OPINION OF ADVOCATE GENERAL

SIR GORDON SLYNN

delivered on 30 April 1985

My Lords,

This case, referred under Article 177 of the EEC Treaty, concerns the interpretation of Council Directive No. 77/187 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 (Official Journal 1977, L 61/26).

Mr Mikkelsen was employed as a salaried works foreman in the defendant company when on 3 September 1981 that company suspended payment of its debts by reason of its financial difficulties. On the same date his employment was terminated with effect from 31 December 1981. On 19 October 1981 the business was transferred to a new company, Danmols Inventar-og Møbelfabrik. Mr Mikkelsen continued as works foreman doing the same work and receiving the same pay in that capacity as he had done in the defendant company.

In the new company, unlike the old, he was a shareholder. The Vestre Landsret (the Western Division of the Danish High Court), which has made the present reference for a preliminary ruling, has stated that he held 50% of the shares. That appears to be an error, because the judgment of the Danish court of first instance puts his shareholding at 33% and at the hearing before this Court the parties to the main action confirmed that this was so, the remainder of the shares being owned by his father. He did, however, have 50% of the voting rights in the company, his father having the remainder. Moreover, he was Chairman of the Board of Directors. His father was also a director. In addition the Court has been told that a Danish company must have at least three directors, so that presumably there was a third director.

After the business had been transferred to the new company, the defendant company was declared bankrupt by a judgment given on 2 December 1981.

Following the transfer of the business Mr. Mikkelsen brought an action against his former employer the defendant to recover an amount equal to two months' pay for the period 1 November to 31 December 1981, together with holiday pay due in respect of those two months and for the period prior to termination. The Court of First Instance rejected his claim, since, whatever his situation in the new company, he was transferred by the defendant.

This case came by way of appeal to the Vestre Landsret which posed two questions under Article 177.

The first question is: ‘Must the expression “employee” in the Directive be interpreted to mean that it is sufficient for the person concerned to have been an employee of the transferor or must he also occupy a position as employee with the transferee?’

The first subparagraph of Article 3 (1) of the Directive provides that: ‘The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1 (1) shall, by reason of such transfer, be transferred to the transferee’.

In Case 19/83 Wendelboe v LJ Music (judgment of 7 February 1985) it was held that only persons employed by the transferor at the moment of the transfer fall within the provision; it was also pointed out that Article 4 (1) prohibits an employee from being dismissed by reason solely of such a transfer, subject however to certain exceptions.

The effect of the Directive, in my opinion, is that an employee of the transferor at the time of transfer is entitled to insist, as against the transferee, on all the rights under his existing employment relationship. By virtue of Article 3, he can thus claim to continue to be employed by the transferee on the same terms as he was employed with the transferor, or if the transferee refuses or fails to observe those terms, he can bring a claim for breach of contract or the relationship, against the transferee.

Under Article 4, the transfer does not by itself justify his dismissal by the transferor or the transferee unless such dismissal is for economic, technical or organisational reasons entailing changes in the work force; if the contract or relationship is terminated (i.e. by the employee) because the transfer involves a substantial change in working conditions to the detriment of the employee, the employer is to be regarded as having been responsible for the termination of the contract or relationship.

The employer who dismisses an employee for one of the reasons specified in Article 4 (1) can thus justify the dismissal. Otherwise if the dismissal or purported dismissal is based on the transfer of the undertaking or business, the employee can insist on his rights under Article 3.

On the other hand, if an employee of one employer whose business is transferred genuinely and willingly agrees with that employer or the transferee of the business, that he will not be engaged under a contract of employment, or in an employment relationship with the transferee, then he cannot, as I see it, insist as against the transferee on the performance, as from the date of the coming into effect of the agreement, by the transferee of obligations arising under the previous contract of employment or employment relationship. In the absence of genuine express agreement to the contrary, however, his rights which had already accrued qua employee against the transferor will continue to be enforceable against the transferee.

Put another way, on the transfer of a business an employee of the transferor is transferred to the transferee in the same capacity, and he has all the rights under Article 3, subject to dismissal for one of the exceptions specified in Article 4. If he genuinely agrees to accept a status with the transferee which is not that of an employee he cannot rely on Article 3 as to the future. On the other hand, although the point was not argued, it seems to me that the rights accrued against the transferor are transferred to the transferee, unless these have been satisfied specifically by arrangements made under a genuine contract.

It is obviously crucial for national courts to ensure that such agreement is genuine and not tainted by duress on the part of the transferor or the transferee.

The second question asks whether, if the person concerned must be the employee of the transferee in order to benefit from the Directive, the expression employee contained in the Directive covers a person who has a 50% interest in the company in question.

If, as the Commission argues, Case 75/63 Hoekstra v Bedrijfsvereniging voor Detailhandel (1964) ECR 177 and Case 53/81 Levin v Staatssecretaris van Justitie (1982) ECR 1035 require that ‘employee’ must be given a special definition in Community law, and do not depend on the relevant national law in a particular case, I would accept, on lines similar to those contended for by the Commission, that an employee is one who in return for remuneration agrees to work for another and who can as a matter of law be directed as to what he does and how he does it, whether pursuant to a contract of employment or an employment relationship.

