Proposal for a COUNCIL DIRECTIVE 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
Date: 1994-09-08
Institutions: European Commission
Subjects: approximation of laws, labour law, transfer of businesses, worker consultation, worker information

COMMISSION OF THE EUROPEAN COMMUNITIES 

C0M(94) 300 final 
Brussels, 08.09.1994 

94/0203 (CNS) 

P r o p o s al 

f or  a 

COUNCIL  DIRECTIVE 

on the approximation  of the laws of the Member States 

relating  to  the  safeguarding  of  employees'  rights 
undertakings,  businesses  or  parts  of  businesses 

in  the  event  of  transfers  of 

(presented by the Commission) 

EXPLANATORY  MEMORANDUM 

Introduction 

1. 

2. 

Council Directive 77/187/EEC of  14 February  1977 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 businesses1 (hereinafter  the "Directive" 
or the  "transfers  Directive")  adopted  on the basis, in  particular,  of  Article  100 of  the 
Treaty,  was  intended,  according  to  its  recitals,  to  provide  for  "the  protection  of 
employees  in  the  event  of  a  change  of  employer,  in  particular,  to  ensure  that  their 
rights  are safeguarded".  For  that purpose,  the Directive provides  that  the  transferor's 
rights and obligations arising from  the contract of employment or from  an employment 
It  also 
relationship  shall  by  reason  of  a  transfer  be  transferred  to  the 
provides for protection  of the employees concerned  against dismissal by the  transferor 
or the transferee,  but  does not  stand  in the way  of'dismissals  that may  take  place  for 
economic,  technical  or  organisational  reasons  entailing  changes  in  the  workforce". 
Moreover,  Article  6  of  the  Directive  requires  the  transferor  and  the  transferee  to 
inform  and consult  the representatives  of the  employees  affected  by the  transfer.  The 
main  purpose  of the Directive is therefore  to ensure thatrestructuring  of  undertakings 
the  employees  in  the 
within  the  Common  Market  does  not  adversely  affect 
undertaking  concerned. 

transferee. 

On  a  legislative  level,  the  effectiveness  of  the  Directive,  in  terms  of  the  social 
protection  it  guarantees,  cannot  be  denied.  The  Directive  has  proved  to  be  an 
invaluable  instrument  for  protecting  employees  in  cases  of  corporate  reorganization, 
ensuring peaceful  and consensual  economic and technological  restructuring and laying 
down minimum standards for promoting fair competition with respect to such changes. 
It could, however, be argued that the Directive's failure to provide for  greaterflexibility 
in  the  event  of  transfers  of  insolvent  businesses  or  of  undertakings  facing  major 
economic  difficulties,  as  well  as  its  failure  to  cover  explicitly  the  transnational 
dimension  of corporate  restructuring,  may  have jeopardized  or at least prejudiced  the 
very  objectives  it was  intended  to  achieve. 

Any  appraisal  of  the  shortcomings  and  loopholes  of  the  transfer  Directive  must  take 
into account the internal  market, the development  of "emergencylaw" to deal  with  the 
rescue  of  undertakings  in  economic  difficulties  and  the  case  law  of  the  European 
Court  of  Justice,  as  well  as  the  Commission's  proposed  revision  of  the  collective 
redundancies  Directive  to  which  the  transfer  Directive  is  closely  related. 

The  impact  of  the  internal  market 

3. 

The  internal  market  is,  according  to  Article  8a  of  the  EC  Treaty,  "an  area  without 
internal  frontiers  in  which  the  free  movement  of  goods,  persons,  services  and  capital 
is  ensured  in  accordance  with  the  provisions  of  the  Treaty".  The  dismantling  of 
internal  frontiers  is  already  resulting  in  major  corporate  reorganizations  within  the 
Community,  involving a significant  increase in mergers, takeovers, transfers  and joint 
ventures,  and  leading  to  a  growing  concentration  of  company  ownership.  The  total 

O J N oL  61/27  of  5.3.1977 

^ 

number of acquisitions (majority  holdingsor  mergers) made by the top  1000 European 
industrial  enterprises  isgrowing  constantly.  A recent  Commission  report2  shows that 
the number  of such  operations  has doubled  every  three years during the  1980s,  rising 
from  208  in  1984-85  to  492  in  1988-89. 

Moreover,  merger  operations  within  the  Community  are  increasingly  transnational. 
The  same  Commission  report  notes  that:  "National-typeoperations  (between  two 
enterprises belonging to the same Member  State) largely  dominated between  1983 and 
1987.  Almost two-thirds of the number of acquisitions  recorded  involved  this type of 
operation.  Since  1987,  more  rapid  growth  has  been  noted  in  the  number  of 
acquisitions  involving  Community  enterprises  belonging  to  two  different  Member 
In  1988-1989,  such  operations  represented  40%  of  the  total  number  of 
States. 
acquisitions effected.  International-level  operations involving two enterprises - the one 
Community,  the  other  non-Community  -  accounted  for  approximately  15  %  of  the 
total  number  of operations  recorded.  This figure  is more  or less  stable for  the  period 
under  review." 

The  detailed  figures  are given  in  the  following  table: 
Mergers  and  acquisitions  by  nationality  of  the  firms  involved 

Year 

National 

EC 

International 

1983-84 

1984-85 

1985-86 

1986-87 

1987-88 

1988-89 

1989-90 

101 
(65.2) 

146 
(70.2) 

145 
(63.7) 

211 
(69.6) 

214 
(55.9) 

233 
(47.4) 

241 
(38.7) 

. 

29 

(18.7) 

44 
(21.2) 

52 
(23.0) 

75 
(24.8) 

111 
(29.0) 

197 
(40.0) 

257 
(41.3) 

25 
(16.1) 

18 
(8.7) 

30 
(13.3) 

17 
(5.6) 

58 
(17.8) 

62 
(12.6) 

124 
(20.0) 

NB:Figures in brackets show the percentage of the total  numberof operations  surveyed. 
Source:  European  Commission 

XXth  Report  on  Competition  Policy 
Communities) 

(Commission  of 

the  European 

2. 

The completion  of the  single  market  is therefore  accompanied  by  a widespread  trend 
towards  major  corporate  reorganizations.  This  is  pursuing  objectives  specific  to  a 
market  economy,  that  is,  the  establishment,  on  the  most  appropriate  sites,  of 
businesses capable of implementing the large-scale economic operations which  a large 
market  is  likely  to  require. 

6. 

In  order  to  facilitate  this  process,  the  Community  Institutions  have-relying  on 
provisions of primary  law- adopted  specific  legislation  on mergers and  concentrations 
in  the  fields  of  competition  and  company  law.  In  the  field  of  competition,  on  21 
December  1989 the Council  adopted Regulation  (EEC) No 4064/89  on the  control  of 
concentrations  between  undertakings3  setting  up  a  system  for  the  prior  control  of 
Community—scale  concentrations.  Although  the  31st  recital  of  the  Regulation 
expressly  states  that  it  does  not  detract  from  "the  collective  rights  of  employees  as 
recognized in the undertakings concerned", it provides no machinery for ensuring these 
rights. 

In the field  of  company  law, the Third  Council  Directive  (78/855/EEC)  of  9  October 
1978  concerning  mergers  of  public  limited  liability  companies4  expressly  affirms  in 
Article  12  that  the  protection  of  employees  provided  for  in  the  transfers  Directive 
applies to mergers. The Sixth Council Directive (82/891/EEC) concerning the division 
of public limited  liability  companies  5 also refers  (Article  11) to the application  of the 
transfers  Directive  to  division  operations.  Council  Regulation  (EEC)  No  2137/85  on 
European Economic Interest Groupings(EEIG)6 provides European economi c operators, 
with  a  view  to  the  establishment  of  the  internal  market,  with  a  flexible,  light 
frameworkof  association affording  them a common autonomous structure for  pursuing 
one  or  more  cross-border  projects  while  retaining  legal  and  economic  freedom  for 
their  own  activities.  The  Regulation  contains  no  rules  onthe  individual  or  collective 
rights  of  employees. 

Reference  should  also  be  made  to  the  proposal  for  a  Tenth  Council  Directive  on 
cross-border  mergers  of  public  limited  companies7  which  also  refers  to  the  transfers 
Directive, to the proposed European  Company Regulation  and complementing  worker 
involvment  Directive  8  and  to  the  proposal  for  a  Thirteenth  Council  Directive  on 
company  law  concerning  take-over  and  other  general  bids  9. 

OJ No  L  395,  30 December  1989 

OJ No  L  295,  20  October  1978 

OJ No  L  378,  31  December  1982 

O J N oL  199,  31  July  1985 

OJ No  C 23, 25  January  1985 

OJ No  C  138/8  of  29 May  1991 

COM  (88)  823  Final 

3 

7. 

8. 

In  the  social  field  reference  should  be  made  to  two  Directives  closely  linked  to  the 
transfers  Directives.  Council  Directive  75/129/EEC on  collective  redundancies  10 and 
Council  Directive  80/987/EEC  on  the  protection  of  employees  in  the  event  of  the 
insolvency  of  their  employer  n.  The  three  employment  Directives  all  aim  to  ensure 
appropriate  protection  for  the  employee  in  situations  associated  with  company 
restructuring  and  long-term  economic  difficulties  (the  interaction  between  the  three 
Directives is shown in Annex  2).  The proposed  amendments to the transfer  Directive 
should  take  account  of the  protection  under  the  other  employment  Directives.  As  far 
as information  and  consultation  rights  are  concerned,  account  should  be  taken  of  the 
revised  proposal  for  a  Council  Directive  on  the  establishment  of  European  Works 
Councils12,  although  its the  scope  and  material  content  differs  considerably  from  the 
transfer  Directive. 

Despite the variety  of  Community  legal  instruments  concerning  directly  or  indirectly 
transfers  and  concentrations  of  undertakings  having  a  transnational  dimension,  there 
is  as  yet  no  Community  law  dealing  specifically  with  the  social  consequences  of 
transnational  transfers  and mergers. The information  and consultation  provisions need 
therefore  to  be  revised  to  cover  all  cases  of  transnational  transfer  and  merger  and  to 
guarantee adherence to the information  and consultation procedures where the decision 
leading  to  the  transfer  or  merger  is  taken  by  a  decision—making  centre  located  in  a 
State other than  the Member  State in which  the  employees  concerned  are  employed. 

The  rescue  of  undertakings  in  economic  difficulties  and  the  new  tendencies  in 
bankruptcy  law  and  employment  law 

9. 

The aim  of bankruptcy  law, including  pre-liquidation  or liquidation proceedings,  is to 
pay  creditors  through  the  realization  of  the  insolvent  undertaking's  assets.  The 
survival  of the undertaking or the total  or partial  liquidation  of the business  concerned 
are  envisaged  as  a means  to  achieve  that  objective.  The  employees  of  the  insolvent 
undertaking  are in most Member  States, with the exception  of France and, to a certain 
extent,  Germany,  not  involved  in  insolvency  proceedings. 

