2023/37 Employee protection in the event of a transfer of undertaking (RO)

• Summary

  The Bucharest Court of Appeal has upheld the solution given by the Bucharest County Court and found that in case of a transfer of undertakings where the new employer knew prior to the transfer that the continuity of the employment relationship could not be ensured, the dismissal initiated after the transfer of business was not based on an objective cause and was thus to be considered null and void.
  In the case at hand, the real reason for the termination of the employment contract was not believed to be the implementation of the objective restructuring plan per se, but the transfer of undertakings. Thus, even though the dissolution of the job position was considered to be a real one, because the position was no longer part of the organizational chart, the dismissal did not have a serious and objective cause.

• Legal background

  The protective measures available to employees in the event of transfers of undertakings are regulated at a European Union level by Directive 2001/23/EC which was transposed at a national level through Law No. 67/2006. According to the provisions of Article 7 of Law No. 67/2006 “The transfer of the undertaking, establishment or parts thereof may not constitute grounds for individual or collective dismissal of employees by the transferor or transferee”.
  Also, according to the provisions of Article 173 of the Romanian Labour Code, applicable in this case:

  (1) Employees shall be entitled to protection of their rights in the event of transfer of the undertaking, unit or parts of it to another employer, in accordance with the law.
  (2) The rights and obligations of the transferor arising from a contract or employment relationship existing at the time of the transfer shall be transferred in full to the transferee.
  (3) The transfer of the undertaking, unit or parts thereof may not constitute grounds for individual or collective dismissal of employees by the transferor or the transferee.

  The Bucharest County Court and the Bucharest Court of Appeal held that the national legislation must be interpreted in accordance with the provisions of Directive 2001/23/EC, in the sense indicated in the case law of the ECJ. The national Romanian courts generally follow the ECJ decisions in deciding on a business transfer protection case, citing its relevant case law.

• Facts

  Mr. A was an employee of Company X, a company that was purchasing, picking up and delivering food ordered through its mobile app. He was at first hired in the position of customer service agent and after approximatively two years his position changed into customer support manager.
  After three years of employment with Company X, Company Y, which had the same object of activity, merged through absorption with Company X in January 2022. Company X was dissolved without being liquidated. The transfer of undertaking was completed on 1 March 2022. Starting on this date, Company Y became the new employer of Mr. A.
  After 18 days of employment with Company Y, Mr. A received a dismissal notice stating that his position had been cancelled considering the fact that the new company had an externalized call centre service and, after analyzing the new business model, it had been decided that his position was no longer necessary. On 20 April 2022, the new employer Company Y issued the dismissal decision terminating the employment contract with Mr. A with effect from 21 April 2022.
  Mr. A challenged the dismissal decision before the Bucharest County Court, seeking annulment of the dismissal decision and reinstatement in the position he had held prior to the dismissal. He also sought compensation equal to all the salary rights, indexed and updated, to which he was entitled from the date of dismissal until his effective reinstatement in the position held prior to the dismissal.

• Judgment

  In both the first instance and on appeal, the Courts ruled in favour of the employee, declaring the dismissal null and void. In reaching this conclusion, the Courts held that Mr. A should have benefited from the protection provided in case of the transfer of the undertaking, whose legal regime is governed by the provisions of Article 173 of the Labour Code, Law No. 67/2006 and the principles resulting from the case law of the ECJ on the subject.
  The Courts mentioned that an analysis of the content of the dismissal decision and the dismissal notice showed that the real reason for the termination of the claimant’s employment was not the company’s business restructuring, but the transfer of the undertaking. The Courts also mentioned that it is true that the right to reorganize the economic activity of a company, whenever necessary, is a prerogative of the company’s management which is recognized, without reservation, by the entire specialized doctrine and by the Romanian case law. However, this right, which takes the form of a measure to dismiss an employee, must be exercised in compliance with the legal provisions on the matter, in this case Article 173 of the Labour Code and Article 7 of Law No. 67/2006.
  The Courts underlined that in this case, at the time of the transfer of the undertaking, both companies knew that the activity carried out by Mr. A in Company X was an externalized activity in Company Y. Taking these aspects into account, the Courts found that Company Y knew before the transfer that Mr. A would only be formally taken over by this new employer, without granting any protection offered by the legal provisions mentioned above.
  The Courts highlighted that according to consistent case law, Directive 2001/23 seeks to ensure the continuity of existing employment relationships within an economic unit, irrespective of a change of owner. The legal situation of the employees after the transfer of undertaking cannot be changed unilaterally by the new employer strictly because of this transfer.
  The Courts concluded that there was no legal or factual basis justifying the objective and real nature of the measure taken against the employee, who did not even have time to familiarize himself with the new employer, to be able to prove his value.
  Finally, the Courts found that the requirement of the existence of a real and objective cause for taking this measure was not met, the dismissal of the employee being caused exclusively by the transfer of the undertaking.

