Select Committee on European Communities Twenty-Second Report


  35.    In its reconsideration of the Acquired Rights Directive the Committee has concentrated on four main areas: the definition of "transfer of an undertaking, business or part of a business"; the imposition of a transferor/transferee co-liability rule; the application of the Directive in relation to insolvency and analogous proceedings; and the provision of information to and consultation of employees affected by a transfer. In relation to these areas the Commission has proposed changes to the version of the Directive we considered in 1996. Whilst we have concentrated on these changes we have also had to consider the implications of two decisions of the European Court of Justice, in the Süzen and Jules Dethier cases, which closely concern the scope of application of the Directive. The Committee has also been able to have regard to the Government's recent consultation exercise. This Report ranges, therefore, a little wider than we anticipated at the outset of our enquiry, in particular as regards the fundamental question concerning the scope of application of the Directive.


  36.    The Committee remains of the view that the scope of the Directive is the most important issue to be resolved. All our witnesses, and in particular the Minister, called for clarity and certainty. Nowhere is this more relevant than in relation to the meaning of "transfer of an undertaking, business or part of business" in Article 1(1). We, like many others, did not favour the Commission's original suggestion of having an additional second paragraph to that Article. No-one has bemoaned its disappearance, though there is some argument as to whether anything should be introduced in its place. The Court of Justice's ruling in Süzen has given some guidance in relation to the application of the Directive to contracting arrangements but, as our witnesses said, there remains a substantial degree of uncertainty.

  37.    We continue to believe that it would be helpful for the Directive to give a non-exhaustive list of matters to be considered in determining its applicability in a particular case. The factors listed by the Court of Justice in the Spijkers[26] case should be codified in the Directive. There should be no presumption that the Directive either does or does not apply if any one or more of those particular factors is present or absent. The Directive should also say that no one matter is decisive.

  38.    As regards the detailed application of the Directive to contracting out, and in particular as regards so-called second (and further) generation contracting out, we have noted that the Government has consulted on the question whether transferors should give comprehensive information about the existing workforce to prospective transferees. In our 1996 Report we drew attention to this question and recommended that the Directive be amended to enable contractors to acquire all information to tender effectively. We said that they should be able to assess the full extent of the rights and obligations to be transferred. We have not changed our view and, indeed, are encouraged by the positive approach being taken by the Minister to this question.

  39.    We urge the United Kingdom to take the opportunity during its Presidency to propose an amendment of the Directive dealing with this issue. It is necessary to find a workable solution which takes account of the interests of the contracting parties and the workforce in the transparency of the procedures as well as the interests of letting companies or authorities, and of the public and consumers, in the maintenance of the quality of the goods or services in question. Given that in practice a variety of factual situations are possible, any proposal should, we believe, be drafted in general terms, giving Member States sufficient flexibility to tailor their implementation to their particular circumstances. Such an amendment would, in the Committee's view, be a valuable addition to the Directive.


  40.    The imposition of a transferor/transferee co-liability rule in the Directive remains controversial. In 1996 we were critical of it, both in principle and in detail. As regards the detail the new version of the proposal is an improvement. It makes clear that the liability is to be "joint and several". It introduces a clearer rule as to the obligations in respect of which the transferor and transferee will be liable, i.e. all obligations falling due before the date of transfer.

  41.    Notwithstanding the amendments made to improve the clarity of the Commission's proposal, the Committee remains, however, opposed to the introduction of mandatory joint and several liability. If such a rule is needed in the Directive, it should be an optional one. The Committee remains of the view that co-liability of transferor and transferee should not be made mandatory. In the United Kingdom the matter can, as experience has shown, be dealt with on a commercial basis, the apportionment of liabilities and provision of any necessary indemnities being now quite well-established in practice. Were that to be shown to be unsatisfactory then the Government would need to review the situation and take any appropriate remedial action.


  42.    The application of the Directive in relation to insolvency and analogous proceedings has, as mentioned above, also given rise to difficult problems of definition. The Court of Justice has said that the key factor is the purpose of the procedure in question, though as the recent decision in the Jules Dethier case indicates that may not be determinative and it may be necessary to examine the particular procedure in detail. In Jules Dethier the Court considered whether a procedure under Belgian law for liquidation (under which an undertaking was wound up by the court) amounted to insolvency proceedings for this purpose[27]. The Court held that the Directive applies "in the event of the transfer of an undertaking which is being wound up by the Court if the undertaking continues to trade". In such circumstances continuity of the business was assured when the undertaking was transferred and there was thus no justification for depriving the employees of the rights given by the Directive.

  43.    The Commission's proposal has sought to clarify the position as to the applicability of the Directive in insolvency and analogous situations. The text is, however, based on an analysis of the Court's case law before Jules Dethier and it seems clear that the Commission and all those concerned will need to revisit the relevant provisions of the amended proposal, especially Article 1(5). The basic policy considerations remain, in our view, the same. As the Court recognised in Abels, applying the Directive to an insolvent business may dissuade a potential transferee from acquiring the undertaking. It would have to be broken up, the assets sold off separately and the workers dismissed. On the other hand, the assets of insolvent companies sometimes include profitable businesses which can be transferred without any need for special arrangements. The distinction is one of substance and we do not think that the application of the Directive should depend upon the way in which the parties structure the operation. The key factor is the viability of the business. There is a need for both certainty and flexibility in the application of the Directive in this context. In terms of a legislative text the balance, we accept, may be a difficult one to strike.