On  the  contrary,  employment  law  lays  down,  as  far  as  insolvent  undertakings  are 
concerned,  a  system  of  protective  rules  aimed  at  preserving  the  employees'  rights, 
guaranteeing their credits and ensuring their rights to be informed  and  consulted.  The 
creditors'  interests,other  than  the  employees  themselves,  are  not  taken  into  account. 

10. 

These two  branches  of  law,  bankruptcy  law  and  employment  law,  are  dissociated  in 
the  twelve  Member  States.  They  follow  different  but  parallel  paths,  which  do  not 
often  meet.  However,  the  impact  of  the  economic  changes  of  the  70s  and  80s  has 
fostered  a process  of convergence  between  both  branches  of  law,  the  objective  being 
to rescue undertakings  in  economic  difficulties  and  provide  for  their  survival  and  for 
the  maintenance  of  employment  levels.  The  rights  of  both  creditors  and  employees 

10 

11 

12 

OJ No  L  48/29  of  22.03.1975 

OJ No  L  283/23,  28/10/80 

O J NC  336/11  of  31.12.1991 

V 

have  consequently  been  reshaped  as  a  means  of  guaranteeing  the  survival  of  ailing 
undertakings. 

11. 

This  legislative  tendency  within  the  framework  of  insolvency  proceedings,  can  be 
observed  in  France  13  (procédure  de  redressement),  Portugal  14  (procedimento  de 
recuperao), the United  Kingdom  15 (judicialadministration),  Germany  16,  Spain  17, the 
Netherlands  18 and  Belgium  19. 

Within the context  of parallel  proceedings  other than judicial  insolvency  proceedings, 
some Member  States  (Italy,  Greece, Belgium,  Portugal  andSpain)  have  set up  rescue 
plans  providing  a  legal  framework  for  undertakings  in  need  of  restructuring  and 
reorganization.  Such plans may  include  recourse to  public  aid  or  certain  derogations 
from  the protection  of  employees  provided  for  under  labour  law  (Italy). 

12. 

The transfers  Directive  contains  no  provision  for  a  specific  scheme  of  protection  for 
employees  transferred  in  the  context  of  insolvency  proceedings  or  serious  economic 
difficulties.  The  European  Court  of  Justice  20  could  not  close  this  loophole  by 
introducing  a  comprehensive  set  of  rules  to  be  applied  to  insolvency  situations, 
although  it declared  that transfers  effected  in insolvency  liquidation  proceedings were 
excluded  from  the  Directive.  The  revision  of  the  transfer  Directive  should  address 
the question  if  and  to  what  extent  certain  solutions  in  force  in  some  Member  States 
- in particular,  the need  not to transfer  pre-existing  debts in insolvency  situations,  the 
possibility  of derogating  from  the Directive via  collective bargaining  and the  need  to 
reinforce  information  and consultation  procedures in insolvency  situations - should be 
incorporated  into  the Directive. 

The  case law  of  the  European  Court  of  Justice:  interpretation  and  clarification  of  the 
transfers  Directive 

13. 

The  transfers  Directive  has  engendered  considerable  litigation  before  the  European 
Court of Justice.  In  all judgments  (19) which  have been  handed  down,  most  of them 
(15) were  in  the  context  of  references  for  preliminary  rulings  (See  Annex  1). 

13 

14 

15 

16 

17 

19 

20 

Acts  of  25  January  1985  and  1 March  1984 

Decree Law  of  2 July  1986 

Insolvency  Act  1986  and  Cork  Commission 

1985  Report  of  the  Commission  on  the  reform  of  bankruptcy  law  and  Actof 
20 February  1985 on the  social  plan  in the context  of bankruptcy proceedings. 

Bill  on  the  reform  of  bankruptcy  proceedings  (1986) 

Commission  Mijnssen 

1983 Bill  on  undertakings  in  severe  economic  difficulties 

see footnote  23 

5 

The  Court  has  clarified  the  notion  of  transfer,  determined  that  nocontractual  link  is 
needed between  transferor  and transferee  for  the Directive  to be applicable,  excluded 
liquidation  proceedings  but  not  suspension  of  payments  proceedings  from  the  scope 
of  the  Directive,  clarified  the  meaning  of  the  term  "employee"  and  declared  that 
employees and their representatives cannot contract out of the rights accorded to them 
by  the Directive  as implemented  by  national  law. 

The  revision  of  the  collective  redundancies  Directive 

14. 

In  November  1991,  the  Commission  adopted  a  proposal  for  a  Council  Directive 
amending  Directive  75/129/EEC  of  17 February  1975  on  the  approximation  of  the 
laws  of the Member  States  relating  to  collective  redundancies  21.The revision  of  the 
collective redundancies Directive, as the Commission's  Action Programme relating to 
the  implementation  of  the  Community  Charter  of  Fundamental  Social  Rights  of 
Workers  made  clear,  was 
necessary  in  the  light  of  several  years' 
application  of  this  Directive,  socio-economic  changes,  and  the  establishment  of  the 
Single  European  Market.  In  particular,  the  Action  Programme  spelt  out  the  need  to 
give the Directive  a transnational  dimension  so as  to  ensure that  situations  in  which 
employees are affected  by redundancy  decisions taken by a head office  or controlling 
undertaking  located  outside the Member  State where  they  are employed  are  properly 
covered.  The  amendments  to  the  collective  redundancies  Directive  proposed  by  the 
Commission  reflect  these  concerns. 
This proposal  was adopted by the Council  the 24 June  1992 (Directive  92/SC/EEC). 

considered 

15. 

Although  the  Commission's  Action  Programme  relating  to the  implementation  of  the 
Charter  does  not  expressly  mention  the  revision  of  the  transfer  Directive,  the 
Explanatory  Memorandum  to  the  proposal  for  a  Council  Directive  amending 
Directive75/129/EEC  on collective redundancies states that  "the Commission  is aware 
that  in  a  number  of  important  respects  the  reasons  for  revising  the  collective 
redundancies  Directive  apply  equally  to  the  existing  transfers  Directive".  These 
reasons  concern  the  proposed  amendments  to Directive  75/129/EEC  relating  to : 

a) 

b) 

c) 

d) 

the  need  to  ensure  the  enforcement  of  its  provisions  when  the  relevant 
decision  is being  taken  by  an  undertaking  other  than  the  employer; 

the  need to provide for  appropriate  remedies  in the event  of failure  to  comply 
with  the  Directive; 

the  implementation  of  the Directive's  provisions  by  collective  agreement; 

The  application  of  the Directive  in  the  event  of  bankruptcies. 

Proposed  changes  to  the  Directive 

16. 

to  the 
In  the  light  of  the  aforementioned  considerations  and  having  regard 
implementation  of  the Directive  by  Member  States,  to  the  case  law  of  the  European 
Court  of  Justice  and  to  cross-border  corporate  restructuring  brought  about  by  the 

21 

OJ No  L  48/29  Of  22.02.1975 

€ 

completion  of  the  Internal  Market,  the  Commission  is  proposing  a  series  of 
amendments  to  Section  I  (Scope  and  definitions),  Section  II  (Safeguarding  of 
employees'  rights),  Section  III  (Information  and  consultation)  and  Section  IV  (Final 
provisions)  of  the  Directive. 

a) 

Scope  and  definitions  (Article  1 (1) 

(I) 

17. 

Clarification  of the term  "transfer" so as to include any transfer whether by way 
of contract or by some other disposition  or by operation  of law, judicial  decision 
or administrative  measure 

The language versions  of  the Directive  differ  considerably  as to the  definition  of  the 
term  "transfer"  laid  down in Article  1(1). The English version  refers  to  "legal  transfer 
or  merger"  and  is  wide  enough  to  cover  transfers  other  than  those  resulting  from 
contract The French version,  however, refers to "cession conventionnelle"  (contractual 
transfer),  though  the recitals  merely  refer  to  "cessions".  The Dutch,  German,  Italian, 
Spanish, Portuguese  and  Greek  versions  appear  to be to the  same  effect  ("overdracht 
krachtens  overeenkomst,  vertragliche  Ubertragung,  cessione  contrattuale,  cesion 
contractual,  cessâo  contratual  and  OUUPCCTKTI  €KX6QTJOT|").  The  Danish  version 
("overdragelse")  apparently  falls  between  the two,  since  it  includes  transfers  by  way 
of  gift  as  well  as  by  contract,  but  not  by  court  order  or  inheritance,  though  it  does 
include the purchase from  the bankrupt  estate ("konkursbo")  following  an  insolvency. 
The  central  question  here  is  whether  the  Directive  should  be  limited  to  contractual 
transfers, that is a transfer  by a willing transferee to a willing transferor  (by  sale, lease 
or  other  contract).  The  Commission  believes  that  a  wide  interpretation  of  the  term 
"transfer"  is  fully  consistent  with  the  purpose  of  the  Directive  and  no  significance 
should  be  attached  to  the  nature  of  the  transaction,  be  it  a  contract,  a  deed  taking 
effect  upon death, an administrative measure or a judicial  decision  as a result of which 
one  businessman  succeeds  another.  The  present  wording  of  the  Directive  has  been 
purposely  construed  by the European  Court  of Justice  so as to include  any  transfer  of 
an undertaking,  business  or  parts  of  a business  from  one  employer  to  another  22. 

Accordingly,  the  Commission  proposes  that  all  language versions  of the Directive be 
revised  so  as  to  include  any  transfer  whether  by  way  of  contract  or  by  some  other 
disposition  or  by  operation  of  law,  judicial  decision  or  administrative  measure, 
including  mergers  and  divisions. 

18. 

Taking account of certain transfers,  the Directive  states that it shall  not apply  in  cases 
where  only  an  activity  of  an undertaking  is transferred  but  there  is  no  transfer  of  an 
economic  entity  which  retains  its  own  identity.  It  must  be  emphasised  that  in  the 
absence  of  explicit  Community  provisions  on this  specific  point,  the  Court  of  Justice 
has  continued  its  dynamic  interpretation  activities  in  a  field  which  is  becoming 
increasingly  complex. 

The proposed  Directive distinguishes between  two  fundamentally  different  situations: 
the transfer  of an activity  as such, and the transfer  of an economic entity which  retains 

22 

Daddy's  Dance  Hall,  Case  324/86, 
Busschers,Bessalsen,  Case  144-145/87  -  87  [1989]  3  CMLR  817,  etc 

[1988]  ECR 

739 

;  Berg, 

? 

its  identity,  without  however  lowering  the  level  of  protection  currently  enjoyed  by 
workers. 

It has to  be  stressed,  then,  that  the Directive  will  still  apply  where  the  transfer  of  an 
activity is accompanied by the transfer  of an economic entity which retains its identity. 

