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3 —Sec Case C-392/92 Schmidt [1994] ECR I-1311; Case C-13/95 Süzen [1997] ECU I-1259; and Joined Cases 1 — Original language: Dutch. C-127/96, C-229/96 and C-74/97 Vidal Hernández and 2 —OJ 1977 L 61, p. 26. Others [1998] ECR I-8179.

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undertaking, business or part of a business does not preclude dismissals on economic, to another employer as a result of a legal technical or organisational grounds requi- transfer or merger. ring changes in the workforce.

'Subject to subparagraph (a) ..., there is a transfer within the meaning of this Direc- tive where there is a transfer of an econ- omic entity which retains its identity, 7. Under the first paragraph of Article 4(1), the transfer of an undertaking, business or part of a business does not in itself 4 — OJ 1998 L 201, p. 88. The time-limit for ttansposing Directive 98/50 expired on 17 July 2001. constitute grounds for dismissal by the 5 — OJ 1998 L 82, p. 16. Unless stated otherwise, any reference transferor or the transferee. This provision hereinafter is to the wording of the original directive.

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meaning an organised grouping of nection with the collective labour agree- resources which has the objective of pur- ment of 7 June 1985. suing an economic activity, whether or not that activity is central or ancillary.'

11. Also relevant to the case is a collective labour agreement of 5 May 1993 concern- 13. The facts and background to the case ing 'the taking over of staff on transfer of a can be summarised as follows. daily-maintenance contract', which applies to the cleaning sector. This has no con-

6 — According to the fourth recital in the preamble to Directive 98/50. 14. In the period from 2 May 1993 to 7 — Monacar Belge of 9 August 1985, p. 11527. 8 January 1995 Volkswagen awarded the

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18. Since GMC had a contract only with Volkswagen at the time, it sought accept- 15. Volkswagen's choice of Temco had an ance by the relevant joint committee that effect on the staff of GMC which carried there were economic or technical grounds out the cleaning work at Volkswagen. allowing it to dismiss the four trade-union delegates. That request was turned down on 28 February 1995. In appeal proceed- ings the Tribunal du travail declared by judgment dated 13 September 1995 that it did not have jurisdiction to determine the claim. By judgment dated 23 November 1995 the Cour du travail upheld this judg- ment. 16. Since the contract between Volkswagen and BMV expired on 8 January 1995, GMC lawfully dismissed its entire staff, with the exception of four people, that is to say Messrs S. Imzilyen, M. Belfarh, A. Afia-Aroussi and K. Lakhdar, who enjoy special protection owing to their status as 19. The file shows that the four received trade-union delegates.8 GMC served the payment from GMC until December 1995 notices provided for under Belgium law and despite the fact that GMC took the view, as is apparent from correspondence with Temco, that in law the four had already 8 — The order for reference refers to a collective bargaining been taken over by Temco by virtue of the agreement of 18 April 1968 concluded within Joint Com- Collective Labour Agreement No 32 bis. mittee 121 of the cleaning undertakings which accords to trade-union delegates the protection enjoyed by elected On 12 December 1995 the trade-union members and candidates for membership of the advisory boards of companies and security and hygiene committees. delegates were dismissed by GMC.

22. Temco lodged an appeal with the national court. It states the following reasons for the questions referred for a 25. The national court also notes that there preliminary ruling. is no relationship between GMC and Volk- swagen, and no assets of any kind whatever passed from GMC to Temco. It is evident from the files that Volkswagen provides the contracted cleaning companies with the 23. The facts of the case are unusual in that means necessary for the industrial cleaning Volkswagen entrusted the cleaning of its of its plants. industrial plants to BMV which, for its part, did not perform the cleaning itself, but instead subcontracted it to GMC which, on losing the contract as a result of termination of the contract between Volkswagen and BMV, dismissed its entire staff, except the four trade-union delegates, whilst continuing, as indicated in the minutes of general meetings held in 1996 IV — Questions referred for a preliminary and 1997, to carry on business and seek ruling new customers. That confirms that the attainment of its objective, as provided in the articles of association, related to more than mere performance of the Volkswagen contract, even if that was its principal or 26. The order for reference from the Cour sole activity in 1994. du travail (Sixth Chamber), Brussels, dated

