Are staff a tangible economic activity?

Back to basics is what the European Court of Justice (ECJ) seemed to be advocating in its celebrated decision on transfers of undertakings in Ayse Suzen v Zehnacker.

This is because Suzen seemed to be returning to a fundamentalist analysis of the nature of an economic entity, and the core ingredients of a transfer in line with the 1986 ECJ decision in Spijkers.

In Suzen an 'entity' was considered to be "an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective" and, as such, could not be reduced to a mere activity.

Based on Suzen, the ECJ focused on the need for the transfer of significant tangible or intangible assets or the majority of relevant staff for there to be a transfer of undertaking.

The approach was followed by the Court of Appeal on 26 March in Betts & ors v Brintel and KLM ERA Helicopters where a High Court finding of a transfer was overturned on careful analysis of the nature of the undertaking.

But while Suzen and Betts mark a return to a more rigorous assessment, they do not mean the end of transfers of undertakings on contracting-out.

In many cases intangible assets such as goodwill could transfer automatically.

If the legal ingredients of a transfer are in place (as in the ECJ judgment in Rotsart de Hertaing, November 1996), the staff will automatically transfer despite a transferee's failure to fulfil its obligations.