  44.    With regard to the detailed changes relating to Articles 4(3), (4) and (5), the original proposal, it will be recalled, contemplated two ways in which dismissals could occur and terms and conditions of employment be modified in the context of a rescue. The first was by agreement with the employee's representatives. The new text makes it clear that these representatives have to be independent. We agree with witnesses who said that this change would be helpful. We note that the independence of those representing the workforce in such situations is a key factor in the Government's approach to consultation in the context of transfers of undertakings and also collective redundancies.

  45.    The second way in which changes in the terms and conditions of employment, including dismissals, might be modified was by giving the courts the power to do this. Witnesses were not attracted by this in 1996 but we were content that the provision should remain because it was an optional one which we recognised might be of value to other Member States. Our witnesses have welcomed the deletion of the provision. It is, in the circumstances, for others to make the case for its reinstatement.

  46.    Finally as regards insolvency situations, the Commission has amended its text, apparently in response to a recommendation from the European Parliament, to require Member States "to ban the use of fraudulent proceedings intended to deprive employees of the rights laid down in this Directive". We agree with the view expressed by the Government. The proposed amendment is "unworkable and unnecessary". We hope that the Minister is not mistaken in believing that the amendment will receive a similar reaction from other Member States.


  47.    The Directive currently requires that information concerning the proposed transfer be given to and consultation take place with employee representatives. The Commission has proposed, and in our 1996 Report we supported, an amendment to bring the information and consultation provision of the Directive into line with the equivalent provisions of the Collective Redundancies Directive[28]. The Commission also proposed limiting the Directive's information provisions to undertakings employing 50 or more employees. It has now recast that derogation so as to exempt those undertakings with insufficient employees to require a works council under relevant national legislation.

  48.    In 1996 we took the view, having regard to the likely impact of the introduction of a 50 employees threshold in the United Kingdom, that the Commission's proposal would be a measure of deregulation which would benefit many small firms but that several million workers could be denied the benefits of the information and consultation provided by the Directive. Recognising that any figure involves a degree of arbitrariness, we recommended that the threshold be set at 20, a figure which would safeguard the position of approximately 75 per cent of workers in the United Kingdom. Firms below that threshold, we said, should be encouraged to inform and consult their employees so far as reasonably practicable in the circumstances.

  49.    The position, if the Directive were adopted as now proposed by the Commission is that, in the absence of legislation on works councils, there would be no exception for small firms in the United Kingdom. All employees would have to be informed and consulted, through their independent representatives or directly, as required by the Directive. The Government, having consulted widely on the question, has concluded that no amendment of the Directive should be sought. All employees, whatever the size of the firm, should have the benefit of the Directive in this regard.

  50.    We have reconsidered our earlier recommendation, by which we sought to increase the number of workers who might benefit under the Directive and to provide a workable compromise in the circumstances then prevailing. The form of the proposal has now changed as described above and to maintain our proposal would be to seek to give Member States an option which, in the case of the United Kingdom, would have the effect of denying to some 25 per cent of the workforce here rights to information and consultation. That, as the Minister made clear, is not an option which the Government would want or, if it had it, would wish to exercise. Nor, if the Minister is right, is it likely that other Member States would welcome its inclusion in the Directive.

  51.    We recall that at the time of our earlier enquiry it was pointed out to us that the burden of discharging the information obligation was not great. Moreover, the obligation to consult only arises where measures are being proposed, which does not appear to be common on the transferor side. We do not believe that giving all workers in the United Kingdom the Directive's rights to information and consultation would cause any serious difficulties and fully agree with the Minister on the importance of these measures.


  52.    The Committee considers that the Commission's amended proposal for a Directive amending the Acquired Rights Directive (safeguarding employees' rights in the event of transfers of undertakings, businesses or parts of businesses) raises important questions to which the attention of the House should be drawn, and makes this report to the House for debate.

26   Case 24/85, Spijkers v Benedik: [1986] E.C.R. 1119. Back

27   The Court, at paragraph 29 of its judgment, said: "According to the reference by the national court, in the case of a liquidation the liquidator, although appointed by the court, is an organ of the company who sells the assets under the supervision of the general meeting; there is no special procedure for establishing liabilities under the supervision of the court; and a creditor may as a rule enforce his debt against the company and obtain judgment against it. By contrast, in the case of an insolvency, the administrator, inasmuch as he represents the creditors, is a third party vis-à-vis the company and realises the assets under the supervision of the court; the liabilities of the company are established in accordance with a special procedure and individual enforcement actions are prohibited." Back

28   Directive 75/129/EEC on collective redundancies. [1975] OJ L48/29. The Directive was amended by Directive 92/55/EC [1992] OJ L245/3. Back

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