New regulations on transfer of undertakings

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In July 2002, new regulations came into force in the Netherlands to protect employees during the transfer of undertakings, implementing recent changes in EU law. The most important changes pertain to the transfer of pension schemes and transfers after bankruptcy. Problems with transfers in the Netherlands mainly occur in public transport at present.

With effect from 1 July 2002, new statutory regulations came into force in the Netherlands to protect employees during the transfer of undertakings, implementing EU Directive (98/50/EC) amending Directive 77/187/EEC 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 (EU9806114N).

The EU Directive, as amended, applies to any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger. It provides that the rights and obligations of the transferor organisation arising from a contract of employment or employment relationship are transferred to the transferee. Following the transfer, the transferee must observe the terms and conditions in any applicable collective agreement until the agreement expires or is replaced. A transfer shall not in itself constitute grounds for dismissal by the transferor or the transferee, though this 'shall not stand in the way of' dismissals for economic, technical or organisational reasons entailing changes in the workforce. Employee representatives' status and function are preserved in the transfer. The transferor and the transferee must inform the representatives of the employees affected by a transfer of the date of the transfer, reasons for the transfer, the legal, economic and social implications of the transfer for the employees, and measures envisaged in relation to the employees (where there are no employee representatives, Member States may provide that the employees concerned must be informed in advance when a transfer is about to take place). The transferor must give this information to the representatives of its employees in good time before the transfer is carried out, while the transferee must give such information to the representatives of its employees in good time, and in any event before the employees are directly affected by the transfer as regards their conditions of work and employment. If the transferor or the transferee envisages measures in relation to its employees, it must consult the employee representatives in good time on such measures with a view to seeking agreement.

Here we outline the most significant changes to the Dutch transfer of undertakings legislation and take a closer look at the situation specifically relating to the public transport sector.

Definitions

The definition of a relevant 'transfer' has been adapted in line with the most important judgments of the European Court of Justice (ECJ). Significant elements of the definition include 'retention of the identity of the economic unit being transferred' and 'continuation of activities'. Furthermore, mergers are now explicitly addressed.

The definition of the term 'employee' remains unchanged. The provisions apply only to people with an employment contract as defined in the Dutch Civil Code. Civil servants are therefore excluded. The government has indicated, however, that with respect to privatisation every attempt will be made to ensure that rights are preserved as far as possible. Further consultation with the Association of Public Sector Employers (Verbond Sector Werkgevers Overheid) is taking place regarding this aspect.

Concerning the concept of a transfer, there has been a fair amount of activity regarding the transfer of services, especially cleaning services. This can be seen in the judgment of the ECJ relating in the Temco case on 24 January 2002 (Case C-51/00). The first and, to date, only judgment in the Netherlands relating to the transfer of undertakings since implementation of the new statutory regulations displays many similarities with this ECJ judgment. On 8 August 2002, the Utrecht Court ruled that, based on the collective agreement for cleaning and window-cleaning businesses, a cleaning company was obliged to retain the services of employees who had been with the company for more than a year on taking over a cleaning project (JAR 2002/202).

Transfer of undertakings under suspension of payment and bankruptcy

Soon after implementation of the original Directive in 1982 the question arose of the extent to which employees also enjoyed protection in cases concerning the transfer of an undertaking in a situation where a company was faced with suspension of payment or bankruptcy. This question was ultimately answered by the ECJ: in all cases concerning suspension of payment the regulations apply but, regarding bankruptcy, the Member States are at liberty to reach a decision. At the time, the Netherlands chose not to apply the regulations in cases of a transfer under bankruptcy.

This distinction has been abused under a number of circumstances. A familiar example in the Netherlands is the case concerning Ammerlaan, where the employer attempted to circumvent labour legislation governing dismissals compensation by having the company declared bankrupt. Although the court ruled that the law relating to bankruptcy had been abused, Dutch law provided no recourse in terms of compelling the employer to re-employ the employees dismissed by the trustee in bankruptcy.

The new statutory regulations have resolved this problem. The Bankruptcy Act (Faillissementswet, FW) has been amended in such a way that any measures undertaken by the trustee in bankruptcy (including employee dismissals) can be reversed if it appears that the law relating to bankruptcy has been abused to the disadvantage of the protection of employees under labour law.