The  reference  to  economic  entities  which  retain  their  identity  occurs  consistently  in 
the  Court  of  Justice's  case law (e.g. Spijkers,  Case  24/85, and  the Raymond  Stichting 
judgment in C-29/91), the decisive criterion for establishing whether there is a transfer 
of an economic entity being whether the business in question  retains its identity, taken 
to mean a self-contained  set of elements pursuing a specified  economic objective,  even 
where the activity  is an ancillary  one. The mere transfer  of the business's  assets is not 
sufficient  in  itself.  The  business  concerned  must  have  been  disposed  of  as  a  going 
concern,  as  would  be  indicated  inter  alia  by  the  fact  that  its  operation  was  actually 
continued  or  resumed  by  the  new  employer,  with  the  same  or  similar  activities.  In 
order to determine whether those conditions are met, the Court held that it is necessary 
to consider  "all the facts  characterising  the transaction  in  question,  including  the type 
of  undertaking  or  business,  whether  or  not  the  business's  tangible  assets,  such  as 
buildings or movable property,  are transferred,  the value of its intangible  assets at the 
time  of  transfer,  whether  or  not  the  majority  of  its  employees  are  taken  over  by  the 
new  employer,  whether  or  not  its  customers  are  transferred  and  the  degree  of 
similarity between the activities carried  on before  and after  the transfer  and the period, 
if any, for which those activities were suspended"  (Case 24/85, Spijkers,  Cases  101/87 
Bork  International). 

Consequently,  the  proposed  new  paragraph  introduces  certain  clarifying  and  other 
elements  to  help  in  interpreting  and  implementing  the  Directive,  more  particularly 
where  only  one  business  activity  is  transferred. 

Clearly,  any transfer  of activity  which  is  not  covered  by  this proposal  for  a Directive 
must  be  in  conformity  with  the  relevant  national  legislation,  including  any  national 
provisions  arising  from  international  conventions  which  have  been  ratified  by  the 
Member  States  concerned,  e.g.  ILO  conventions. 

(II)  Applying the Directive in insolvency situations  (Article 3, paragraph  4 and  article 

4,  paragraph  3,  4 and  5) 

19. 

The tranfers  Directive  does not  expressly  exclude  from  its  scope transfers  effected  in 
the  framework  of  insolvency  proceedings.  The  European  Court  of  Justice  has  been 
required  on  several  occasions to close this  significant  loophole  23. The  Court  has held 
that  the Directive  does not  apply  to the  case  of transfers  "taking  place  in  the  context 
of insolvency  proceedings  instituted  with  a view  to the liquidation  of the assets of the 
transfer  or under  the  supervision  of the competent judicial  authority"  (Abels,  Ground 
23). However,  the Court made it clear in Urso (Grounds  25 and  26) that the nature of 
that supervision  was not conclusive, the only  determining criterion  being the  objective 

23 

Abels,  Case  135/83  (1985) ECR  469. Industriebond  FNV,  Case  179/83(1985) 
ECR  511.  Botzen,  Case  189/83  (1985)  ECR  519.  Mikkelsen,  Casel05/84 
(1985)  ECR  2639.  D'Urso,  Case  362/89  of  25  July  1991,  I-4105es. 

(liquidation  or  survival)  to  be  attained  by  the  insolvency  proceedings. 

20. 

he  Court  has  also  held  that  the  Directive  does  apply  where  the  business  insolvency 
proceedings  such  as  suspension  of  payments  as  opposed 
liquidation 
proceedings,  since the purpose  of  the former  (in  casu,  "surseance van  betaling")  is to 
allow  the  company  to  survive while  giving  temporary  protection  against  creditors. 

to  full 

21.  Member  States  are  at  liberty,  the  Court  also  found,  to  apply  the  principles  of  the 
Directive  at  their  own  initiative  to  all  insolvency  situations.  That  has  been  done  by 
Spain,  France,  Germany,  Denmark  and  theUnited  Kingdom  24. 

22. 

The underlying problem  here is the conflict  between the acquired  rights of  employees 
and  those  of  other  creditors  upon  insolvency. 
If  the  employees  of  the  insolvent 
transferor  undertaking  and  all  their  rights  and  entitlements  are transferred  to the  new 
solvent  transferee,  the  effect  is  to  treat  those  employees  more  favourably  than  other 
creditors of the insolvent undertaking.  The creditors will  assert that the transferee  will 
pay less for the transferred  undertaking,  as a result of having to take over all  liabilities 
for  the  new  employees,  and  hence  the  pool  assets  against  which  the  creditors  of  the 
insolvent  undertaking  can  claim  will  be  reduced.  The  transfer  of  that  responsibility 
might also dissuade a potential transferee  from  acquiring an undertaking on  conditions 
acceptable  to  the  creditors  thereof,  who,  in  such  a  case,  would  prefer  to  sell  the 
undertaking  separately.  In that  case,  as the Court  has  held25  a serious  risk  of  general 
deterioration  in working  and living  conditions,  contrary  to the social  objectives  of the 
Treaty,  cannot  be  ruled  out  ...".  The  Court  also  pointed  to  the  existence  of  Council 
Directive  80/187/EEC  on  insolvency  protection,  which  is  deemed  to  cover  only 
liquidation, as further  evidence that such proceedings were intended to be an exception 
to the  application  of  the  transfers  Directive. 

23. 

In  the  light  of  these  considerations  and  taking  into  account  the  case  law  of  the  ECJ, 
the  need  to  conciliate  the  survival  of  insolvent  undertaking,  the  acquired  rights  of 
creditors  and  the  rights  of  employees,  notably  the  right  to  work,  the  Commission  is 
proposing  a  new  approach  for  the  transfers  as  going  concerns  of  undertakings, 
businesses  and  parts  of  businesses  in  the  context  of  pre-li qui dation  and  liquidation 
proceedings. 

24.  Member  States are free to apply  Articles 3(1, 2 and  3) and 4(1 and  2) of the Directive 
in cases where the undertaking,  business  or part  of  a business  being  transferred  is the 
subject  of  bankruptcy  proceedings,  proceedings  related 
to  the  winding-up  of 
insolvency  companies and analogous liquidation  proceedings instituted  with  a view to 
the  liquidation  of  the  assets  under  the  supervision  of  a  competent  authority. 

25. 

Conversely, the Directive's provisions will  apply  in cases of transfers  of undertakings, 
businesses  or parts  of businesses  in  the context  of  non-liquidation  proceedings,  such 
as  compositions,  judicial  arrangements,  administrative  receiverships,  suspension  of 

24 

25 

Lyon-Caen,  Grard,  "L'information  et la consultation  desreprsentants  des salaris 
dans  les  procdures  de faillites"  -  1988. 

Abels,  Case  135/83  (1985),  ECR  479 

Î 

payments  or  analogous  proceedings  instituted  with  a  view  to  ensuring  that  the 
undertaking  is  able to  continue  operating  in  the  future. 

26. 

Consequently,  where an undertaking,  a business or part of a business is transferred  as 
a  going  concern  in  the  framework  of  non-liquidation  proceedings,  the  contracts  of 
employment  or the employment  relationships  existing on the date of the transfer  shall 
be transferred  to the transferee.  This provision  will  not,  however,  prejudice  the right 
of  the transferor  or the transferee  to  alter  the terms  or  conditions  of  employment  or 
to make dismissals for economic, technical  or organizational  reasons entailing  changes 
in the workforce  (Article 4(l),final  sentence). 

However,  Member  States  need  not  apply  Article3(l)  with  respect  to  the  arrears  of 
payments, damages or any other liabilities  of the transfer  or arising from  the  contract 
of employment  or employment relationship before  the date of the transfer  itself in the 
case of transfers  effected  in the context  of  non-liquidation  proceedings  provided  that 
the transferor's  liabilities or part thereof which are not transferred  to the transferee  are 
subject to the protection laid down by Council Directive 80/987/EEC on the protection 
of  employees  in  the  event  of their  employers'insolvency  or  to  equivalent  protection, 
and  that  the  proceedings  in  question  are  supervised  by  a  competent  authority.  The 
Commission  is firmly  convinced  that  such  limitation  to the transferee's  responsibility 
will  ensure  the  transfer  of  the  undertaking  as  a  going  concern  and  guarantee  the 
maintenance  of employment  levels.  This was also the view expressed  in  the  Opinion 
of Advocate General  Sir Gordon Glynn delivered  on 8 November  1984 on Abels.  Thé 
Advocate General  stated  "if the Directive had made a clear provision  that  pre-existing 
debts were not the liability  of the transferee,  it would  go  some, perhaps  a  substantial, 
way to suggest that the risk of a potential  purchaser being deterred from  buying would 
be  reduced". 

The  proposal  will  also  allow  Member  States  to  empower  the  competent  judicial 
authorities to alter or  to terminate, in the framework  of non—liquidation  proceedings, 
contracts of employment  or employment  relationships to the extent justified  to  ensure 
the survival  of the undertaking.  The proposed  amendment  is in line with  the law and 
legislative proposals  existing in some Member  States.  The  Commission  believes that 
the intervention  of  a judicial  authority  and the  prescribed justification  of  the  measure 
-  the  survival  of the undertaking  - will  avoid  possible  abuses  and  arbitrary  decisions. 

Furthermore,  in  order  to  guarantee  the  survival  of  the  undertaking  or  business 
concerned, the proposal  provides the necessary  flexibility  by  allowing Member  States 
to permit the employees' representatives  and the employer  or,  as the  case may  be, the 
administrative  receiver,  administrator,  "syndic"  liquidator  or  similar  persons,  to  alter 
by  agreement  the terms and  conditions  of  employment  and  to  determine  whether  and 
to  what  extent  dismissals  may  take  place  for  economic,  technical  or  organisational 
reasons entailing changes in the workforce  in cases of transfers  effected  in the context 
of  insolvency  proceedings.  Where  such  an  agreement  is  concluded,  it  shall  be 
presumed,  unless  the  contrary  is  proved,  that  the  alteration  of  the  contracts  of 
employment  take place  in  order to guarantee  the  survival  of the undertaking  and  that 
the incumbent dismissals are effected  by economic, technical or organisational reasons. 
Such  a  provision  is  without  prejudice  to  the  rights  conferred  upon  employers  under 
Article  4(2)  of  the  Directive. 

27. 

28. 

29. 

There is no reason whatsoever for excluding the rights to information  and  consultation 
(Article6)  and  the  protection  of  employees'  representatives  (Article5)  in  the  context 
of insolvency.  Indeed,  such  rights  may be  extremely  valuable in  such  circumstances, 
giving  the  employees'representatives the  opportunity  to  make  proposals  for  avoiding 
insolvency  to  the  transferor  and  for  redeployment  to  the  transferee.  This  already 
occurs  in France,  the Federal  Republic  of  Germany,  the United  Kingdom,  Spain  and 
Denmark  with  respect  to  transfers  in  the  framework  of  liquidation  proceedings,  and 
in  all  Member  States  as regards  transfers  effected  in  pre-liquidation  proceedings. 

( m)  Applying the Directive to all public or private undertakings  carrying on activities 
of  an  economic  or  commercial  nature,  whether  or  not  they  are  intended  to 
operate  for  gain  (Article  1 (3)) 

30. 

The Directive itself does not include any  explicit definition  of the terms  "undertaking, 
business  or  part  of  a  business".  However,  in  a  series  of  cases,  the  Court  has  stated 
that  in  order  to  determine  the  existence  of  a  transfer  it  is  necessary  to  establish 
whether  wjiat  has  been  sold  is  an  economic  entity  which  is  still  inexistence.  In  its 
judgment  of  8  June  1994  in  Case  C-382/92  (not  yet  published),  the  Court  stated 
explicitly  that  undertakings  engaged  in  non-profit  making  activities  fall  within  the 
scope  of Directive. 

