Safeguarding employees' rights in the event of transfers of undertakings or business

Concern for employees led to the safeguarding of their rights in the event of a transfer of an undertaking, establishment or part of an undertaking to another employer, as a result of a legal transfer or merger.

Both the European Directive 2001/23/EC, and its incorporation into Cypriot Law with Law 104(I)/2000, aim to protect employees from mass redundancies or bankruptcy proceedings. Therefore, they apply to public and private undertakings carrying out economic activities regardless of whether they are profit-making or not.

Consequently, the rights and obligations of the transferor, arising from an employment contract or from an employment relationship existing on the date of the transfer, are transferred to the transferee.

After the transfer, the transferee shall maintain the terms and conditions of employment agreed upon in a collective agreement, to the same extent as they apply to the transferor, with a minimum period of maintenance of the terms and conditions of employment of one year. The transferor and the transferee may agree that after the date of the transfer they shall continue to be jointly and severally liable for obligations that arose before the transfer and stem from an employment contract or employment relationship that existed on the date of the transfer.

In the event that an employment relationship is terminated due to the transfer of an undertaking either by the transferor or the transferee and this is not due to financial, technical or organisational reasons, which presuppose changes in the level of employment, the dismissal is unlawful and the employee is entitled to compensation in accordance with the provisions of the Termination of Employment Law.

The competent court for resolving disputes is the Labour Disputes Court.

Supreme Court case

The Supreme Court, in its decision issued in C.A.7/2016, dated March 20, examined the appeal of a company, which, due to the transfer of the operations of an educational centre, acquired the status of employer in this enterprise.

Specifically, eight employees, whose services were terminated due to redundancy, applied to the labour court and claimed compensation for illegal dismissal. The claim of the company that transferred the enterprise was that it had terminated the operations of the educational centre and that its operation was taken over by the new company, the appellant.

The court of first instance held that the dismissal of the employees was due solely to the transfer and that they should be considered as still employed on the date of the transfer and awarded damages in their favour and against the appellant. The latter considered the decision that found that there had been a transfer of an undertaking to be incorrect.

The Supreme Court held that the said directive aimed to ensure the preservation of the rights of employees in the event of a change of employer, by enabling them to remain in the service of the new employer, under the same conditions as with the transferor.

The transfer automatically entails a change of employer who, from the date of the transfer, takes the place of the previous one with regard to the rights and obligations arising from the employment relationship.

Referring to decisions of the Court of Justice of the European Union, it held that the preservation of the identity of the economic entity under the new entity is the decisive criterion, regardless of the method of transfer.

In order to decide whether a transfer of an economic entity has taken place while preserving its identity, the circumstances of the transaction in question must be taken into account. The following elements are considered: (i) the transfer or not of tangible assets, such as buildings, machinery etc, (ii) the transfer or not of intangible assets and their value, (iii) the assumption or not of a significant part of the workforce by the new entrepreneur, (iv) the transfer or not of the clientele, (v) the degree of similarity of the activities carried out before and after the transfer and (vi) the duration of any suspension of its activities.

It concluded that it was clear that both companies were basically talking about the continuation of the operation of the school on the basis of the same licences and that from their announcements to inform the parents of the existing students, it emerged that the school was aimed at the same clientele.

It did not discern any misinterpretation by the court of first instance and said it took into account all the factors which were rightly deemed capable of demonstrating a transfer of the business and therefore dismissed the appeal.

George Coucounis is a lawyer specialising in Immovable Property Law, based in Larnaca. E-mail: [email protected], tel: 24818288