceable to the joint intention of the Case C-298/94 Henke 23 shows that where transferor and the transferee, and this the transfer of sovereign administrative requirement cannot be dispensed with. functions of a municipality to an adminis- trative collectivity is concerned, the applic- 22 —[1988] ECR 739, paragraph 11; thus in this case, no contract was concluded directly between the old and the new employer. 23 — [1996] ECR I-4989.

44. The Finnish Government and the Com- mission point out, moreover, citing the judgment of 8 June 1994 in Case C-382/92 Commission v United King- dom, 26 that the directive applies to all 42. In this connection the Austrian Gov- public and private undertakings exercising ernment also points out that Directive an economic activity, whether for profit or 98/50 amending Directive 77/187/EEC 25 otherwise. It follows that even if the merely took over the case-law of the Court. exercise of the function transferred to Iritel The fifth recital in its preamble states that enabled services in the field of telecommu- 'in the light of the case-law of the Court of nications to be provided in the public Justice' legal certainty and transparency interest and for a public purpose, this alone require an express provision. The nature of would not limit in any way the scope of the the activities transferred also does not directive. Nor does the need for a conces- result in the directive becoming inapplic- sion to be granted detract from the eco- able, because the services provided in the nomic nature of the activity; it merely field of telecommunications are not in any facilitates supervision in the interest of consumer protection. 24 — Joined Cases C-173/96 and C-247/96 Sánchez Hidalgo and Others [1998] ECR I-8237. 25 — OJ 1998 L 201, p. 88. 26 — [1994] ECR I-2435.

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46. To begin with, I must briefly mention that the question raised by the plaintiffs of the relationship between Article 2112 of the Codice Civile and Law No 58/92 is to 48. I must also agree with the view be answered according to national law. The expressed by all parties except the defen- question whether Law No 58/92 does in dant that in defining a transfer of an fact contain a special priority rule derogat- undertaking within the meaning of the ing from Article 2112 of the Codice Civile directive it does not matter whether the must therefore be decided not by the Court, transferor is a legal person under public or under private law. This follows from the wording of the definition of a transferor in 27 —[1985] ECR 469. 28 — Cited in footnote 22. 29 — [1992] ECR I-3189. 31 — Case C-13/95 (cited in footnote 30, paragraph 14). 30 — [1997] ECR I-1259. 32 — Case C-13/95 (cited in footnote 30, paragraph 14).

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33 — Cf, for example, Case 324/86 (cited in footnote 22, 35 — Joined Cases C-173/96 and C-247/96 (cited in footnote paragraph 9) and Case C-13/95 (cited in footnote 30, 24). paragraph 10). 36 — Joined Cases C-173/96 and C-247/96 (cited in footnote 24, 34 — Case C-298/94 (cited in footnote 23). paragraph 24).

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from ASST are not functions of public providing support for drug addicts, brought authority, but economic activities. Iritel, its activities to a complete halt. But both and subsequently the defendant, carried on the foundations, which were legal persons, the same activities as ASST, for an eco- and the subsidising body, the local author- nomic purpose. This is precisely the aim ity, had not only intended and agreed that pursued in privatisation. To draw the 'the clients/patients of the first legal person conclusion that in the case of ASST there should be "switched" to the second legal had been a privatisation of functions of person but also that, thereupon, a lease public authority would be very strange. should be granted to the second legal Moreover, Commission Directive 90/388/ person of the immovable property leased EEC of 28 June 1990 on competition on by the first legal person from the subsidis- the market for telecommunications ser- ing body and that, so far as is possible... use vices, 3 7 which is the basis of the privatisa- should be made of the "knowledge and the tion measures in the telecommunications resources (e.g. staff)" of the first legal sector, presumes that the activity is eco- person'. 39 The employees working for the nomic in character. In summary, it may be first foundation on the basis of contracts of concluded that the nature of the transferred employment, who were not taken over by activity in the main proceedings is not such the second foundation and against whom as to exclude application of the directive. proceedings were brought to end their employment contracts, relied on the rules in Netherlands law for the transposition of the directive.

