Commission consults social partners on cross-border transfers of undertakings

In June 2007, the European Commission initiated consultation proceedings with the social partners on the issue of cross-border transfers of undertakings, businesses or parts of undertakings or businesses. The negotiations mark the first phase of the consultation process provided for under Article 138(2) of the EC Treaty. As it stands, EU legislation does not explicitly address cross-border transfers; thus, the Commission decided to consult with the social partners on the issue.

Cross-border transfers not covered by the EC Directive

The transfer of an undertaking refers to the transfer of a discrete economic entity to another party. The interests of employees in such a transfer are regulated by Directive 2001/23/EC 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 undertakings or businesses.

The fact that the issue of cross-border transfers is not explicitly covered by the directive might cause uncertainty on the part of employers and employees. According to the European Commission, in its communication (148Kb PDF), ‘The applicability of Directive 2001/23/EC to cross-border transfers with a change in place of work raises a few important questions that cannot be answered by either the directive or the existing instruments of private international law.’

As a result, on 20 June 2007, the Commission decided to launch the first-phase consultation of the social partners on the issue of cross-border transfers of undertakings. The consultation process is provided for under Article 138(2) of the EC Treaty, which requires the Commission to consult with management and labour before submitting proposals in the social policy field.

As part of the consultation process, the social partners have been invited to express their opinion on the issues identified in the European Commission’s communication.

Issues arising from cross-border transfers

Cross-border transfers of undertakings arise where the transferor and the transferee are governed by the laws of different Member States of the EU or the European Economic Area (EEA), or where one is governed by the law of a Member State and the other by the law of a third non-EU/EEA country. According to the Commission, in circumstances where the transferor and the transferee are governed by the laws of different Member States, problems may arise for which the Directive does not provide a solution.

To date, the only EU-wide instrument capable of assisting in determining the applicable law is the Rome Convention, which applies to contractual obligations in any situation involving a choice between the laws of different countries.

In the case of cross-border transfers, the place of work can change before the transfer, after it or at the same time, possibly leading to a change in the applicable national law. The treatment of such cases therefore needs to be differentiated. Furthermore, a distinction must be made depending on whether or not the new place of work is within the EU or the EEA.

Whether the change in the place of work takes place before or after the transfer does not raise major problems as far as individual rights are concerned, since the Rome Convention can provide an answer in this respect. However, while the Convention is of assistance in terms of the individual employment contract, all matters relating to collective rights are outside of its scope. Thus, information and consultation obligations – as well as the continued observance by the transferee of the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor (Article 3(3) of the Directive) and the preservation of the status and function of employee representatives (Article 6) – raise problems for which neither the directive nor the convention provide a solution.

Further problems arise in instances where the new place of work is outside the EU or EEA: according to the Commission’s communication, in such cases it could be argued that a transfer would not maintain the identity of the economic entity. As a consequence, there would be no transfer within the meaning of the directive.

Commentary

The applicability of the Directive to cross-border transfers involving a change in the place of work raises questions that, so far, cannot be answered by the existing legislation. It can be expected that cross-border activities will increase in number, since they will be facilitated by the regulations on the statute for a European company and on the European Cooperative Society, as well as by Directive 2005/56/EC on cross-border mergers of limited liability companies. As a result, the Commission considers that it is worth exploring the possibility of amending Directive 2001/23/EC to ensure legal certainty. If, after the first phase of consultation, the Commission considers that Community action is advisable, it will consult with the social partners on a concrete proposal for amendment.

Volker Telljohann and Maite Tapia, Institute for Labour Foundation, Bologna

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