Consequently,  to remove any  shadow  of doubt,  it is recommended that  a provision  be 
included  in  the  Directive  stating  that  it  shall  apply  to  all  undertakings,  private  or 
public,  whether  or  not  they  are  operated  forgain. 

(IV)  Applying  the  Directive  to  sea-going  vessels  (Article  1 (4)) 

31. 

The survey of the laws of the Member States implementing the Directive indicates that 
France, Germany, Italy,  Spain, Portugal  and Ireland  have applied  the principles of the 
Directive to  sea-going  vessels.  The  Commission  considers  that  the provisions  of  the 
directive  relating  to  the  safeguarding  of  employees'  rights  (sectionll)  are  in  no  way 
incompatible  with  the  special  nature  of  the  contract  of  employment  or  employment 
relationships  of  crews  of  sea-going  vessels.  Their  exclusion  from  the  protection 
provided  by the Directive is not justifiable.  The fact  that the Directive  is intended  to 
safeguard  employees'  rights,  not  to  increase  them,  and  that  the  information  and 
consultation procedure is not imposed upon sea-going vessels, provides the appropriate 
flexibility  required  for  the  maritime  sector. 
It  should  be  noted  that  Council 
Directive80/987/EEC  relating  to  the  protection  of  employees  in  the  event  of  the 
insolvency  of  their  employer  26 also  applies  to  the  crews  of  sea-going  vessels  unless 
they  benefit  from  "the  existence  of  other  forms  of  guarantee  offering  the  employee 
protection  equivalent  to  that  resulting  from  this  Directive"  (Article  1(2)).  Only  the 
members  of  fishing  vessel  crews,  if  and  to  the  extent  that  they  are  remunerated  by  a 
share in the  profits,  have  been  expressly  excluded  by  Greece,  Ireland  and  the  United 
Kingdom  on the ground  of the special  nature  of the relationship  vis—vis the  objective 
(protection  of  wages)  of  the  Directive. 

(V) 

The  coverage  of  part-time,  fixed-duration  and  temporary  employees 

26 

OJNo  L  283/23  of  20.10.1980 

^ 

(Article  2  (2\) 

32. 

In Mikkelson  27, the  European  Court  of  Justice  held  that  tiie Directive  covers  only  a 
person  who  is  protected  by  national  law  as  an  "  employee"  and  whether  or  not  a 
person  is  so  protected  is for  the  national  courts.  This  decision  implies  that  national 
authorities  and  courts  may  give  a  narrow  interpretation  to  the  words  "contract  of 
employment  or employment  relationship"28.  The Commisstion report  to the  Council 
with  regard  to the implementation  of the transfers  Directive  29 shows there is  a wide 
variation  in the coverage of national  laws ratione personae.  As a result  of  relying on 
a  national  definition  rather  than  a  Community-wideone,  in  some  Member  States  the 
area  covered  by  the  Directive  is  likely  to  shrink  as  the  traditional  "contract  of 
employment" becomes less typical.This situation  seems undesirable and  consequently 
should  be remedied.  However the  Commission  considers,  after  long  discussions  with 
the  social  partners  and  national  experts,  that  the  introduction  of  a  Community-wide 
definition  for  the  sole  purposes  of  this  Directive  would  create  rather  than  solve  problems. 

In the light of the foregoing  considerations it is proposed that the Directive is without 
prejudice  to  national  laws  as  regards  the  definition  of  contract  of  employment  or 
employment  relationship.  However  Member  States  are  not  allowed  to  exclude 
part-time employees and fixed-duration  and temporary  employees, within the meaning 
of  Council  Directive91/383/ECC  30  on  the  sole  grounds  of  the  number  of  hours 
performed  or the  special  nature  of  such  relationships. 

(VI)  Definition  of  representatives  of  employees  (Article  2,  paragraph  1,  c) 

33. 

The  definition  of  "representatives  of  the  employees"  in  the  current  version  of  the 
Directive  is that  provided  for  by the laws  or  practice  of the Member  States, but  with 
the  proviso  that  employee  representatives  or  company  administrative,  governing  or 
supervisory  bodies  are  not  included.  This  proviso  does  not  apply  to  the  similar 
definition  contained  in  the  collective  redundancies  Directive.  When  the  Commission 
consulted  the  social  partners  and  national  experts  from  Member  States  governments 
about  bringing  the  two  definitions  into  line,  the  preference  was  for  omitting  the 
proviso  in  the  transfers  Directive  rather  than  adding  it  to  the  definition  in  the 
collective  redundancies  Directive  (e.g.  members  of  a Works  Council  who  might  also 
sit  on  a  company  board  representing  the  employees). 

27 

28 

29 

30 

Case  105/84,  Judgement  of  11 July  1985  (1985 

Wendelboe,  Case  19/83  of  7 February  1985  (1985  ECR  457) 

SEC  (92)  857  final  of  2 June  1992 

Council  Directive  of  25  June  1991  supplementing  the  measures  toencourage 
improvements in the safety  and health  at work of workerswith  a  fixed-duration 
employment  relationship  or  a temporaryemployment  relationship 

/z. 

b) 

Safeguarding  of  employees'  rights 

(I) 

Joint  liability  of  transferor  or  transferee  (Article  3  (1)) 

34. 

35 

(H) 

36. 

The second  subparagraph  of Article  3(1)  of the  current  text  gives  Member  States  the 
option  of providing for  the joint  liability  of transferor  and transferee  in  respect  of the 
rights and obligations.  A survey  of the laws of the Member  States (Synthesis  Report, 
January  1990)  indicates  that  seven  Member  States  (Spain,  France,  Greece,  Italy,  the 
Netherlands,Portugal  and  Germany)  have  adopted  some  form  or  other  of  co-liability 
rule  so that  the  transferor  continues  to  be  liable  for  pre-transfer  debts,  together  with 
the  transferee.  The  remaining  five  Member  States  (Belgium,  Denmark,  Ireland, 
Luxembourg  and  the  United  Kingdom)  have  not  adopted  such  a  rule  so  only  the 
transferee  is liable.  Those States which provide for  co-liability  adopt different  periods 
during which the transferor  may  remain jointly  liable.  In  Spain,  it is three years, and 
in  the Netherlands  and  Germany  one  year  from  the  date  of  transfer. 
In  France  and 
In  Portugal  and  Italy  there  are  some 
Greece  there  appears  to  be  no  time  limit. 
limitations  on the transferee's  liability  which  appear  to be incompatible  with  the  first 
subparagraph  of  Article 3(1)  of the Directive.  In Portugal  the transferee  is liable  for 
pre-transfer  debts which  arose within  a six-month  period  before  the transfer.  In Italy 
the  transferee  is  jointly  liable  only  if  he  knew  at  the  time  of  the  transfer  of  the 
existence  of the pre-transfer  debts or if they  are registered  in  the books  of  account  or 
in  the  register  of  employment  ("libretto  di  lavoro")  of  the  transferor. 

These  wide  variations  in  national  law  and  practice  expose  one  of  the  weaknesses  of 
the Directive  as a measure  of  harmonisation. 

The  Commission  considers  that  the  aims  to  be  attained  by  the  Directive  and,  in 
particular,  the  protection  of  employees  and  the  need  to  promote  fair  competition 
between  Community  undertakings,  require  a  flexible  approximation  of  the  joint 
liability  provisions  already  in force  in  most Member  States.The  proposed  Article 3.1. 
(paragraph  2)  therefore  makes  the  rule  of joint  liability  for  transferor  and  transferee 
obligatory  in  respect  of  obligations  arising  from  a  contract  of  employment  or 
employment  relationship,  but  allows  the  Member  States  to  limit  the  transferor's 
obligations to those which  arose before  the date of the transfer  and  fall  due within  the 
first  year  following  that  date. 

The  preservation  of  the  status  and  functions  of  the  employees'  representatives 
(Article  5) 

Article  5  of  the  transfer  Directive  prescribes  a  legal  duty  to  preserve  the  status  and 
functions  of  employees'  representatives  or  of  employer  representation  "as laid  down 
by the laws,  regulations or administrative  provisions  of Member  States".  Article  5(1) 
is  rephrased  to  emphasise  the  abovementioned  legal  duty,  to  extend  it  to  situations 
where  the  employee  representation  is  laid  down  by  agreement  and  to  limit  such  an 
obligation  to  cases  where  the  conditions  necessary  for  the  existence  of  employees' 
representatives  or  of  employee  representation  are  fulfilled. 

37. 

The rule of Article 5(1) of the existing Directive applies only if the business  preserves 
its  "autonomy"  by  remaining  an  entity  likely  to  operate  independently  and  it  is  not 

a 

absorbed  into  a  wider  and  more  complex  operational  entity.  The  Commission 
considers  that  a  new  paragraph  should  be  introduced  so  as  to  guarantee  the 
representation  of  employees  transferred  when  the  business  does  not  preserve  its 
autonomy  and 
the  existence  of  employee 
representatives  are  fulfilled. 

the  national  conditions  requiring 

c) 

Information  and  consultation  (Section  III) 

(I) 

38. 

39. 

40. 

Ensuring  the  enforcement  of  the  Directive  where  the  decision  leading  to  the 
transfer  is  taken  by  an  undertaking  other  than  the  employer  (Article  6  (4)) 

The transfers Directive applies where the transferred  undertaking is situated within the 
territorial  scope  of  the  Treaty,  even  where  the  transferor  or  the  transferee  is  a 
controlled undertaking or is part of a multi-establishment  undertaking and the decision 
leading to the transfer  is taken by the controlling undertaking  or,  as the case  may be, 
by  the  central  administration  of  the  multi-establishment  undertaking. 

The  changes  proposed  here  aim  to  ensure  that  the  transfers  Directive  is  enforced  in 
cases  involving  transnational  undertakings  and  associated  undertakings.  Thus,  the 
laid  down  by  the  directive  apply 
information  and  consultation  requirements 
irrespective of whether the decisions leading to the transfers  are taken by the employer 
himself,  by  a  controlling  undertaking  or  by  the  central  administration  of  a 
multi-establishment  undertaking.  In  order  to  reinforce  this  key  obligation  an 
employer's failure  to comply with the directive's requirements  cannot be condoned  on 
the  grounds  that  the  undertaking  taking  the  decision  leading  to  the  transfer  failed  to 
inform  the  employer  in  due time. 

It  should be  emphasized  that the revised  text  does not  directly  impose  any  obligation 
on  controlling  undertakings  as  such.  Problems  of  extra  territoriality  are  therefore 
avoided.  It  should  also be noted  that the Commission  is not  proposing  a  mechanism 
(as envisaged under the original  draft  of the 'Vredeling' directive) whereby  employees 
would have the right to seek consultation with the  undertaking's central  administration 
or with the management of a  controlling undertaking (the so-called  'by-pass' system). 

(H)  Designation  of  employees'  representatives  for  information  and  consultation 

purposes  (Article  6 (5)) 

41. 