safeguard employees in the event of a Personal scope — the concept of an transfer of their undertaking, and has held employee that the directive is applicable wherever, in the context of contractual relations, there is a change in the natural or legal person who is responsible for carrying on the business and who incurs the obligations of an employer towards employees of the under- 55. The order for reference gives no further taking'. 41 The directive does not become details about the exact nature of the inapplicable merely because 'the transfer is employment relationship between the effected in two stages, inasmuch as the plaintiffs and the original employer. It is undertaking is first re-transferred from the not clear whether they were public officials lessee to the owner and the latter then or civil servants of some other kind. This transfers it to the new owner'. 42 On the distinction notwithstanding, the question basis of these considerations, the Court thus arises in the present case of the came to the view in the Redmond Stichting applicability of the directive in respect of case that the expression 'legal transfer' is to the concept of an employee since it is not be interpreted so that 'the expression covers certain whether persons who have been a situation in which a public authority working for a State enterprise may be decides to terminate the subsidy paid to one regarded as employees for the purpose of legal person, as a result of which the the directive. activities of that legal person are fully and definitively terminated, and to transfer it to another legal person with a similar aim'. 43

57. The Finnish Government and the Com- 59. The Commission also refers to the mission take the view that the plaintiffs in preparatory work for the directive, the the main proceedings are covered by the two drafts of 1974 and 1975, which in personal scope of the directive. The Finnish Article 3(1) referred merely to an 'employ- Government relies primarily on the Court's ment relationship' and thus would have case-law, under which the directive applies governed the rights and duties arising from to all workers or employees who are an existing employment relationship. Dur- protected from dismissal under national ing consultations the French delegation had law. It argues that even if the concept of an suggested adding the term 'contract of employee is to be defined according to employment' in Article 3(1). These two national rules, neither the wording of the terms 'contract of employment' and directive nor the case-law of the Court 'employment relationship' were then also indicates that employment relationships in transferred to Article 4(2). No reasons are the public service are automatically to be given in the records for this addition of excluded from the scope of the directive on another term. It is however indisputable the basis of purely formal considerations. that both France and Italy, during the What matters here is the nature of the 1970s, ran many State enterprises and that activity performed. If it is an economic the employment relationships in them were activity, the fact that the employer is the governed by administrative law. State or a public entity is irrelevant. One cannot exclude all State employees from the scope of the directive on the basis of considerations of form.

— Opinion 63. Even the distinction argued by the Commission between the terms 'contract of employment' and 'employment relation- ship' does not necessarily result in the scope of the directive being extended to State 61. It is questionable whether the focus on employees. The distinction between the the nature of the activity — economic two terms could also be that the concept activity as distinct from functions of public of an 'employment relationship' embraces, authority — is sufficient in itself to define for example, actual employment relation- the personal scope of the directive. Refer- ships without a contractual basis. In any ence should be made here to the Sánchez event, it would not necessarily mean that Hidalgo judgment, 45 in which the Court employment relationships in the public held that the directive was applicable service are covered. because the main proceedings did not concern the exercise of public authority. If that was all that mattered, all employees — civil servants as well as ordinary employ- ees — who do not perform functions of 64. But a strict interpretation of the con- public authority would automatically be cept of an employee would result in a covered by the directive. But in the Sanchez distinction being drawn between the indi- Hidalgo judgment the Court went on, vidual employees of a public entity, so that referring to the judgment in Danmols some would be covered by the directive and Inventar, to consider further whether the others not. It is doubtful whether such a employees were each 'protected as an distinction would be sensible. employee under national labour law'. 46