Pensions

The most important substantive change in relation to the former regulations is that in the future pension schemes will also be transferred to the acquiring employer. Furthermore, the new regulations include provisions stipulating that if the transferor did not offer a pension scheme and the transferee does, the transferee is bound to offer the transferred employees access to said pension scheme. In this respect, one of the legislator’s main aims is to stimulate a further reduction in the number of employees without access to a group pension scheme (approx. 10% of the total number of employees -NL0106135F).

Employee participation

The new regulations also differ with respect to employee participation over transfers in the absence of a works council or form of staff representation. In such cases, the employer is now obliged to inform and consult the employees. Although these rights are less far-reaching than those enjoyed by works councils (NL0004188F), they do serve to strengthen the position of employees within numerous smaller companies.

It is not entirely clear what the consequences will be for the transfer if employers fail to fulfil their obligation to inform and consult the employees. It can be assumed that failing to comply with obligations in terms of employee participation will not diminish the validity of the transfer.

A situation such as this arose in February 2002, when employees at Snap-on were called to a meeting and informed that two departments would be transferred to another company, along with their staff. No works council or form of staff representation was in place at the company (which had 147 employees in total). Shortly after the meeting, the two departments quickly established a staff association (personeelsvereniging, PV). The transfer of the departments was effected at the end of March 2002. The PV demanded compliance with the provisions of the Works Councils Act (Wet op de ondernemingsraden, WOR). However, the court asserted that the transfer had already taken place and that the employees’ interests would no longer be served by their demand (Amsterdam Court, subdistrict sector, Amsterdam, 30 August 2002, JAR 2002/265).

Public transport - an exceptional case

In 2000 an open tendering system was introduced in the public transport sector in the Netherlands. The aim was to break open the formerly closed market on the basis of 'concessions': providing a company with the right to provide public transport for a particular period within a specific area, to the exclusion of all other parties.

The transfer of a concession from one transport company to another is not automatically considered a transfer of undertakings as intended in the Directive. From the judgment issued by the ECJ on 25 January 2001 in the case of Oy Liikenne, a Finnish bus company (Case C-172/99), it appears that the transfer is only considered in this light if the transport equipment (in this case, buses) is transferred as well. If the transfer relates solely to the concession, however, Articles 36 et seq of the Dutch Passenger Transport Act (Wet Personenvervoer) of 2000 apply. These provisions regulate the rights and obligations of the new concession-holder with respect to those employees who are transferred from the old to the new concession-holder. The legislator’s rationale in formulating this Act was to rule out (specific) competition between transport companies in the area of collective terms and conditions of employment, at least during the first 10 years.

These provisions have resulted in conflicts on various occasions since 2000. On 9 January 2003, the Interim Injunction Section of the Arnhem Court ruled that a new concession-holder, Arriva, was obliged to uphold the terms and conditions of employment of the transferred employees in all respects except those employment conditions not arising by virtue of the collective agreement or the (supplementary) company schemes in force at the former employer (LJN AF2758).

Other conflicts have also arisen relating to employee participation over transfers in the public transport sector. The Enterprise Section of the Amsterdam Court of Appeal has on two occasions established that a recommendation must be requested from the works council, regardless of whether or not this pertains to competing for a concession ( JAR 2001/235 and ARO 2002/171).

In January 2003, the works council at the public transport company Syntus called for the dismissal of the company’s board of supervisory directors. The shares of Syntus are owned jointly by Dutch Railways (Nederlandse Spoorwegen, NS), the largest Dutch bus transport company Connexxion and the French company Keolis. Each of the three shareholders provides one of the supervisory directors. According to the works council, the supervisory directors are responsible for impeding market forces in the Achterhoek region of the Netherlands, where Syntus operates.

Commentary

During the initial period following implementation of the original Directive on the transfer of undertakings in 1982, the Netherlands was the ECJ’s most significant contributor of (prejudicial) cases. This has not been the case for some time, although the regulations do lead to conflicts fairly regularly. Today’s conflicts arise mainly in the relatively untried territory of tendering in the public transport sector. In part, the explanation for this can be traced back to ambiguities in the Passenger Transport Act, which refers to people employed in the direct interests of providing public transport. Does this include maintenance mechanics for example? The legislation's terminology about excluding employment conditions 'not arising by virtue of the collective agreement etc' also allows for differences in interpretation.

In a sector currently undergoing rapid change and in which employment conditions that have always been relatively favourable are coming under increasing pressure, surely case law should be on the rise as opposed to declining, irrespective of whether or not this goes hand in hand with collective labour conflicts and disputes with works councils. (Robbert van het Kaar, HSI)