Robin Chalmers discusses the amended ARD
The acquired rights directive (ARD) requires that employees’ current terms and conditions of employment are preserved when the business in which they are employed transfers to new ownership.
The European Commission had, for some time, considered that the ARD needed to be improved and updated. After consultation Directive 98/50 (the “amended ARD”) amending the ARD was adopted in June 1998. Member states have three years within which to implement the amended ARD (it must be implemented by 29 June 2001).
The ARD is implemented in the UK by the Transfer of Undertaking (Protection of Employment) Regulations 981 (“TUPE”). TUPE applies to a transfer from one person to another of of an undertaking (or part of an undertaking) situated immediately before the transfer in the UK – even if the transfer is governed or effected by foreign law, or if the employees work outside the UK, or their employment is governed by foreign law.
The UK government has stated that it will prepare new regulations replacing TUPE. However, the way in which TUPE is applied in the UK means any new regulations will not involve extensive changes.
In Italy, the ARD is implemented into the Civil Code by article 2112 and law n.428 dated 29 December 1990. Article 2112 provides that the relevant employees of the transferor automatically become, from the moment of transfer, employed by the purchaser on the terms and conditions which they enjoyed with the transfer. Article 47 of law n.428 deals in detail with the transferor’s obligations to provide information to, and consult, representatives of independent recognised trade unions.
No Italian law has been issued to implement the amended ARD and none is expected. Where a directive is clear, precise and unconditional, the Italian courts will deem it to be directly enforceable without the need for
specific law.
In Germany, the ARD was implemented by the Labour Law EC Harmonisation Act of 8 August 1980. No fundamental changes to existing law were required to implement the ARD. Instead, the legislature needed only to extend the existing provisions of section 613a of the BGB which already dealt in part with rights and duties on a business transfer.
The amended ARD similarly requires no major amendment to German law.
No new law was passed to implement the ARD in France as the French Government decided that article L.122-12 of the “Code du Travail” already implemented its provisions. Article L.122-12 provides that employees of the transferor automatically become, from the moment of transfer, employed by the purchaser on the terms and conditions enjoyed with
the transfer.
However, the Code has been extended: to provide for joint liability of transferor and transferee regarding obligations towards employees, to ensure that working conditions provided by collective agreements are not changed or affected as a result of the transfer, and to ensure that “employee organisation” (eg employee representatives, members of the personnel committee) are retained after the transfer.
No French law is expected to implement the amended ARD.
Article L.122-12 has been widely interpreted by the courts and its provisions have been extended to include contracting out, even before the adoption of the amended ARD. Surprisingly, in France, employees sometimes bring actions to make sure that they are not transferred in the case of contracting out.
The new directive applies in the same sorts of situations as the ARD. The European Commission had proposed that contracting out should be excluded from the ARD. The UK Government however wishes to extend the ARD specifically to include contracting out.
The amended ARD does not extend to share transfers. It is unlikely that TUPE will be extended in this way in the UK. However, under principles of Italian jurisprudence the amended ARD may apply to such situations
in Italy.
The amended ARD does not apply where there are insolvency proceeding that envisage the termination of a business, but will apply where the insolvency proceedings seek to assist the survival of a business. This means that where insolvency proceedings are started in order to close a business down, there is no automatic transfer of employment and a transfer may constitute a ground for dismissal of the relevant employees. The German Court has already decided that this situation is, subject to certain exceptions, already covered by section 613a.
The amended ARD enables member states to provide that where there are insolvency proceedings, pre-transfer debts do not transfer to the new employees’ terms and conditions of employment which are designed
to safeguard employment opportunities by ensuring the survival of the
French case law provides that the ARD cannot be excluded when assets are sold in the course of bankruptcy proceedings. This only applies when the assets sold by the liquidator constitute an independent business.
ARD also does not allow employer and employee representatives to agree changes in a transfer situation. This only permitted pursuant to the amended ARD in an insolvency situation or as regulated by national law.
Also, the amended ARD does not include an option to provide that transfer and transferee are jointly and severally liable for obligations arising before transfer. Both are possible in Italy in accordance with principles of jurisprudence and article 2112. Joint liability between transferor and transferee in respect of obligations which arise from the transfer is expressly provided by article L.122-12 in France.
The amended ARD does not significantly alter pension entitlements, but does provide that rights under supplementary company or inter-company pension schemes shall not transfer unless member states provide otherwise. The UK government has indicated that it intends to introduce new regulations which will no longer exclude occupational pensions schemes from TUPE but will provide that comparable, rather than identical, entitlements must be provided.
The amended ARD requires transferor and transferee to inform employee representatives of the date or proposed date of the transfer in addition to other specified matters, and that any consultation is with a view to reaching agreement. It also requires that the information is provided sufficiently far in advance that the employees’ interests are not compromised.
As defined under relevant national employment law, the amended ARD does not extended beyond “employee”. However, the UK government is likely to extend the application of TUPE beyond “employee” to cover a wider definition of “worker”.
Robin Chalmers is in the corporate department of London law firm, Biddle. This is based on an article in the newsletter of Logos, a European network of law firms