67. In this connection one has to bear in mind what the directive is seeking to achieve. According to the consistent case- law of the Court, the directive is intended to safeguard the rights of employees when there is a change of ownership of the undertaking, by making it possible for them to continue to work for the new employer under the same conditions as agreed with the transferor. 47 The contracts 66. It cannot however be assumed in prin- of employment or employment relation- ciple that a civil servant is adequately ships are thereby continued, ipso jure, with protected by national law because of his the transferee. 48 or her special position, even in the event of privatisation. The present case is thus a special case, precisely with respect to the concept of 'employee'. Here people work- ing in the public service are affected by a transfer, with the result that they switch 68. Where the case-law indicates that the over from their possibly privileged position, directive gives workers the option of con- derived from their 'special relationship of tinuing their employment relationship with trust' to the employer, to an ordinary the new owner under the same terms as had private law employment relationship. This been agreed with the transferor, 49 this means that once the privatisation has taken means that there should be no change in place, they are indisputably employees salary conditions and no change in the within the meaning of the directive. Against composition of the salary. 50 Moreover, the this background it seems questionable employees should not suffer any disadvan- whether the strict formal delimitation in tages, even if these are offset by gains line with the previous concept of an elsewhere. 51 This means that there cannot employee should apply in this case too. If be any change in the conditions of employ- it did, the directive would not be applicable ment as a result of the transfer. in the event of privatisation, whereas in the reverse situation — where employees switch over from a private employment 47 — Case C-362/98 D'Urso [1991) ECR I-4105, paragraph 9, relationship to a employment relationship and Joined Cases 144/87 and 145/87 Berg and Others [1988] ECR 2559, paragraphs 12 and 13. in the public service — this would probably 48 — Case C-362/98 (cited in footnote 47, paragraph 12). fall at least within the personal scope of the 49 — Case 324/86 (cited in footnote 22, paragraph 9). directive. In this case the question arises 50 — Case C-209/91 Watson Rask and Christensen [19921 ECR I-5755, paragraph 31. whether State employees who are taken 51 — Case 324/86 (cited in footnote 22, paragraph 15).

69. In the present instance of privatisation light of the case-law adopted by the Court of a State undertaking, this would mean in the meantime. The difficulty of achieving that on application of the directive all the a uniform definition of an employee was no benefits granted to the employees in the doubt already evident when Directive public service are transferred without 77/187 was in preparation. It is uncertain, alteration to the private sector. however, how far it was intended, on that occasion and in the drafting of Directive 98/50, to extend the protection of the directive to employees in the public service, especially in the event of privatisation. In 70. Otherwise, on a strict interpretation of any case, the legislature omitted to regulate the concept of an employee, no protection this point clearly. Three possible conclu- would be afforded to State employees in the sions could be drawn from this. First, it event of privatisation, although they are could be concluded that State employees, losing their special position vis-a-vis the or civil servants, were deliberately left out State. of the protection under the directive. It is equally conceivable that it was found impossible to agree on whether, and how, State employees were to be covered by the directive. A third explanation could be that because of the different national formula- 71. The fact that the directive does not tions it was not possible to harmonise the expressly mention privatisation, such as has concept of a worker. occurred in this case, does not warrant the conclusion that the employees in such a case are to be excluded from the protection of the directive. The directive dates from 1977, namely from a time when privatisa- 73. While no attempt at all was made by tion of State enterprises was not yet the the Community legislature to define the norm. It might therefore be assumed that concept of an employee in the original this development was not contemplated directive, which is the one relevant to the when the directive was adopted. solution of the present dispute, the new directive confines itself to codifying a definition of the concept which was devel- oped in the case-law for a particular type of case. Since, however, the Court has not yet 72. It must of course be borne in mind that had to deal with questions of privatisation, there is no more extensive concept of an such a case cannot be embraced by the employee in the new directive of 1998. 52 concept of a worker as it derives from the Admittedly, the new directive is not yet case-law. applicable to the case at issue in the main proceedings, since it only came into force subsequently. However, it is clear from the recitals in its preamble 53 that it is intended to clarify the concept of an employee in the 74. Moreover, in Case 105/84, 54 in which the Court defined its previous understand-