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14 February 2000 was registered with the V — Appraisal Court on 17 February 2000. The questions referred for a preliminary ruling are worded as follows:

A — The scope of the directive

2. In the event that undertaking C is held 29. This is the fourth occasion on which to be the transferor, even though it the Court has been confronted, pursuant to continues to exist, does the abovemen- the procedure laid down in Article 234 EC, tioned directive preclude it from being with the question of the application of the able to retain certain workers in its directive to transactions in the cleaning service?' sector. Each case turned on somewhat different facts. Schmidt 9concerned a case in which an undertaking entrusted by contract to another undertaking the responsibility for carrying out cleaning operations which it had previously per- 27. Written observations were submitted formed itself directly. In Hernández Vidal by Temco, Messrs S. Imzilyen and and Others 10 the opposite situation arose M. Belfarh, Messrs A. Afia-Aroussi and and an undertaking which used to entrust K. Lakhdar, SA Three S (formerly GMC) the cleaning of its premises or part of them and BMV, and the Commission. On 17 May 2001 a hearing was held at which all the parties and the Commission set out 9 — Cited in footnote 3. their views. 10 — Cited in footnote 3.

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34. Volkswagen's conduct is characteristic of the present trend for companies to contract out tasks which do not form part 31. On the basis of an extensive interpre- of their core activities to companies special- tation of the legal reasoning in Siizen the ised in providing ancillary services under Commission and all the parties other than contract. Obvious examples are companies Temco conclude that in the present case engaged in cleaning operations, surveil- there was a contractual transfer of an lance services, catering activities, customer undertaking within the meaning of service, education and training, hardware Article 1(1) of the directive. and software provision, and product deve- lopment, etc. The service providers often operate on a local level and on a small 11 — Cited in footnote 3. scale, carrying on their activities on the

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36. The markets for these categories of services are developing apace. There is a large and growing number of undertakings contracting out and the number of service providers is also increasing. This consti- 38. On account of the heterogenous and tutes a significant difference from contracts dynamic nature of these markets, the Court offered on markets on which there are a must, in my view, be reticent in regard to the application of the directive in the case of changes of contract. The dynamics of the 12 — At the hearing the representative of Messrs Afia-Aroussi market might be disrupted if the existence and Lakhdar pointed out that several cleaning companies of a transfer within the meaning of the are responsible for various sectors of the Volkswagen plant at the same time. directive were assumed too readily. The

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39. It could be argued that in this con­ nection the compulsory takeover of the entire staff forms part of the normal risk The criteria for application of the directive run by traders. This finding is correct and development of the Court's case-law where there is an actual takeover of the operation of a company within the meaning of company law. In that case the transferee makes a cost-benefit analysis of the under­ taking to be taken over and the takeover 41. The fact that, in assessing a transaction, price is determined inter alia by past account must be taken of the economic performance and the compulsory takeover context in which it takes place is also clear of the staff. The same occurs in the case of from the case-law of the Court. As has been contracts which run for a long time and seen, the Community legislature did not which are awarded through official invi­ define the concepts 'transfer', 'undertak­ tations to tender. However, where services ing', 'legal transfer' or 'merger' in are contracted out, the award of a contract Article 1(1) of the directive. For this reason for a relatively short period is central and in that respect the compulsory takeover of the staff cannot, in my view, be regarded as a 13 —Case 24/85 Spųkcrs [1986] ECR 1119, paragraph 11. normal commercial risk. Settled case-law, see most recently judgment of 25 January 2001 in Case C-172/99 Lukcimc [2001] ECR 1-745, paragraph 19. 14 — Under national employment law, an employee enjoys protection in the event of changes in his working con­ ditions and therefore may not be dismissed in advance and without a statement of reasons. In the main action GMC attempted to dismiss the four trade-union delegates as early as January 1995 'on economic or technical grounds', 40. The aim of Directive 77/187 is to but, as the order for reference shows, this request was turned down by a joint committee (see paragraph 18 of ensure continuity of employment relation­ this opinion).

