Acquired Rights Directive may apply even if significant tangible assets do not transfer in asset-focused business

Facts of the case

Südbrandenburger Nahverkehrs GmbH (SBN) had been operating a public bus service. There was a tender for the service and Kraftverkehrsgesellschaft Dreiländereck mbH (KD) took over. SBN ceased trading and terminated the employment of its employees.

KD recruited most of SBN’s staff, including Mr Grafe, but argued that there had not been a transfer between it and SBN under the Acquired Rights Directive (ARD). This was because new technical and environmental standards, which required more environmentally friendly and accessible buses, precluded it from taking on any of SBN’s buses, depots and workshops.

KD did not recruit Mr Pohle and did not take Mr Grafe’s service with SBN into account for the purposes of the applicable collective wage agreement. Mr Pohle and Mr Grafe contended that their employment should have transferred to KD automatically under the ARD. The German court referred the case to the ECJ for a preliminary ruling.

ECJ’s judgment

The ECJ confirmed that the decisive factor when establishing the existence of a transfer is whether the economic entity in question retains its identity. In this case, the bus service had not been interrupted, continuing to operate on most of the same routes, and experienced bus drivers were still required to ensure the quality of the service.

KD relied on a previous case with similar facts (Oy Liikenne AB v Liskojarvi C-172/99), in which the ECJ decided that there was no transfer because the key assets (buses) did not transfer. However, the ECJ considered that the present case could be distinguished because external constraints prevented KD from using the existing bus fleet. Accordingly, the transfer of those assets was not necessary to the functioning of the activity being transferred.

The ECJ concluded that the fact there was no transfer of operating resources (i.e. buses, depots and workshops) as a result of legal, environmental and technical constraints did not necessarily preclude a transfer under the ARD. SBN would have been forced to replace its operating resources in any event, if it had continued to provide the service.

The ECJ went on to say that recruitment of most of SBN’s staff was a relevant factor when assessing whether a transfer had taken place. This was a matter for the national court to determine.

Implications

In the UK, the matter under consideration by the ECJ would most likely be decided in accordance with the rules under TUPE concerning service provision changes (SPCs), which have no equivalent in the ARD.

The ECJ’s judgment may nonetheless be relevant to the assessment of whether the activities for the purposes of the SPC definition are “fundamentally the same” as the activities carried out by the previous service provider, where the service is asset-focused but no tangible assets transfer. It may also be relevant to the assessment of whether there has been a “traditional” TUPE transfer, as opposed to an SPC.

Grafe and Pohle v Sudbrandenburger Nahverkehrs GmBH – judgment available here