ing of what an employee is, the facts were mentioned in Directive 77/187 could quite different. In that case it was a prompt the conclusion that in the latter question of clarifying whether a person directive there is no intention to extend the holding a 50% share in the company concept of an employee to the public concerned is to be regarded as an employee service. when the undertaking is transferred. The definition of an employee was not therefore made with a view to the distinction between the private and the public sectors, but only with a view to distinguishing employees from employers. 76. As regards the special rights enjoyed by State employees, such as protection from dismissal, it is conceivable that they are not intended to fall within the directive on safeguarding the rights of employees of workers when undertakings are transfer- red. However, this is a benefit which is not confined to the public service. It is quite conceivable that in the private sector also, there is a form of protection virtually equivalent to protection from dismissal 75. The language of Council Directive available under collective agreements to 93/104/EC of 23 November 1993 concern- those with long records of service. This too ing certain aspects of the organisation of shows that it cannot be simply assumed working time 55 could, admittedly, be said that State employees are invariably in a to stand in the way of an extension of the privileged position and therefore enjoy existing concept of an employee. Arti- special protection if an undertaking is taken cle 1(3) of this directive defines its scope over. as extending to all private and public sectors of activity. It refers, in this connec- tion, to Article 2 of Council Directive 89/391/EEC of 12 June 1989 on the intro- duction of measures to encourage improve- ments in the safety and health of workers at work. 56Here too, both private and public 77. On the other hand, it is the aim of the activities are mentioned. It is also provided directive to afford special protection to that Directive 89/391 will not apply where those affected by the transfer of an under- there are compelling reasons derived from taking. In this connection, it should also be the particular features of certain specific pointed out that according to the case-law public service activities. Since, therefore, of the Court 57 the affected workers, Directive 93/104 specifically mentions the because of this protective purpose, cannot public service, and thus covers all employ- even themselves waive their rights under ees of private and public sector activities, the directive, and that it is not permissible the fact that the public service is not to curtail these rights, even with their consent. On the other hand, the Court

points out that the directive effects only a For instance, under Article 4(1), a dismissal partial harmonisation, because what it is not possible solely because of the trans- essentially does is to extend the protection fer. However, dismissals for economic, already afforded to workers under the law technical or organisational reasons are not of the individual Member States to the case prohibited by the directive. Moreover, of takeovers of undertakings. 'Thus the according to Article 3(2) the terms and directive can be relied on only to ensure conditions agreed in a collective agreement that the employee is protected in his must be continued until its termination or relations with the transferee to the same expiry, to the same extent as provided in extent as he was in his relations with the the collective agreement for the transferor. transferor under the legal rules of the According to Article 3(2), second sentence, Member State concerned Consequently, in the Member States may however limit the so far as national law allows the employ- period for observing them, provided it ment relationship to be altered in a manner continues for at least one year. unfavourable to employees in situations other than the transfer of an undertaking, in particular as regards their protection against dismissal, such an alternative is not precluded merely because the undertaking has been transferred in the meantime and the agreement has therefore been made with the new employer. Since by virtue of Article 3(1) of the directive the transferee is subrogated to the transferor's rights and obligations under the employment relation- ship, that relationship may be altered with regard to the transferee to the same extent as it could have been with regard to the transferor, provided that the transfer of the 79. Accordingly, application of the direc- undertaking itself may never constitute the tive to State employees who are transferred reason for that amendment.' 58 along with the undertaking to the private sector would not result in expanding unduly the protection granted by the direc- tive. Since, as already discussed, on a narrow interpretation of the concept of an employee the protective aim of the directive cannot be fulfilled in this case, it should be assumed that at least the rights concerned in the present case are covered, by virtue of the general purpose of the directive. 59