44. In the specific case before it the national court must determine whether these conditions are met in the light of the interpretative criteria laid down by the Court. According to the Court, the national court must consider all the facts characte- 42. The criteria for application of the rising the transaction in question, including directive can be summarised as follows. the type of undertaking or business, Firstly, the transfer must relate to an whether or not the business's tangible 'undertaking' which is defined as a stable assets, such as buildings and movable economic entity. 15 The undertaking must property, are transferred, the value of its be transferred pursuant to a 'contract' and intangible assets at the time of the transfer, in that respect the Court has stated that whether or not its customers are transferred there must be a change, on the basis of a and the degree of similarity between the contract, in the legal or natural person business carried on before and after the responsible for operating this entity and transfer and the period, if any, of any who incurs the obligations of an employer interruptions in that business. It should be vis-à-vis the employees of the undertak- noted, however, that all those circum- ing. 16 stances are merely individual factors in the overall assessment to be made and cannot therefore be considered in iso- lation. 18

43. Secondly, the decisive criterion for establishing whether there is a transfer for the purpose of the directive is whether the 45. Since the national court must consider business in question retains its identity, as all the facts in assessing a transaction, the indicated by the fact that its operation is type and characteristics of the relevant actually continued or resumed with the markets for the provision of services must, in my view, also be taken into account 15 — Case C-48/94 Rygaard [199J] ECR 1-2745, paragraph 20. See Liikenne, cited in footnote 13, paragraph 31. 16 —Joined Cases 144/87 and 145/87 Berg [1988] ECR 2559, 17 — Spijkers, cited in footnote 13, paragraph 11. paragraph 19. 18 — Spijkers, cited in footnote 13, paragraph 13.

48. However, the Court has not gone so fai- as to accept that there may be no link at all 47. Thus, the requirement that the transfer between the transferor and the transferee. must take place pursuant to a 'contract' is In Redmond, in which a public auth- not limited to situations in which contrac- ority — the Municipality of Gron- tual relations exist between the transferor ingen — changed its subsidy policy and and transferee of the undertaking. On decided to withdraw the subsidy to a account of the differences between lan- foundation seeking to assist drug addicts guage versions and between the laws of the and to grant it to another foundation with Member States, regard must also be had, in the same aim, the Court, while considering determining that concept, to the scheme that the directive could be applicable, and objective of the directive. 19 For those attached importance to the fact that the reasons, the Court has extended the con- old and the new foundation arranged for by cept 'contract' so that the directive is mutual agreement the transfer of patients, applicable wherever, in the context of contractual relations, there is a change in the natural or legal person who is respon- 22 — The directive can apply in the event that the lessor takes over operation of the leased undertaking after a judge has sible for carrying on the business and incurs terminated the lease-purchase agreement on the ground of non-performance. See Berg, cited in footnote 16, the obligations of an employer towards paragraph 19. employees of the undertaking. 20 For 23 — Case 324/86 Tellernp ('Daddy's Dance Half) [1988] ECR example, it is irrelevant whether or not 739, paragraph 10. In Liikenne the Court did not rule out application of the directive to the taking over of the there is a transfer of ownership 21 or that operation of scheduled local bus routes which were previously operated by another undertaking but which were transferred following a procedure for the award of a public service contract under Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures 19 — See Case 135/83 Abels [1985] ECR 469, paragraph 13. for the award of public service contracts (01 1992 L 209, p. 1). The Court ruled that contractual links exist in 20 — Sec, for example, Joined Cases C-171/94 and C-172/94 accordance with the 'two-stage doctrine' where a legal Merckx 11996] ECR I-1253, paragraph 28. person governed by public law awards a contract for 21 — See, for example, Case 287/86 Ny Molle Km [1987] ECR operation successively to two undertakings. Liikenne, cited 5465. in footnote 13, paragraphs 28 to 30.