The transfers Directive imposes on Member  States a general  obligation  to provide  for 
employees'  representatives  for  the  purposes  of  the  information  and  consultation 
procedures  referred  to therein,  but  leaves the  definition  of  employees'  representatives 
to "national  law and practice". However,  Article 6 (4) of the transfers  Directive  limits 
the  obligation  to  inform  and  consult  the  employees'  representatives  provided  for  by 
national law or practice "to undertakings or businesses which, in respect of the number 
of employees, fulfil  the conditions for the election  or designation  of a collegiate body 
representing  the  employees".This  exception  allows  some  Member  States  to  exclude 
from 
the  information  and  consultation  procedures  undertakings  or  businesses 
employing  less  than  150  employees  (Luxembourg);  100  employees  (Belgium);  50 
employees  (Greece,  Spain,  France);  35  employees  (Netherlands  and  Denmark);  20 
employees  (Federal  Republic  of  Germany);  15  employees  (Italy);  in  Portugal,  no 

M 

threshold  is foreseen  (see Annex III).  Other Member  States, however,  such as Ireland 
and  the United  Kingdom  where  there  are  no  statutory  collegiate  bodies  representing 
the  employees,  were  not  allowed  to  derogate  from  Article  6  (1),  (2)  and  (3).  This 
position  was upheld  by  the Court  of Justice  in  its  recent judgment  in  Case  C-382/92 
(not yet  published). 

Consequently,  small undertakings in the UK  and Ireland were  obliged  to inform  and 
consult the employees' representatives  on the legal,  economic  and  social  implications 
of  the  transfer,  whereas  in  the  other  Member  States  the  obligation  to  inform  and 
consult  could  be  limited  to  undertakings  having  collegiate  bodies  representing 
employees. 

In  the  light  of  these  considerations  and  in  order  to  allow  for  the  harmonisation  of 
working  conditions  while  their  improvement  is  maintained,  to  alleviate  the  legal 
constraints  imposed  upon  small  undertakings  and  to  reduce  differences  which  still 
exist  in  the Member  States  and  are bound  to  have  a  direct  effect  on  the  functioning 
of  the internal  market,  the proposed  revision  amends  Article  6 (4) and  (5).  The aim 
of the revision  is to limit the faculty  of  Member  States  not  to  apply  paragraphs  1, 2 
and 3 of Article 6 to undertakings having less than  50 employees or if employing  less 
than  50  employees  having  no  Works  Council.  Furthermore,  the  proposed  revision 
obliges  the  employer  to  inform  the  employees  in  advance  where  there  are  no 
employees'  representatives. 

<i) 

Final  provisions 

(I)  More  favourable  provisions  (Article  7) 

42. 

The  original  text  is supplemented  by  the  proviso  "or to  promote  or  allow  collective 
agreements  or agreements between  social  partners more favourable  to employees"  to 
take  into  account  the  establishment  of  more  favourable  conditions  via  collective 
bargaining. 

(U) 

Failure  to  comply  (Article  8) 

43. 

The  Directive  does  not  lay  down  any  particular  procedures  or  sanctions  for 
non-compliance with the requirements, in particular those to inform  and consult.  The 
Directive  is, of  course,  subject  to the general  principles  of  Community  law  including 
the  principles  of  effectiveness  and  non-discrimination.  It is  proposed,  in  the  interest 
of  clarifying  the  obligations  of  the Member  States,  that  the  Directive  should  contain 
an express provision  along the lines of Article  8(1)  of Council  Directive  91/533/EEC 
of  19 October  1991 concerning the employer's  obligation  to inform  the worker  on the 
conditions applicable  to the contract of employment or employment  relationship.  This 
position was endorsed by the Court of Justice in its recent judgment  in Case C-3 82/92 
(not yet  published). 

( m) 

Implementation  by  collective  agreement  (Article  9) 

44. 

It  is proposed  to  introduce  an  explicit  provision  allowing  for  the  implementation  of 
the  directive  by  collective  agreement,  in  line  with  other  recent  proposals  for  labour 

h 

law Directives. 

(IV)  Repeal  of  Directive  77/187/EEC 

45. 

Finally,  the  Commission  feels  that,  in  the  interests  of  clarity,  rather  than  amend  the 
existing Directive,  it would  be  preferable  to  replace  it with  a new  text. 

Legal  basis 

46.  Member  States'  legislation  on  transfers  of  undertakings  has  been  harmonised  by. 
Council  Directive  77/187/EEC  on  transfers  of  undertakings,  businesses  or  parts  of 
businesses.  Consequently,  any  amendments  to  the  Directive's  provisions  aimed  at 
allowing  for  greater  flexibility  in  the  case  of  transfers  effected  in  the  framework  of 
insolvency  proceedings,  clarifying  the  existing  Directive's  scope  and  definitions, 
providing  expressively  for  the  application  of  the  Directive's  requirements 
to 
transnational  transfer  decisions  and  to  groups  of  undertakings  and,  in  general, 
approximating  the  laws  of  the  Member  States  affecting  the  functioning  of  the 
Common  Market,  have to be  made through  Community  legislation. 

47. 

Article  100 of  the EC  Treaty  provides  the  legal  basis  for  the  existing  directive.  The 
same  legal  basis  will  also  apply  to  the  proposed  text,  as the  derogation  provided  for 
by  ArticlelOOa is not  applicable  here. 

JUSTIFICATION  WITH  REGARD  TO  THE  PRINCIPLE  OF  SUBSIDIARITY 

(a)  What  are  the  objectives  of  the  proposed  measure,  and  how  do  they  relate  to  the 

Community's  obligations? 

Harmonisation  of the legislation  of the Member  States is covered by Council  Directive 
77/187/EEC,  which  means  that  this  area  is  part  of  the  acquis  communautaire. 
Consequently,  any  amendments to the provisions of the existing Directive (other than 
those  under  Article  7 thereof),  must  be  effected  through  Community  legislation. 

The  objective  of  this  proposal  is  to  revise  Council  Directive  77/187/EEC  of 
14 February  1977  in  the  light  of  the  impact  of  the  internal  market,  the  legislative 
tendencies  of  the  Member  States  with  regard  to  the  rescue  of  undertakings  in 
economic  difficulties,  the  case  law  of  the  European  Court  of  Justice,  the  adopted 
revision of the Directive on collective redundancies and the legislation  already  in  force 
in  most  Member  States. 

(b) 

Is the  measure  in  an  area  where  the  Community  has  sole jurisdiction? 

No.  Article  100  of  the EC  Treaty. 

(c)  What  is the  scale  of  the  problem? 

In  order  to  fill  a  number  of  gaps  in  the  existing  Directive,  it  is  necessary  to  update 
various  points  by: 

ié 

- 

- 

- 

- 

clarifying  application  of  the Directive's  requirements  to  transnational  transfer 
decisions  and  to groups  of  undertakings; 

allowing  for  greater  flexibility  in  cases  of  transfers  effected  in  the  context  of 
insolvency  proceedings; 

reformulating  and  clarifying  the  existing  Directive's  scope  and  definitions; 

clarifying  legislation  where  only  an  activity  of  an  undertaking  is  transferred. 

(d)  What would  be the  most  effective  solution  among  those  available  to the  Community 

and  the Member  States? 

In  view  of  the  establishing  of  the  internal  market,  national  legislation  has  to  be 
harmonised  in  order  to  protect  workers  in  the  event  of  a  change  in  the  head  of  an 
undertaking,  particularly  with  a view  to  safeguarding  their  rights. 

(e)  What  practical  gains  does the proposed  measure  offer  and  what  would  be  the  cost of 

failure  to take  action? 

The  proposal  for  a  Directive  provides  clarity  and  transparency,  as  well  as  legal 
certainty  in a relatively  complex  area concerned  with the essential  interests  and  rights 
of workers. 
It would  seem  unacceptable  for the Community  not to take action.  It  should  also take 
steps  with  a  view  to  providing  an  equal  level  of  protection  for  all  workers  in  the 
• European  Union. 

(f)(g)  - 
- 

What  options  are  available  to  the  Community? 
Are  uniform  rules  needed,  or  is  the  adoption  of  a  directive  setting  out  the 
general objectives and leaving implementation to the Member States  sufficient? 

A  directive  is  the  appropriate  way  to  achieve  the  objective  of  harmonisation  of 
national  legislation. 

} 

A N N E X! 

European  Court  of Justice's  Judgments  on the transfers  of undertaking  Directive 

Wendelboe,  Case  19/83 of 7 February  1985, (1985) ECR 457 

Abels,  Case  135/83  of 7 February  1985, (1985)  ECR 479 

Industriebond  FNV, Case  179/83  of 8 November  1984, 
(1985)  ECR  512 and 513 

Botzen,  Case  186/83  of 8 November  1984, (1985) ECR 520 and 523 

A/S Danmols Inventar,  Case  105/84  of  11 July 1985, 
(1985) ECR  2639  and  2654 

Republique italienne,  Case  235/84  of  10 July  1986, 
(1986) ECR 2291  and 2304 

Royaume  de Belgique,  Case  237/84  of  14 April  1986, 
(1986) ECR  1247 and 1257 

Spijkers,  Case  24/85  of  18 March  1986, (1986)  ECR  1119 and 1130 

Zaera,  Case  126/86  of  11 June  1987, (1987)  ECR 3697 

NY  Moelle KRO, Case  287/86  of  17 December  1987, (1987) ECR 5465 

Daddy's Dance Hall,  Case  324/86  of  10 February  1988, 
(1988)  ECR 739 

Bork,  Case  101/87  of  15 June  1988, (1988)  ECR 3057 

Berg  & Busschers,  Case  144 and  145/87  of  5 May  1988, (1988)  ECR 2559 

Antonissen,  Case  292/89  of 8 Novembre  1990, (1991)  ECR 0 

Ercoie  Marelli,  Case  362/89  of 25 July  1991, CoJEC  91, 1-4105 es. 

Redmont  Stichting,  Case  29/91 of  19 May  1992, CoJCE  92, 1-3189 es. 

Anne  Watson,  Case  C209/91  of  12 Nov.  1992, CoJCE  92, 1-5755 es. 

Schmidt,  Case  C392/92  of  14 April  1994. Not yet  published. 

Commission  v United  Kingdom  C 382/92  of  8 June  1994. Not yet  published. 

fl 

ANNEX II 

Comparison of Directives 75/129, 77/187 and 80/987 

Situation 
(concept 
criteria 

Definition 
of 
employees 

Numbers 
of 
employers 

Respect 
of 
• 
acquired 
rights 

Acquired 
rights 
(employ 
ment 
relation 
ship 

Informa 
tion and 
consulta 
tion of 
employees' 
represent 
ees 

Authori 
ties 
involved 

Law 
applic 
able 

Collective 
redun 
dancy 

Transfer 

In 
solvency 

no 
definition 

+  1 only 

no 
provision 

no 
provision 

provided 
for 

Govern 
ment 

1980 
agreement 

no 
definition 

no 
definition 

2 

all rights 

provisions 

+  1  only 

all rights 

provisions 

provided 
for 

not 
provided 

none 

Guaran 
teed 
institution 

1980 
agreement 

agreement 
to be 
reached 
on bank 
ruptcy + 
1980 
agreement 

/? 