• Commentary

  The EU Directive explicitly states that the transfer of an undertaking shall not, in itself, serve as grounds for dismissal by either the transferor or the transferee. However, this provision does not preclude dismissals for valid reasons such as economic, technical, or organizational changes affecting the workforce.
  In the specific case at hand, we align with the Courts’ interpretation, considering the broader business procedures associated with such transfers. It can be reasonably assumed that the transferee was aware in advance that certain functions would overlap and made unnecessary to the overall business model. Thus, there is a direct link between the business transfer and the situation of the function no longer being necessary, as it would not have happened in the absence of the externalized function that already pre-existed in the receiving company.
  On the contrary, if we were to dispute the Courts’ analysis, it could potentially open the door to abuse. For example, group companies might exploit the situation through intra-group business transfers and using already externalized services as a pretext for employee dismissals. Such an outcome would undermine the entire protection envisaged by the Directive, which aims to safeguard the employment relationship from being adversely affected by the change of employer.
  An open question pertains to the extent of connection or influence the business transfer has in nullifying a reorganization procedure occurring in close proximity after a transfer is concluded. In many integration processes post-transfer, the transferee often discovers deficiencies in the acquired workflows within the initial six months, necessitating optimization. Is the described scenario a substantial enough connection to render the restructuring process invalid?
  We maintain the position that the Directive offers sufficient clarity on this matter and permits such situations. However, it is important to acknowledge that pre-existing conditions on the part of the transferee could potentially result in the nullification of such dismissals.

• Comments from other jurisdictions

  Finland (Janne Nurminen, Roschier, Attorneys Ltd): In Finland, the Employment Contracts Act (55/2001 as amended) is the main statute concerning transfers of undertakings. The Act defines employee protection in the event of a transfer of undertaking.
  The protection of employees in the event of a transfer of undertaking is quite well-established in Finland. According to the Employment Contracts Act, the transferee may not terminate an employee’s employment contract merely because of a transfer of undertaking. However, it is as well-established that the transferee can lawfully terminate an employment if the transferee has grounds for termination (either person-related or redundancy) that have nothing to do with the transfer.
  If the commented case had taken place in Finland, the court’s main question would be whether the employee’s employment was terminated merely based on the transfer or if the transferee had objective grounds for the termination unrelated to the transfer. It seems that the Romanian court based its ruling on the fact that the transferee knew prior the transfer that the continuity of the employment relationship could not be ensured, and thus the termination initiated after the transfer was not based on an objective cause. However, this would not alone make the termination unlawful in Finland. Although the details of the commented case are a bit unclear, a Finnish court could have found that the termination was due to lack of work, and that it was not based on the transfer as such. Therefore, there would have been an objective and real reason for the termination. However, according to the Co-operation Act (1333/2021), the transferee (employing at least 20 employees) should have consulted on the proposed termination before making any decision leading to a redundancy termination. It is thus possible that the transferee would have breached its consultation obligations if the decision was considered and taken before conducting consultations with the employees or their representatives.
  Germany (Susanne Burkert-Vavilova, Luther Rechtsanwaltsgesellschaft mbH): In Germany, Directive 2001/23/EC is reflected, inter alia, in Section 613 a) (4) of the German Civil Code (Bürgerliches Gesetzbuch, ‘BGB’), which provides that:

  The termination of the employment relationship of an employee by the previous employer or by the new employer due to the transfer of an undertaking or part of an undertaking is invalid. The right to terminate the employment relationship for other reasons remains unaffected.

  The Federal Labour Court has repeatedly dealt with the scope of the exclusion of dismissal, which in German law has the legal character of an independent statutory prohibition. In fact, it can – just like in the case at hand – sometimes be difficult to determine whether there is an ‘other reason’ – e.g. operational, behavioural, personal – that legally justifies a dismissal by itself (i.e. beyond the transfer of business), or whether the transfer of business is indeed the main reason for a dismissal and hence renders such dismissal null and void.
  The probably most notable valid reason for a dismissal caused through but not specifically motivated by a transfer of business is a surplus of personnel at the former employer in case employees object to their transfer of employment to the transferee and consequently remain with their previous employer. Here, such employees could be dismissed for operational reasons without a violation of Section 613 a) (4) BGB, provided, of course, all other legal requirements are met.
  Against the background of a transfer of business, under German law, too, the courts will have to carefully consider all the circumstances of the individual case in order to conclude whether a dismissal is excluded or permissible due to other reasons beyond the transfer of business. Had a German court, just like in the case at hand, established that the core reason for the dismissal was the transfer of business itself it would likewise rule that such dismissal was null and void.
  Greece (Effie Mitsopoulou, Lawspace): We feel that the Greek courts would have taken a similar position to the Romanian courts. Under Greek law the realization of dismissals is prohibited when the cause is the actual transfer, but an exception exists in case dismissals need to be realized for technical, financial and organizational reasons, under the condition, though, of non-violation of Greek employment law provisions and of the non-abuse of right. Greek courts examine meticulously the condition of each reorganization procedure, the correct application of the legal criteria which determine who will be dismissed first and the necessity of the dismissals in relation to other measures that could have been taken instead, etc.
  In the present case the Greek courts would have probably found such termination null and void, even more so that the dismissal has taken place immediately after the transfer (date of transfer: 1 March and date of dismissal: 21 April).

  Subject: Transfer of Undertakings, Dismissal/severance payment
  Parties: Unknown
  Court: Curtea de Apel București (Bucharest Court of Appeal)
  Date: 15 May 2023
  Case number: Unknown
  Internet publication: www.rejust.ro/juris/g8e87e977