52. Such an extensive interpretation is also central to Siizen in which the concept 'economic entity' is separated from the existence of assets. In sectors in which an economic entity is able to function without 50. Moreover, the complete abandonment any significant tangible or intangible assets, of the requirement relating to contractual the maintenance of its identity following relations between transferee and transferor the transaction affecting it cannot, the would be contra legem. The wording of the Court argues, be logically dependent on directive refers expressly to the contractual the transfer of such assets. In certain relationship in the form of a contract or labour-intensive sectors, such as the clean- merger. ing sector, the Court acknowledges that a group of workers engaged in a joint activity on a permanent basis may constitute an 24 — Case C-29/91 Redmond Stichting [1992] ECR I-3189, paragraph 27. 25 — Merckx, cited in footnote 20, paragraphs 30 and 31. 26 — Cited in footnote 3, paragraph 11. 28 — See Liikenne, cited in footnote 13, paragraph 31. 27 — Cited in footnote 3, paragraph 12. 29 — Merckx, cited in footnote 20, paragraphs 20 to 26.

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54. Süzen states unequivocally that, in regard to the contracting out of services, the mere fact that the service provided by the old and the new contracting parties is similar does not therefore support the conclusion that an economic entity has been transferred. An entity cannot be 53. This reasoning determines the limits in reduced to the activity entrusted to it. Its regard to the situations to which the Court identity also emerges from other factors, considered the directive could properly be such as its workforce, its management staff, applied.

In that case undertaking A had accepted a contract to complete joinery work for undertaking 55. This case-law concerning the subject- B. With the consent of undertaking B, matter of the takeover within the meaning undertaking A then had part of the work of Article 1(1) of the directive shows that the Court interprets the retention of the identity of an economic entity broadly but 30 — Süzen, paragraphs 18 and 21, and Hernández Vidal and that that identity must be reflected in a Others, paragraph 27, hoth cited in footnote 3.

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The application of the criteria in the which BMV-GMC carried on at Volk- present case swagen and has taken over a major part of the staff which GMC used for the cleaning operations in question. As I noted earlier, I take the view that such consider- ation is too limited. In assessing the facts characterising the transaction in question, 56. Returning to the case before the Court, it is also necessary, under the case-law I would point out that the national court referred to above, to consider the type of has highlighted a number of specific cir- undertaking 36 and the type of activity cumstances. In the first instance Volk- carried on. 37 I propose that the Court swagen had awarded the cleaning contract should adopt a broader criterion in this to BMV which subsequently entrusted the regard by also taking account of the work to GMC. Therefore, there was no economic circumstances under which the direct contractual link between GMC and transaction takes place. Volkswagen or a fortiori between GMC and the new contracting party, Temco. Furthermore, no assets of any kind were transferred from GMC to Temco. A pro- portion of the staff were indeed taken over by Temco, but the takeover took place after the employees other than the four trade- 58. In this respect I find it difficult, on the union delegates had already been dismissed basis of the information provided by the by GMC. The takeover of the staff is a national court and in view of the economic consequence of the obligations on Temco context, to conclude that the identity of the arising from a collective labour agreement. cleaning company was transferred to the Moreover, the national court states that new contracting party in the context of GMC continued to exist even after BMV contractual relations. The sole inference had lost the contract with Volkswagen. 35 that may be drawn is that Temco took over a proportion of the staff of GMC in order to perform the contract which it concluded with Volkswagen.