ANNEX  m 

Workforce Size Thresholds 

Numbers of Works Councillors in Member States 
with obligatory Works Councils 

Country 

BELGIUM 

DENMARK 

GERMANY 

FRANCE 

GREECE 

ITALY 

LUXEMBURG 

NETHERLANDS 

PORTUGAL 

SPAIN 

Workforce Size 
Thresholds 

Number of Works Councils 

Source 

Minimum 

Maximum 

100 

30 

5 

50 

50 

15 

150 

35 

No threshold 

50 

6 

-

1 

3 

3 

-

1 

3 

3 

5 

25 

15 

7 

25 

11 

75 

legislation 

legislation 

legislation 

legislation 

legislation 

legislation 

legislation 

legislation 

legislation 

legislation 

Z£± 

ANNEX IV 

The establishment  of Works Councils 

Country 

BELGIUM 

DENMARK 

GERMANY 

FRANCE 

GREECE 

ITALY 

LUXEMBURG 

NETHERLANDS 

PORTUGAL 

SPAIN 

Mandatory 

Triggered  by  workforce 

s 

; 

* 

* 

* 

* 

* 

* 

* 

* 

* 

& 

Proposal for a Council Directive 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 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
100 thereof. 

Having regard to the Proposal  from  the Commission1 

Having regard to the opinion of the European Parliament2 

Having regard to the opinion  of the Economic and Social Committee3 

Whereas  Council  Directive  77/187/EEC  concerns  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 businesses4; whereas, in the interests of clarity, rather than 
amend the existing Directive, it would be preferable  to replace it with a new text; 

Whereas the Community  Charter  of the Fundamental  Social Rights of Workers adopted by 
the  Heads  of  State  or  Government  of  eleven  Member  States  at  the  Strasbourg  European 
Council  on  9 December  1989  states,  at point  7, first paragraph,  first  sentence  and  second 
paragraph,  point  17, first paragraph and point  18(ii) that: 

"7. 

17. 

The completion of the internal market must lead to an improvement in the living and 
working conditions of workers in the European Community.  The improvement must 
cover, where necessary, the development of certain aspects of employment regulations 
such as procedures for  collective redundancies and those regarding bankruptcies. 

Information,  consultation  and  participation  for  workers  must  be  developed  along 
appropriate  lines,  taking  account  of  the  practices  in  force  in  the  various  Member 
States. 

18. 

Such  information,  consultation  and  participation  must  be implemented  in  due time, 
particularly  in the following  cases: 

O J N 0 L 6I  of  5.3.77, p. 26 

22-

in  connection  with  restructuring  operations  in  undertakings  or  in  cases  of 
mergers  having  an  impact  on  the  employment  of  workers;" 

Whereas  Council  Directive  77/187/EEC  of  17  February  1977  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 promotes the harmonisation  of the 
relevant  national  laws  ensuring  the  safeguarding  of  the  right  of  transferred  employees  and 
requiring transferors  and transferees  to inform  and consult employees' representatives  in good 
time; 

Whereas  the  purpose  of  this  proposal  is  to  amend  Council  Directive  77/187/EEC  of  14 
February  1977  in the light  of the  impact  of the  internal  market,  the  legislative  tendencies  of 
the Member States with regard to the rescue of undertakings in economic difficulties,  the case 
law  of  the  European  Court  of  Justice,  the  adopted  revision  of  the  Directive  on  collective 
redundancies  and  the  legislation  already  in  force  in  most  Member  States; 

Whereas  considerations  of  legal  security  and  transparency  require  that  the  legal  concept  of 
transfer  be  clarified  in  the  light  of  the  case  law  of  the  Court  of  Justice  of  the  European 
Communities; whereas such a concept must cover any transfer  of an undertaking,  business or 
part  of  a  business  to  another  employer  effected  by  means  of  contract,  deed,  administrative 
measure, judicial  decision  or  operation  of  law,  including  mergers  and  divisions; 

Whereas the considerations of legal  security and transparency  also require that it be  expressly 
provided,  in the  light  of the  case  law  of  the  Court  of  Justice  of  the European  Communities, 
that  the  Directive  should  apply  to  private  and  public  undertakings  carrying  out  economic 
activities, whether  or  not  they  operate  for  gain; 

Whereas the considerations  of legal  security  and transparency  also demand,  in the light of the 
case  law  of  the  Court  of  Justice  of  the  European  Communities,  that  a  clear  distinction  be 
made between transfers  of undertakings,  businesses  or parts  of businesses  and  the transfer  of 
only  an activity  of an undertaking; whereas cases where the transfer  of only  an activity  is not 
accompanied  by  the  transfer  of  an  economic  entity  which  retains  its  identity  after  the  said 
transfer  should  be  excluded  from  the  scope  of  the Directive; 

Whereas considerations of flexibility justify  the exclusion  of sea-going vessels from  the scope 
of  Section  III  of the  Directive,  but  not  from  its  other  provisions; 

Whereas  a  minimal  harmonisation  of  the  concept  of  "employee"  is  necessary  in  order  that 
there  may  be  a uniform  application  of  the Directive  in  the  different  Member  States; 

Whereas  differences  still  remain  between the Member  States' legislation  concerning  the joint 
liability  of the  transferor  and  the  transferee; 

Whereas,  with  a  view  to  ensuring  the  survival  of  insolvent  undertakings,  Member  States 
should  be  expressly  allowed  not  to  apply  Articles  3  and  4  of  the  Directive  to  transfers 
effected  in  the  framework  of  liquidation  proceedings,  and  certain  derogations  from  the 
Directive's  general  provisions  -should  be  permitted  in  the  case  of  transfers  effected  in  the 
context  of  insolvency  pre-li qui dation  proceedings;  whereas  such  provisions  constitute  a 
measure  of  deregulation  in  comparison  with  the  existing  legal  situation; 

23 

Whereas  the  circumstances  in  which  the function  and  status  of  employee  representatives  are 
to  be  preserved  should  be  clarified; 

Whereas, in order to ensure equal treatment of similar situations, it is necessary  to ensure that 
the information  and consultation  requirements laid down in Council Directive 77/187/EEC are 
complied  with  irrespective  of  whether  the  decision  leading  to  the  transfer  is  taken  by  the 
employer  or by  an  undertaking  controlling  the  employer; 

Whereas  the  Member  States'  faculty  not  to  apply  the  information  and  consultation 
requirements  to  certain  undertakings  on  grounds  of  workforce  size  thresholds  must  be 
clarified; 

Whereas  it  is  necessary  to  clarify  the  circumstances  in  which  employees  must  be  informed 
where there  are no  employee  representatives; 

Whereas considerations  of efficacy  require that the Member  States take appropriate  measures 
in  the  event  of  failure  to  comply  with  this  Directive; 

Whereas  the  present  Directive  shall  be  without  prejudice  to  the  Member  States'  obligations 
concerning  the  deadline  for  transposai  of Directive77/187/EEC  indicated  in  Annex  I; 

HAS  ADOPTED  THIS  DIRECTIVE: 

SECTION  1 

Scope  and  definitions 

Article  1 

1. 

This  Directive  shall  apply  to  the  transfer  of  an  undertaking,  business  or  part  of  a 
business  to  another  employer  effected  by  contract  or  by  some  other  disposition  or 
operation  of  law, judicial  decision  or  administrative  measure. 

The transfer  of an activity which is accompanied  by the transfer  of an economic entity 
which  retains  its  identity  shall  be  deemed  to be  a transfer  within  the  meaning  of  this 
Directive.  The  transfer  of  only  an  activity  of  an  undertaking,  business  or  part  of  a 
business,  whether  or  not  it  was  previously  carried  out  directly,  does  not  in  itself 
constitute  a transfer  within  the  meaning  of  the  Directive. 

2. 

3. 

This Directive  shall  apply  where an insofar  as the undertaking,  business or part of the 
business  to be  transferred  is  situated  within  the  territorial  scope  of  the  Treaty. 

This  Directive  shall  apply  to  public  or  private  undertakings  engaged  in  economic 
activities  whether  or  not  they  are  operated  for  gain. 

^H 

4. 

5. 

Member  States  need  not  apply  Section  III  of  this  Directive  to  sea-going  vessels. 

The  Member  States  need  not  apply  Articles  3 ( 1 ,2  and  3)  and  4  (1  and  2)  of  this 
Directive  in  cases  where  the  undertaking,  business  or  part  of  a  business  being 
transferred 
is  the  subject  of  bankruptcy  proceedings  or  any  other  analagous 
proceedings  instituted  with  a view to the liquidation  of the assets of  a natural  or legal 
person  and  under  the  supervision  of  a  competent  public  authority. 

1. 

For  the  purposes  of  this  Directive: 

Article  2 

a) 

b) 

c) 

"transferor"  means  any  natural  or  legal  person  who,  by  reason  of  a  transfer 
within the meaning  of Article  1(1), ceases to be the employer  in  respect  of the 
undertaking,  business  or  part  of  the  business; 

"transferee"  means  any  natural  or  legal  person  who,  by  reason  of  a  transfer 
within  the  meaning  of  Article  1(1),  becomes  the  employer  in  respect  of  the 
undertaking,  business  or  part  of  the business; 

"representatives of the employees"  means the representatives  of the  employees 
provided  for  by  the  laws  or  practice  of  the Member  States. 

2. 

This Directive is without prejudice  to national  law as regards the definition  of contract 
of  employment  or  employment  relationship.  However,  Member  States  shall  not 
exclude  from  the  scope  of  this  Directive  contracts  of  employment  or  employment 
relationships  solely  because: 

(a) 

of  the  number  of  working  hours  performed  or to  be  performed,  or 

(b) 

they  are  employment  relationships  governed  by  a  fixed-duration  contract  of 
employment  within  the  meaning  of  Article  1(1)  of  Council  Directive 
91/383/EEC,  aimed  at  encouraging  improvements  in  the  safety  and  health  of 
workers  with  a  fixed-duration  employment  relationship  or  a  temporary 
employment  relationship  5 , 

(c) 

they  are  temporary  employment  relationships  within  the  meaning  of  Article 
1(2)  of  Council  Directive  91/383/EEC. 

SECTION  II 

Safeguarding  of  employees'  rights 

Article 3 

1. 

The transferor's  rights and  obligations  arising from  a contract  of employment  or  from 

O J N oL  206  of  29.7.91,  p.  19 

?\ 

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. 

Member  States  shall  provide  that,  after  the  date  of  transfer  within  the  meaning  of 
Article  1(1) and in addition  to the transferee,  the transferor  shall  continue to be liable 
in  respect  of  obligations  which  arose from  a contract  of  employment  or  employment 
relationship. However,  in respect of obligations that fall  due after  the date of  transfer, 
the  transferor  shall  be  liable  only  to  the  extent  corresponding  to  the  portion  of  the 
relevant  period  which  expired  on  the  date  of  the  transfer.  Member  States  may  limit 
the  transferor's joint  liability  to  those  obligations  which  arose  before  the  date  of  the 
transfer  and  fall  due  within  the  first  year  following  that  date. 

