Has Legal Practice Changed in Relation to the TUPE Directive? | Denmark

When it comes to assessing whether there has been a transfer of an economic entity which has retained its identity, within the meaning of TUPE Directive 2001/23/EC (the “Directive”), it has long been assumed that, in industries characterised by the absence of significant operating assets (eg, movable property) and where the activity is thus mainly based on labour (eg, the cleaning industry), the decisive factor in relation to the question of whether identity is retained will be whether the transferee takes over a significant part, in terms of numbers and qualifications, of the workforce of the transferor engaged in the activity which is now being transferred (see eg, C-13/95 Süzen, paragraph 21).

The situation is different in industries where the existence of operating assets is essential to the operation of the business. In such a situation, the transfer of the operating assets in question becomes key to the assessment.

The aforesaid longstanding legal position may have been challenged by the CJEU judgment of 27 February 2020 in C-298/18 Grafe and Pohle (the “Judgment”), and the purpose of this article is therefore to examine to what extent the Judgment represents an actual change in legal practice to the effect that we must now get used to operating with a lower threshold for what may constitute a transfer of undertakings within the meaning of the Directive.

The case concerned the issue of transfer of undertaking in connection with the outsourcing of bus operations. The contracting entity had set out a number of new – and as compared to previously – restrictive (environmental and technical) requirements, implying that many of the former bus operator’s (transferor’s) buses had to be replaced during the ten-year tender period.

It was thus not relevant for the tenderer (transferee) to take over the buses from the transferor, but the transferee hired many of the transferor’s former bus drivers and some of its executive employees. The question was whether, in these circumstances, there was a transfer of undertaking subject to the Directive. 

In paragraphs 22-26, the CJEU based its judgment on general considerations that the decisive criterion for assessing whether there is a transfer within the meaning of the Directive is whether the economic entity in question has retained its identity, which must be assumed in particular if operations are actually continued or resumed. The court referred to the fact that all the facts surrounding the transfer in question had to be taken into account when assessing whether there was a transfer within the meaning of the Directive. What needs to be considered is:

Subsequently, the CJEU ruled that the Liikenne judgment should not be interpreted in such a way that, in the case of transfers of undertakings in sectors with a high level of operations (such as bus operations), it was a condition for the application of the Directive that there was a transfer of the operating assets, see paragraphs 29-30. The special circumstances had to be taken into account in that new technical and environmental standards meant that it was neither legally nor economically feasible to take over the operating assets (buses) from the transferor.

The transferee’s decision not to take over the operating assets (the buses) was thus justified by external constraints, which had not been the case in the Liikenne judgment, see paragraphs 32-33. Noting that the transferor itself would have been forced to replace the operating resources in the near future, in paragraph 35, the court ruled: “In that context, the fact that there is no transfer of operating resources, in so far as it results from legal, environmental or technical constraints, does not therefore necessarily preclude the taking over of the activity concerned from being classified as a ‘transfer of an undertaking’ within the meaning of Article 1(1) of Directive 2001/23.”

The question was then whether it could be concluded from the other factual circumstances that the economic entity had retained its identity and was thus covered by the rules on the transfer of undertakings. The CJEU referred to the fact that the transferee took over the majority of the bus drivers, who essentially drove the same routes with the same customers and that there was no interruption in the bus service in connection with the transferee’s takeover, see paragraphs 37-40.

Against this background, the CJEU concluded that the failure of the transferee to take over substantial operating assets – in the context of the acquisition of activities requiring substantial operating assets – due to legal, environmental and technical constraints does not necessarily preclude a transfer of undertaking.

In our assessment, the Judgment has not set aside the legal position established by the Liikenne judgment.

The decisive factor of the Judgment was that the operating assets had no actual value for the transferee and only limited value for the transferor. Therefore, the fact that the operating assets were not transferred had no significance for deciding whether the necessary identity existed and, consequently, the other elements that must always be included in the assessment of the retainment of identity were decisive for the outcome.

If the operating assets had had a value in that the company’s operations that could have been based on such assets for a longer period of time, it would, as we understand the Judgment, have been decisive whether the operating assets had been transferred to the transferee.