82. In the light of the foregoing considera- tions it seems appropriate here to bring the 81. Finally, I must add that the application State employees who are switching over to of the directive cannot be excluded on the private sector employment because of the ground that under Italian law, the plaintiffs privatisation within the protection of the would have had the option of remaining in directive. the public service. As in this case the plaintiffs would have taken over a new function in the administration, remaining in the public service would necessarily have involved a change of workplace and activ- ity, and possibly also a change of location. 83. The answer to Question a) should If the plaintiffs wanted to remain in their therefore be that a transfer for value, previous occupation with minimum altera- authorised by law promulgated by the State tion of the outward circumstances of their and implemented by ministerial decree, of employment, they had no choice other than an undertaking which is transferred from a to leave the public service and continue public entity owned directly by the State to their previous occupation with Iritel in a a private company belonging to another form of employment governed by private public entity which holds all its shares falls law. In that situation, a worker should be within the scope of Article 1 of Directive protected by the directive. It would be 77/187 if the private company is entrusted illogical to deny him or her such protection under an administrative concession with merely because he did not accept an offer of the activity which is the subject of the further employment from the transferor transfer. and former employer in another occupa- tion. This conclusion is also borne out by the case-law of the Court, according to which the legal consequences of the trans- fer of an undertaking are independent of the will of the employee. The only excep- tion will be a case in which the employee voluntarily declines to continue the III — Question b1 employment relationship with the new employer. 60 But the complete opposite is true in the present case. The persons 84. In the context of Question b1 the problem arises of determining the nature 60 — Case C-362/89 (cited in footnote 47, paragraph 11). of the individual claims which are transfer- I - 6684

85. The plaintiffs here rely on the binding character of Article 3(1) of the directive, from which they argue that the employees transferred from ASST to Iritel can rely on their length of service to obtain a single payment. Admittedly, in the oral procedure 87. In the view of the Austrian and Finnish the plaintiffs conceded that a single calcu- Governments, as well as of the plaintiffs, lation of the length-of-service payment the effect of Article 3 is that all rights and would have been possible under Italian advantages attached to length of service are law. However, for this to take place it transferred or maintained. In this connec- would have been necessary to pay in to the tion, the Austrian Government recalls, new employer the length-of-service pay- however, that the directive does not prevent ment paid by ASST within 30 days of the subsequent variation of the employment transfer of the undertaking. But this time contract by the transferee, if national law limit was far too short, and this was the permits the variation independently of the reason why the plaintiffs were not able to transfer of the undertaking. act in time.

86. The defendant points out that under Italian law the plaintiffs could have received a uniform length-of-service pay- 88. The Commission contends that the ment if they had paid in the payment transferee is bound, under Article 3 of the received from ASST. On the other hand, directive, by all the obligations of the as far as the obligations under the directive transferor arising from the employment are concerned, according to Article 3(1) the relationship as it was at the time of the transferee must accord the employees the transfer. However, it takes the view that

92. If there is an entitlement to a length-of- service payment from the former employer and transferor, Article 3 of the directive requires this entitlement to be transferred in 90. In this context I recall again the Court's respect of both elements, viz. the ground of case law mentioned in points 67 and 68, the entitlement and its amount, so that it stating that the continuation of the employ- can subsequently be claimed from the ment relationship in its original form is to transferee. This means that the new be secured 61 and there should be the employer and transferee is bound to deter- possibility of continuing the employment mine the amount of the severance pay due under the same terms. 62 It is, after all, the according to the method of calculation meaning and purpose of Article 3 of the applied by the transferor. Length of service directive to protect employees from the must be taken into account in this process. specific risks resulting from the situation in The transferee is also bound by the other which an undertaking is transferred. The conditions for claiming the length-of-ser- rule is therefore intended to guarantee the vice payment in the transferred employ- continuance of the employment relation- ment relationship. Depending on the man- ship' in every respect, and to exclude any ner in which the relevant employment contract is framed, this may also mean that the new employer must pay a length-of- 61 — Case 19/83 Wendelboe [1985] ECR 457, paragraph 15. service payment for the years of service 62 — Case 324/86 (cited in footnote 22, paragraph 9). accrued with him, even though he has not