If such is to be taken as the Community law concept of an employee, then the fact that a person has a 50% interest in the company in question is not conclusive either way. A 50% financial stake or shareholding may not give a right of control of the company; that may depend on voting rights which need not be equal to the financial stake. A control of 50% of voting rights is not in my view conclusive either. It depends on what the voting rights cover and how a deadlock is to be resolved. They may be voting rights at a general meeting of the shareholders or possibly involve voting rights on the board. The control given by a 50% interest in the company also depends on the power and composition of the board. If there are three directors with equal votes in the administration and government of the affairs of the company, the fact that one has a 50% voting right at meetings of shareholders does not prevent the majority of the board from agreeing ‘to hire and fire’ that one, or from directing him what to do in his capacity, not as a director or shareholder, but as an executive or worker of the company. I see nothing inconsistent between a person having a 50% control of voting rights as a shareholder or a 50% financial stake, on the one hand, and his entering into a separate contract of employment which binds him to observe the instructions of the board or a superior executive of the company, on the other. Even if, as a shareholder with a 50% interest, he could vote to remove the other directors and place his nominees on the board (which with a 50% shareholding does not follow) he is still capable of being instructed what to do pursuant to his contractual obligation. It is in my view wrong to say that because he could vote to remove the other directors, he is thereby incapable of entering into contractual obligations with the company as an employee.

In my view, the question is essentially one for the national court to decide on the facts of each case even if a Community law definition is adopted on the lines indicated. The question is thus whether the individual concerned has contractually bound himself, or put himself into an employment relationship where he can be required to carry out instructions pursuant to that contract or relationship. The question in each case is whether he is subject to control by the company during the currency of the relationship and, not what he could do if he took extreme measures to change the composition of the board. There is no rigid rule that a 50% interest or even 50% voting rights disqualifies him from so being.

I do not consider, however, that in this Directive a special or exhaustive Community definition is to be adopted. There is no express definition of ‘employee’ or ‘contract of employment’ or ‘employment relationship’ in the Directive. This Directive does not, any more than do Council Directive No 75/129 on the approximation of the laws of Member States relating to collective redundancies (Official Journal 1975, L 48/29) and Council Directive No 80/987 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer (Official Journal 1980, L 283/23), set out to provide a complete harmonisation of the laws of Member States in this area. The case is to be distinguished from Levin where the word ‘worker’ appears in Article 48 of the Treaty which the Court has held to be one of the foundations of the Community and to be directly applicable and where a uniform definition is essential. It is also to be observed that in Hoekstra at paragraph 1, the Community law definition adopted was exclusively by reference to national laws: ‘The concept of a “wage earner or assimilated worker’ has thus a Community meaning, referring to all those who, as such and under whatever description, are covered by the different national systems of social security’.

It is true that there does not appear in this Directive the provision which is to be found in Article 2 (2) of Council Directive 80/987/EEC that the latter is ‘without prejudice to national law as regards the definition of the terms “employee’, “employer’, ...’. It is not to be deduced directly from the fact that this phrase appears in the later but not in the earlier Directive either that the same result was or was not intended to be achieved. What seems to me to be significant here is that there is no definition of ‘employee’, that this Directive is an approximation rather than a full harmonisation of the laws of the Member States, and, as the argument in the case has made clear, that different rules at present exist in different Member States as to what kind of engagement may or may not be capable of constituting a contract of employment or an employment relationship. This conclusion seems to me to be consistent with paragraph 16 of the Court's judgment in Wendelboe in which it was held that the question as to whether a contract of employment or an employment relationship existed at the date of the transfer within the meaning of Article 3 (1) must be decided according to the rules of national law, subject to the overriding provisions of the Directive and in particular Article 4 (1).

It may be highly desirable that there should be a Community definition but none has been so far adopted for present purposes. The intention of the Directive is in my view to ensure that those who are employees under a contract of employment or in an employment relationship in the several Member States should be treated alike on transfer. The definition of the relationship may vary; when in each of the Member States the definition is satisfied, the result is the same. For the Court to create a separate definition of ‘employee’ without a full survey of the categories of persons who are capable of, or treated as, being such in the various Member States risks excluding from the benefit of the Directive persons in some Member States who under national law would be regarded as employees.

Member States cannot, of course, create narrower definitions for the purposes of applying the Directive. That would be contrary to the second paragraph of Article 4 (1) of the Directive.

In my opinion, therefore, the question as to whether a person is to be regarded as an employee for the purposes of this Directive in the present state of Community law is to be decided according to the law of the Member State governing the contract of employment or the employment relationship.

It should perhaps be pointed out that a suspension of payment such as that which occurred with respect to the defendant company in September 1981 does not preclude application of the Directive: Cases 135/83 Abels v Bedrijfsvereniging voor de Metaalindustrie, 179/83 Industriebond v Netherlands and 186/83 Botzen v Rotterdamsebe Droogdok Maatschappij (judgments of 7 February 1985).

It also seems to me that even although Mr Mikkelsen had been given notice of termination before the transfer of the business, since that notice did not expire until after the transfer he is clearly to be treated as employed at the time of transfer by the transferor it being agreed that he was an employee of the transferor.

Accordingly, I take the view that the questions referred fall to be answered on the lines:

(1) Although Council Directive No. 77/187 is to be read as meaning that an employee of a transferor at the date of transfer is entitled to rely on the provisions thereof as against the transferee of the undertaking or business or part of a business, an employee of the transferor who enters into a contract or a relationship with the transferee which is not that of an employee is not entitled to rely on such provisions in respect of matters arising subsequent to the date when such contract is made or relationship established.

(2) The question whether an employee for the purposes of this Directive includes a person who has a 50% interest in the transferee depends on whether such person is an employee under the law of the Member State governing the contract or relationship between such person and the transferee.

The costs of the parties to the main action fall to be dealt with by the national court; no order should be made as to the Commission's costs.