2. 

3. 

Following the transfer within the meaning of Article  1(1), the transferee  shall  continue 
to  observe  the  terms  and  conditions  agreed  in  any  collective  agreement  on  the  same 
terms  applicable  to  the transferor  under  that  agreement,  until  the  date  of  termination 
or expiry  of the  collective  agreement  or the  entry  into force  or  application  of  another 
collective  agreement. 

Member  States may  limit the period for  observing  such terms and  conditions with  the 
proviso that  it  shall  not  be  less than  one  year. 

Paragraphs  1  and  2  shall  not  cover  employees'  rights  to  old  age,  invalidity  or 
survivors' benefits  under  supplementary  company  or inter—company  pension  schemes 
outside the  statutory  social  security  schemes  in Member  States. Member  States  shall 
adopt the  measures  necessary  to protect  the interests  of  employees  and  of  persons no 
longer employed  in the transferor's  business at the time of the transfer  in the meaning 
of  Article  1(1)  in  respect  of  rights  conferring  on  them  immediate  or  prospective 
entitlement  to  old  age  benefits,  including  survivors'  benefits  under  supplementary 
schemes  referred  tô  in the  first  subparagraph. 

U  Notwithstanding  paragraphs  1, 2 and  3 of this Article, the laws  of the Member  States 
may  provide that  the transferor's  debts - arising  from  a contract  of  employment  or an 
employment  relationship - due before the transfer  or before  the opening of  insolvency 
proceedings,  shall  not be transferred  to the transferee  in  cases of transfers  effected  in 
the context of insolvency  proceedings other than the proceedings mentioned  in  Article 
1(5),  such  as  administration  or judicial  arrangements,  compositions,  suspension  of 
payments,  or  other  analogous  non-liquidation  proceedings,  provided  that  such 
proceedings: 

(a) 

(b) 

are  conducted  under  the  supervision  of  a  competent  public  authority,  which 
may  be an insolvency  practitioner  authorised  by  a competent  public  authority, 
and, 
give  rise,  according  to the legislation  of the  Member  State  in  question,  to  the 
protection  laid  down  by its national  law,  ensuring a level  of  protection  at least 
equivalent  to  that  provided  for  by  Council  Directive  80/987/EEC  on  the 
approximation  of  the  laws  of  the Member  States  relating  to  the  protection  of 
employees  in  the  event  of  the  insolvency  of  their  employer6  . 

O J N o L 2 83  of  28.10.80,  p. 23-. 

2é 

1. 

2. 

3. 

4. 

5. 

1. 

Article  4 

The  transfer  of  an  undertaking,  business  or  part  of  a  business  shall  not  in  itself 
constitute grounds for dismissal by the transferor  or the transferee.  This provision shall 
not  stand  in  the  way  of  dismissals  that  may  take  pace  for  economic,  technical  or 
organisational  reasons entailing changes in the workforce. Member  States may provide 
that  the  first  subparagraph  shall  not apply  to certain  specific  categories  of  employees 
who  are  not  covered  by  the  laws  or  practice  of  the  Member  States  in  respect  of 
protection  agains  dismissal. 

If  the  contract  of  employment  or the  employment, relationship  is terminated  because 
the  transfer  within  the  meaning  of  Article  1(1)  involves  a  substantial  change  in 
working  conditions  to  the  detriment  of  the  employee  the  employer  shall  be  regarded 
as  having  been  responsible  for  termination  of  the  contract  of  employment  or  of  the 
employment  relationship. 

Notwithstanding  Article  3(1, 2 and  3), the  laws  of  the Member  States  may  allow  the 
employer or the person  or persons exercising the employer's powers, on the one hand, 
and  the  employees'  representatives,  on  the  other  hand,  to  change  the  terms  and 
conditions  of  employment  by  an  agreement  concluded  as  a  means  of  ensuring  the 
survival  of an undertaking,  business or part of a business transferred  in the context  of 
the  proceedings  referred  to  in  Article  3(4).  Such  an  agreement  may  also  determine 
whether  and  to  what  extent  dismissals  may  take  place  for  economic,  technical  or 
organisational  reasons  entailing  changes  in  the  workforce. 

Without  prejudice  to  paragraph  2  of  this  Article,  where  the  agreement  referred  to  in 
paragraph  3 is concluded,  it shall be presumed, unless proved  to the contrary,  that the 
alteration  of the terms  and  conditions  of employment  is made as a means  of  ensuring 
the survival  of the transferred  undertaking,  business  or part  of  a business  and  that the 
dismissals  concerned  are effected  for  economic,  technical  and  organisational  reasons, 
entailing  changes  in  the work  force. 

The Member States may confer  on the competent judicial  authorities the power to alter 
or terminate contracts of employment or employment relationships existing on the date 
of a transfer  effected  in the framework  of insolvency  proceedings referred  to in Article 
3(4) to  ensure the  survival  of  the  undertaking,  business  or  part  of  a business. 

Article  5 

If  the  business  preserves  its  autonomy,  the  status  and  function  of  there  presentatives 
or of the representation  of the employees affected  by a transfer  within  the meaning of 
Article  1 shall  be  preserved  on the  same terms  and  subject  to the  same  conditions  as 
existed  before  the  date  of  the  transfer  by  virtue  of  law,  regulation,  administrative 
provision  or  agreement,  provided  that  the  conditions  necessary  for  the  constitution 
ofthe  employees' representation  are fulfilled.  The first subparagraph  shall  not apply  if, 
under the laws, regulations, adminstrative provisions or practice in the Member States, 
or by  agreement  with  the  representatives  of  the  employees,  the  conditions  necessary 
for  the reappointment  of the representatives  of the employees  or for the reconstitution 
of the  representation  ofthe  employees  are fulfilled.  If the business  does not  preserve 

^ 

its  autonomy  and  provided  that  the  conditions  necessary  for  the  constitution  of  the 
representation  of  the  employees  are  fulfilled,  the  Member  States  shall  take  the 
necessary  measures  to  ensure  that  the  employees  transferred,  who  were  represented 
before  the transfer,  continue  to be properly  represented  during the  period  prior  to the 
reconstitution  or  reappointment  of  the  representation  of  employees. 

If  the  term  of  office  of  the  representatives  of  the  employees  affected  by  a  transfer 
within  the  meaning  of  Article  1(1)  expires  as  a  result  of  the  transfer, 
the 
representatives shall continue to enjoy the protection provided by the laws, regulations, 
administrative  provisions  or  practice  of  the  Member  States. 

SECTION  III 

Information  and  consultation 

Article  6 

1. 

The  transferor  and  the  transferee  shall  be  required  to  inform  the  representatives  of 
employees  affected  by  a transfer  within  the meaning  of  Article  1(1) ofthe  following: 

the  reasons  for  the  transfer, 
the legal,  economic  and  social  implications  of  the transfer  for  the  employees, 
any  measures  envisaged  in  relation  to the  employees. 

The transferor  must give  such  information  to the  representatives  of  his employees  in 
good time before the transfer  is carried  out. The transferee  must give such  information 
to  the  representatives  of  his  employees  in  good  time,  and  in  any  event  before  his 
employees are directly  affected  by the transfer  as regards their conditions of work and 
employment. 

2. 

3. 

4. 

If  the  transferor  or the  tranferee  envisages  measures  in  relation  to  his  employees,  he 
shall  consult the representatives of his employees  in good time on such  measures with 
a view  to  reaching  an  agreement. 

Member  States  whose  laws,  regulations  or  administrative  provisions  provide  that 
representatives  ofthe  employees  may  have  recourse  to  an  arbitration  borad  to  obtain 
a  decision  on  the  measures  to  be  taken  in  relation  to  employees  may  limit  the 
obligations  laid  down  in  paragraphs  1 and  2  to  cases  where  the  transfer  carried  out 
gives  rise  to  a  change  in  the  business  likely  to  entail  serious  disadvantages  for  a 
considerable  number  ofthe  employees.The information  and  consultations  shall  cover 
at least the measures envisaged  in relation  to the employees.  The information  must be 
provided  and  consultations  take  place  in  goodtime  before  the  change  in  the  business 
as  referred  to  in  the  first  subparagraph  is  effected. 

The  obligations  laid  down  in  this  Article  shall  apply  irrespective  of  whether  the 
decision  leading the transfer  is taken by the employer or by an undertaking  controlling 
the  employer.  In  considering  alleged  breaches  of  the  information  and  consultation 
requirements  laid  down  by  this  Directive,  the  argument  that  such  breach  occurred 
because  the  information  has  not  been  provided  by  the  undertaking  which  took  the 

2% 

decision  leading  to the transfer  shall  not  be  accepted  as  an  excuse. 

5. 

6. 

The Member  States  may  limit  the  obligations  laid  down  in  paragraphs  1,  2  and  3 to 
undertakings  or businesses  which  normally  employ  50  or  more  employees  or  which, 
if  employing  less  than  50  employees,  fulfill  the  workforce  size  thresholds  for  the 
election  or  nomination  of  a collegiate  body  representing  the  employees. 

Member  States shall  provide that where there  are no representatives  ofthe  employees 
in an undertaking  or business, the employees  concerned  must be informed  in  advance 
when  a transfer  within  the  meaning  of  Articlel(l)is  about  to  take  place. 

SECTION  IV 

Final  provisions 

Article  7 

This  directive  shall  not  affect  the  right  of  Member  States  to  apply  or  introduce  laws, 
regulations  or  administrative  provisions  which  are  more  favourable  to  employees  or  to 
promote  or  permit  collective  agreements  or  agreements  between  social  partners  more 
favourable  to  employees. 

Article  8 

Member  States  shall  introduce  into  their  national  legal  systems  such  measures  as  are 
necessary  to  enable  all  employees  who  consider  themselves  wronged  by  failure  to  comply 
with the obligations arising from  this Directive to pursue their claims by judicial  process  after 
possible  recourse  to  other  competent  authorities. 

This  Article  shall  also  apply  to  employees'  representatives  in  respect  of  their  rights  under 
Articles  4(3, 4  and  5),  5 and  6. 

Article  9 

1. 

2. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions necessary  to comply  with this Directive by  31 December  1996 at the latest 
or  shall  ensure,  that,  at  that  date  at  the  latest,  the  employers'  and  employees' 
representatives  have  introduced  the  required  provisions  by  means  of  agreement,  the 
Member  States  being  obliged  to  take  the  necessary  steps  enabling  them  at  all  times 
to guarantee  the  results  imposed  by  thisDirective. 

When  Member  States  adopt  the  measures  referred  to  in  paragraph  1,  such  measures 
shall contain  a reference  to this Directive or shall be accompanied  by  such  a  reference 
on the occasion  of their official  publication.  The methods  of  making  such  a  reference 
shall be laid down by the Member  States. Member  States shall  inform  the Commission 
immediately  ofthe  measures  they  take  to  implement  this  directive. 

2? 