himself made any such provision. In calcu- 94. It may be noted in passing that in the lating this claim, the periods of service present case a length-of-service payment is accrued with the transferor must also be provided for both by the old and the new taken into account. employer, and in the main proceedings probably only the manner of its calculation is in dispute. Since the rights which existed with the transferor are transferred unal- tered, the method of calculation which had been agreed with the transferor also passes to the transferee. Future calculations or adjustments which were merely in pro- spect, without giving rise to any entitlement on the employee's part, are not transferred. 93. In this connection mention must be The rights which matter are those which made of the fact that according to the could be claimed from the transferor. Court's case law the terms of employment Accordingly, there is no entitlement to may be altered, even to the disadvantage of comparability with new colleagues in the the employee, if this would have been private sector (who may be better off), nor possible for the transferor too, under is there any entitlement to retrospective national law irrespective of the transfer of extension of more favourable arrangements the undertaking. The directive is intended made by the transferee to the years of to protect the employee in his legal rela- service accrued with the transferor. tionship with the transferee only to the extent to which he was protected vis-a-vis the transferor under the rules of the Mem- ber State. It follows that an alteration of the employee's rights by the new employer is permissible to the extent that such an alteration by the transferor would have been possible. 63 For if it was possible for the transferor to alter the employee's rights, this possibility cannot be excluded for the future solely because the undertaking has been transferred. The directive is merely seeking to prevent the transfer as such from being treated as a pretext to worsen the employee's existing position, by reducing or 95. It is for the national court to determine, ceasing to grant entitlements already using these yardsticks, whether the pay- acquired. 64 The directive does not there- ment made to the plaintiffs met the condi- fore prevent a temporal limitation or non- tions set at ASST, or whether the defendant, uniform calculation of the length-of-service as transferee, has altered to an extent not payment, if the new employer is allowed to allowed at ASST the entitlement to a alter the terms of employment in that length-of-service payment, independently regard irrespective of the transfer of the of the fact that the undertaking has been undertaking. transferred. If the national court, on exam- ining this question, concludes that an inadmissible reduction has been made in 63 — Case C-209/91 (cited in footnote 50, paragraph 27 et seq.). the plaintiffs' claim for severance pay, the 64 — Case 324/86 (cited in footnote 22, paragraph 17). payment will have to be recalculated for the

100. As already explained in answer to question b1, the defendant is correct that a given length of service does not in itself constitute a right of the employee within IV — Question b1 the meaning of Article 3(1). Specific rights, such as an entitlement to a salary increase, must rather be associated with length of service, and this must already be the case 97. The second part of the question con- under the employment relationship with cerns the system applicable to the period the transferor. These rights are then trans- following the transfer of the undertaking ferred to the transferee. If these entitle- for the purpose of determining regular ments vis-a-vis the transferor were already increases in salary. provided for by collective agreements, the transfer is governed by Article 3(2) of the directive, under which agreements with the transferor remain valid, although only until termination or expiry of the collective agreement. Arguments of the parties

98. The plaintiffs, the Finnish and Austrian 101. The question whether future salary Governments, and the Commission answer increases are also covered in this sense will this question in the affirmative, in the light depend on whether they were agreed with of the grounds adduced for Question b1. the transferor in such a way as to give the

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employee a claim to these increases. This is 102. The answer to Question b2 should for the national court to decide. In this therefore be that Article 3(1) of the direc- regard it must again be pointed out that tive is to be interpreted to mean that the according to the Court's case-law a change length of service attained is transferred to in the terms of employment is possible if it the transferee only in connection with the could have been made by the transferor, rights as against the transferor associated irrespective of the transfer. therewith.

belonging to another public entity which holds all its shares, where the activity transferred is assigned to the private company under an adminis- trative concession, falls within the scope of Article 1 of Directive 77/187/ EEC.

(b1) According to Article 3(1) of the directive, the continuation of the employment relationship with the transferee is mandatory, and employees are entitled to payment of a single length-of-service payment which takes account of the entire period of employment (with the new and the old owner), if the contract of employment with the transferor provided for such an entitlement.

(b2) Article 3(1) is to be interpreted as meaning that the length of service attained is transferred to the transferee only in connection with the rights as against the transferor associated therewith.

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