the abovementioned paragraphs of the that, when dismissal of the 76 employees judgment in Siizen, 38 the fact that BMV was requested, it was unaware of the lost the contract to provide cleaning ser- identity of the new contracting party. It is vices at Volkswagen to Temco does not evident from the facts set out by the support the proposition that there was a national court that consent for the dismis- transfer of an undertaking for the purposes sal was granted on 30 November 1994 by of the directive. the Employment Department for the Brus- sels region, whilst Volkswagen entered into the contract with Temco in December 1994. No artificial arrangement between GMC, BMV and Temco, for example to escape the application of the directive, is 60. In my view, it is not logically possible evident. In my view, there can therefore be to speak of a 'takeover of an undertaking as no question of any contractual relationship, a result of legal transfer or merger' merely even an indirect one. The 'two-stage' on the basis of the fact that, where services reasoning applied by the Court in its case- are contracted out, the new contracting law, that is to say that no direct contractual party takes over (a major part of) the staff link is necessary between the transferor and of the previous contracting party. In this the transferee, also assumes a certain link respect it is irrelevant whether or not this and the mediation of an 'intermediary' takeover of staff takes place voluntarily, for undertaking. 40 However, it is not evident example because the new contracting party that Volkswagen, as the undertaking con- requires the know-how of the staff in order tracting out services, was actively involved to perform the contract to provide services, in the relationship between the old and the or involuntarily, for example because a new contracting party. collective labour agreement compels it to do so.

but also takes over a major part, in terms of in the present case. The requirement that numbers and skills, of the employees within the context of contractual relations specially assigned by his predecessor to the identity of the business be retained is that task. 41 Since the employees dismissed not fulfilled. by GMC clearly have specific knowledge of the operations at Volkswagen, 42 it is entirely normal, from a market point of view, for Temco to have offered contracts to some of the staff who had been dis- 65. That conclusion is in my opinion, also missed. In my view, the mere take-over of a warranted. major part of the staff by the new con- tracting party in a dynamic market has no connection with the identity of a business and therefore provides no conclusive argu- ment. In that case the new contractor does not acquire the body of assets enabling the 66. Firstly, any other view would have the activities or certain activities of the trans- paradoxical result that the directive, which feror undertaking to be carried on a seeks to protect all employees where under- permanent basis. 43 Even if activities car- takings are taken over, would even apply to ried out are essentially based on manpower, the contracting out of services if a propor- the identity of a business cannot be derived tion of the staff were taken over to carry solely from the number and skills of the out a block of similar work. It would be staff who are taken over. In determining even less comprehensible if the takeover of identity, account must be taken of other the staff by the new contracting party did factors relating to the staff, such as man- not occur voluntarily but took place on the agement, organisational structure, division basis of obligations arising from a collec- of labour, and systems of training, pay and tive labour agreement. For in such a case promotion. If, where services are con- the transfer of an undertaking is dictated by tracted out, a proportion of the staff are the collective labour agreement. taken over as a result of a change of contracts for the performance of a specific contract, it is not possible to regard that as permanent continuation of the activity in question on account of the nature of the contract, which is by definition of tempor- 67. Secondly, there is no reason why, ary duration. where a service provider loses a contract as a result of commercial considerations, that is to say because another undertaking would offer better terms, the new contract- ing party should automatically have to retain the entire staff of the undertaking which lost the contract merely because its 64. In light of the foregoing, I am thus of commercial activity happens to be essen- the view that the directive is not applicable tially based on manpower. A significant consequence of this would be, for example, that if a caterer in a company canteen were 41 — Süzen, cited in footnote 3, paragraph 21. changed on account of the poor service 42 — As stated at the hearing by the representative of Messrs provided by the staff the new contracting Afia-Aroussi and Lakhdar. 43 — Rygaard, cited in footnote 15, paragraph 21. party would have to deal with the staff with