Article 10 

Directive  77/187/EEC  is  repealed  with  effect  from  the  date  of  transposai  of  the  present 
Directive, without prejudice to the Member States' obligations with regard to the deadline for 
transposai  of Directive 77/187/EEC, indicated  in Annex I. 

Any references  made to the repealed Directive are understood  as being made to the present 
Directive within  the meaning  of  Article  9(1),  and  are to be interpreted  on the basis  of the 
Comparative Table in Annex II. 

This directive is addressed  to the Member States. 

Article 11 

This directive shall enter into force 20 days after  its publication  in the Official  Journal  ofthe 
European Communities. 

Done at Brussels, 

For the Council, 
The President 

£Q 

ANNEX  1 

DEADLINE  FOR  TRANSPOSAL 

DEFECTIVE 

DEADLINE  FOR  TRANSPOSAL 

DIRECTIVE 77/187/EEC 
0 J L 61  OF 5.3.1977,  P. 26 

16.11.1979 

J4 

ANNEX  II 

COMPARATIVE  TABLE 

PRESENT  DIRECTIVE 

DIRECTIVE  77/187/EEC 

Article  1 - paragraph  1 
Article  1 -  paragraph  1 -  2nd  indent 
Article  1 -  paragraph  2 
Article  1 - paragraph  3 
Article  1 -  paragraph  4 
Article  1 - paragraph  5 

Article  2 - paragraph  1-a) 
Article  2 - paragraph  1-b) 
Article  2 - paragraph  1-c) 
Article  2 - paragraph  2-a),  b)  and  c) 

Article  3 - paragraph  1 
Article  3 - paragraph  2 
Article  3 - paragraph  3 
Article  3 - paragraph  4 

Article  4 - paragraphs  1 and  2 
Article 4  - paragraphs  3, 4  and  5 

Article  5 - paragraph  1,  1st and 
2nd  indents 
Article  5 - paragraph  1, 3rd  indent 
Article  5 - paragraph  2 

Article  6 - paragraphs  1, 2  and  3 
Article  6 - paragraph  4 
Article  6 - paragraph  5 
Article  6 - paragraph  6 

Article  7 

Article 8 

Article  1 paragraph  1 

Article  1 paragraph  2 

Article  1 paragraph  3 

Article  2  - paragraph  1-a) 
Article  2  - paragraph  1-b) 
Article  2  - paragraph  1-c) 

Article  3 - paragraph  1 
Article  3 - paragraph  2 
Article  3 -  paragraph  3 

Article  4  -  paragraphs  1 and  2 

Article  5 -  paragraph  1,  1st  and 
2nd  indents 

Article  5 -  paragraph  2 

Article  6 -  paragraphs  1, 2  and  3 

Article  6  - paragraph  4 
Article  6  - paragraph  5 

Article  7 

Article  9 - paragraphs  1 and  2, 
1st indent 
Article  9 -  paragraph  2,  2nd  indent 

Article  8 -  paragraphs  1 and  2 

Deleted 

Article  10 

Article  11  1st  indent 
Article  11 2nd  indent 

Article  9 

Article  10 

Jt-

IMPACT  ASSESSMENT  FORM 

The impact ofthe  proposal  on undertakings with  special  reference  to small  and  medium-sized 
undertakings  (SMUs) 

Proposal  for  a  Council  Directive  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  part  of businesses,  derogating  from  Directive  77/187/EEC 

THE  PROPOSAL 

1. 

Taking  into  account  the  principle  of  subsidiarity,  why  is  Community  legislation 
necessary  in  this  area  and  what  are the  main  aims? 

The  Member  States'  legislation  on  transfers  of  undertakings  was  harmonised  by 
Council  Directive  77/187/EEC  and,  accordingly,  the  competence  to  deal  with  the 
issues  covered  by  the  Directive  has  been  transferred  to  the  EC.  Consequently,  any 
amendment to the Directive's provisions other than those permitted by Article 7  ofthe 
existing  Directive  has  to  be  made  through  Community  legislation. 

The  purpose  of  this  Proposal  is  to  revise  Council  Directive  77/187/EEC  of  14th 
February  1977  in  the  light  of  the  impact  of  the  internal  market,  the  Member  States' 
current  laws  and  proposed  legislation  on  the  rescue  of  undertakings  in  economic 
difficulties,  the case law ofthe  European  Court  of Justice, the adopted  revision  ofthe 
collective redundancies Directive and the legislation  already  in force  in most  Member 
States. 

The  key  changes  proposed  are: 

to  clarify  the  application  of  the  Directive's  requirements  to  transnational 
transfer  decisions  and  to  groups  of  undertakings; 

to  allow  for  greater  flexibility  in  cases  of  transfers  effected  in  the  framework 
of  insolvency  proceedings; 

to  reshape  and  clarify  the  existing  Directive's  scope  and  definitions. 

to  clarify  the  legislation  in  cases  where  only  an  activity  of  an  undertaking  is 
transferred; 

Furthermore,  in the  interests  of  clarity,  it is felt  that  rather  than  amend  the existing  Directive 
it  would  be  preferable  to  replace  it  with  a  new  text. 

U 

THE  IMPACT  ON  UNDERTAKINGS 

Who  will  be  affected  by  the  proposal? 

The scope ofthe  proposal  coincides with that ofthe  existing Directive,  but  substantial 
changes  are  introduced. 

Firstly,  the  new  Directive  provides  that  it  is  not  applicable  in  cases  where  only  an 
activity  of  an  undertaking  is transferred,  provided  that  there  is  not  at  the  same  time 
a transfer  of  an  economic  entity  which  retains  its  identity. 

The new Directive also provides expressly that it applies only to undertakings - private 
or  public  -  carrying  out  economic  activities,  whether  or  not  they  operate  for  gain. 

In  addition,  the  Directive  will  apply,  as  does  the  existing  Directive,  to  transfers 
effected  in the framework  of pre-bankruptcy  proceedings. However,  the proposed  text 
allows for  important  derogations  from  the Directive's  main  requirements  in  the  event 
of  pre-bankruptcy  proceedings. 

Furthermore,  the  Directive's  information  and  consultation  requirements  apply  to 
pre-bankruptcy  proceedings. 

The proposed  Directive provides expressly  that it covers part-time,  fixed-duration  and 
temporary  employees  without  prejudice  to the laws of  the Member  States  concerning 
the protection  of  employees  in  the  case  of  dismissals. 

Finally,  the proposal  will  apply  to  sea-going  vessels,  but Member  States  are  allowed 
not  to  apply  section  III  of  the Directive  to  the  crews  of  sea-going  vessels. 

What  will  businesses  have  to  do  to  comply  with  the  proposal? 

Greater  flexibility  is provided  by  Article  3(4)  and  4(3, 4 and  5) which  derogate  from 
in  the  framework  of 
Article  3(1,  2  and  3)  in  the  case  of  transfers  effected 
non-liquidation  insolvency  proceedings.  They  may  also  implement  the  Directive 
through collective agreements. However, they are required to comply  with Article 3(1) 
(inter  alia) concerning joint  liability  and  observe  the Directive's  provisions  where the 
decision  leading  to  the  transfer  has  been  taken  by  an  undertaking  controlling  the 
employer. 

4. 

What  economic  effects  is the  proposal  likely  to  have? 

on  employment 

jy 

By  taking  into  account  the  need  to  reconcile  the  survival  of  insolvent  undertakings, 
the acquired  rights of creditors and the rights of employees - notably  the right to work 
-  the  Proposal  aims  to  ensure  the  survival  of  certain  undertakings  in  economic 
difficulties,  by  allowing  for  derogations  from  the  Directive's  main  requirements 
whenever  an  insolvent  undertaking  is  transferred. 

on  investment  and  the  creation  of  new  businesses 

Any  legislative  proposal  providing  for  increased  flexibility  in  the  framework  of 
transfers  effected  by  contract  or by  some other  disposition  or  operation  of  law,  or by 
judicial  decision  or  administrative  measure,  is  bound  to  have  a  positive  impact  on 
investment  and  on  the  creation  or  the  continuation  of  businesses. 

on  the  competitive  position  of  businesses. 

The  proposal  strengthens  the  competitive  position  of  EC  businesses  in  two  ways:  at 
international  level, because it allows for changes permitting more flexibility  in  transfer 
operations;  at  Community  level  by  harmonising  the  transfer  rules  which  are  already 
in  force  in  the  majority  of  Member  States. 

5. 

Does the proposal  contain  measures to take into account the specific  situation  of small 
and  medium-sized  firms  (less  stringent  or  different  requirements,  etc.)? 

The  proposal  allows  for  less  stringent  requirements  on  information  and  consultation 
in  the  case  of  undertakings  or  establishments  having  fewer  than  fifty  employees  or, 
if  employing  fewer  than  fifty  employees,  having  no  Works  Councils. 

6. 

Consultation 

The  consultations  with  the  social  partners  UNICE,  CEEP  and  ETUC  took  place  on 
22nd April  and  7th July  1992, and  were based  on a Commission  document  containing 
the main guidelines  for the revision  and the provisional  text. Both  UNICE  and ETUC 
agreed  on the need  to revise the Directive  in the light  ofthe  completion  ofthe  single 
market,  the  case  law  of  the  European  Court  of  Justice  and  the  need  to  introduce 
greater flexibility  in the event of transfers  effected  within the framework  of insolvency 
the  Commission's  general 
proceedings.  Although  both  organisations  supported 
approach,  certain  disagreements  were  voiced  as  to  the  Proposal's  scope  and  level  of 
protection. 

During  the  discussion  of  the  text,  the  question  of  the  Directive's  application  to 
"contracting  out  of  services"  was  raised.  The  Commission  decided  to  set  up  a  group 
of experts to analyse  how,  and  to what extent,  the  national  provisions  for  transposing 
the  Directive  applied  to  contracting  out  of  services  in  all  the  Member  States  of  the 
European  Union. 
The  Commission  drew  up  a  supplementary 
conclusions,  to  be  put  to  the  social  partners  for  examination. 

text  based  on  the  expert  group's 

3î 

Consultations  on  this  text  took  place  on  14 March  1994  with  UNICE,  CEEP  and 
ETUC. There was also written  consultation  with  other  social  partners, to  obtain the 
broadest  possible  range  of views.  The Commission  had  proposed  a  provision  to the 
effect  that the Directive should not apply in cases where the transfer  concerns only an 
activity  and there is no transfer  of an economic activity  which  retains its identity. 

The proposed  text  on  the  contracting-out  of  services  was viewed  favourably  by the 
social  partners,  although  it  was  felt  that  it  should  be  made  still  clearer,  given  the 
complexity  of this issue.The fact  that Article  1.3  was so much more up-to-date than 
the text examined in  1992 (applicability  to both public and private undertakings) was 
also very  much appreciated. However,  ETUC expressed  their concern  at the number 
of derogations in cases of bankruptcy,  and UNICE felt  that the new paragraphs 3, 4 
and 5 of Article 4 resulted  in less rather than more  flexibility. 

U 

ISSN 0254-1475 

COM (94) 300 final 

DOCUMENTS 

EN 

06  08 05 

Catalogue number : CB-CO-94-315-EN-C 

ISBN 92-77-71498-0 

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