whom the party awarding the contract was case, the second question need not be not satisfied. In market terms, an excess- answered. In the event that the Court ively broad view would be unwarranted should take a different view, I will deal and could result in far-reaching and unfore- with this question in brief below. seeable consequences in a dynamic econ- omic situation. Further extension of the criteria for application of the directive would inevitably lead on those markets to arbitrariness and legal uncertainty. 70. By the second question the national court seeks to ascertain whether the direc- tive nevertheless precludes GMC, in its capacity as the transferor in the event of 68. Thirdly, the directive is aimed at pro- takeover, from being able to retain workers tecting 'existing' staff, but, as indicated in its service. In the main proceedings above, the contracting out of services tensions arose because the dismissal by primarily involves, in my view, a change GMC of four trade-union delegates was not of contracts of a specific duration and not a permitted on account of the protection permanent takeover of an undertaking from dismissal afforded by national law. together with its existing staff. In the As a result the four were able to exercise present case the complete takeover of the their rights under the directive with greater staff, with the safeguarding of the difficulty or not at all. In fact, this question employees' rights arising from the collec- comes down to whether the four employees tive labour agreement with GMC, could could have relied on the protection result in discrimination against the afforded by Article 3(1) of the directive employees of Temco. It cannot be ruled vis-à-vis Temco if they had not terminated out that Temco has better motivated and their employment with GMC on account of qualified staff who would be excluded from their protection against dismissal and also the operations at Volkswagen as a result of if they had not been dismissed by the the application of the directive. For Temco, transferor. Volkswagen was only one of many prin- cipals. Furthermore, Temco is deprived of an opportunity to seek other members of staff on the labour market. The protection afforded to sitting employees thereby results in clear discrimination against employees entering the market. 71. Therefore, it is necessary to examine the significance of the national legislation concerned for the interpretation of the directive, in relation to the action of the employees concerned.

into the service of the new employer under accord not to continue the employment the same conditions as those agreed with relationship with the new employer after the transferor. The rules of the directive the transfer.46 In that case, it is for the are, in the view of the Court, mandatory in Member States to determine what is to nature, so that it is not possible to derogate happen concerning the contract of employ- from them in a manner unfavourable to ment or employment relationship. National employees. Accordingly, the transfer of the law may for example provide that the contracts of employment cannot be contract of employment should be main- dependent on the intention of the transferor tained with the transferor.47 or the transferee.44 Nor are they free to determine, by mutual agreement, the time at which the obligations arising in the employment relationship are transferred to the transferee because the obligations in question are transferred to the transferee 75. In the present case there is disagree- as from the date of transfer. 45 ment as to whether or not the four trade- union delegates voluntarily decided not to transfer to Temco. In its order for reference the Cour du travail states that in the period leading up to their dismissal by GMC in December 1995 the four never claimed to 73. Therefore, it follows that GMC, as the have entered into the service of Temco. transferor, cannot infringe the rights of the Since they considered that they enjoyed employees concerned by retaining them in special protection against dismissal, they its service. In my view, the fact that GMC is demonstrated by their conduct up to their compelled to do so by national law is not dismissal that they were still members of decisive. When the directive has been trans- the staff of GMC. posed, national law cannot be interpreted to the detriment of these employees. The abovementioned case-law precludes such an interpretation which, moreover, would undermine the practical effect of the direc- 76. However, these matters are contested tive. by GMC-BMV and the four trade-union delegates. They assert that in the period from 9 January 1995 to 11 December 1995 the four were indeed still on the payroll and continued to receive part of their pay from GMC without having to perform any work 74. However, the mandatory nature of in return, but that this situation was Article 3(1) of the directive is limited by a created by Temco's refusal to take them worker's freedom to choose his occupation. over. Consequently, there could be no The protection which the directive is question of them deciding voluntarily not intended to guarantee is redundant where to transfer. the worker concerned decides of his own

(1) Article 1(1) of Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses does not apply in a situation where undertaking A contracts with undertaking B for the cleaning of its industrial plants and undertaking B entrusts that work to undertaking C, which, following loss of the contract by undertaking B, dismisses all its staff, except for four persons, whereupon undertaking D is awarded the contract by undertaking A, employs a proportion of the staff of undertaking C under a collective labour agreement but takes over none of the assets of undertaking C, which latter undertaking continues to exist and to pursue the objects for which it was incorporated.

(2) The second question need not be answered.

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