Employee rights in the balance

The Acquired Rights directive (ARD) was introduced in order to protect employees when corporate restructuring or insolvency led to the transfer of businesses to new employers. Case law then extended its application to a change of service contractors.

But when is a business transferred and not simply terminated? The Spijkers case (1986) established that the criterion involved in whether an entity retains its identity is judged on the facts, particularly by reference to certain factors specified in the decision. No single factor was definitive.

Subsequently EU, and particularly UK, cases came to emphasise one factor – the similarity of activities before and after transfer – and downplayed the importance of the other factors.

In a radical departure, the Advocate General in Suzen (a case which concerned retendering a cleaning contract) ruled that the transfer of tangible or intangible assets was the essential minimal characteristic.

The European Court of Justice (ECJ) has now accepted this opinion, although it tempered the radicalism of the ruling by adding, as an alternative factor to the transfer of significant assets, the transfer of a major part of the workforce (in terms of numbers and skills, assigned to the contract).

This decision was perhaps stimulated by the failure last year to reach a political agreement on revising the legislation.

I was not surprised by the Suzen decision, whatever I might think personally about its impact on employees and the recent relative stability of the case law.

In 1993, I questioned whether the ARD could continue to draw so many activities within its ambit; and later, whether the Schmidt decision (applying the ARD to the contracting out of cleaning services provided by one cleaner) might prove to be the high-water mark of the ARD.

Was there not a tension between the onward march of the ARD and other union measures, designed to promote a free market in goods and services?

Suzen is not wholly consistent with Schmidt where no assets or staff are transferred – there was only a (rejected) offer of re-employment.

Suzen is unlikely to be the last word, not least because case law will remain uncertain until the EU and its member states decide what they regard as the appropriate balance between the operation of the market and protection of the workforce.

Over-rigid employment structures can hinder the operation of the employment market, but job insecurity can be a disincentive to the emergence and maintenance of strong skills bases, and financial uncertainty can hinder forward planning.

In the UK, private sector compulsory competitive tendering (CCT) contractors and central government were, until recently, hostile to the expansionist pretensions of the ARD. However, the Advocate General's opinion in Suzen suddenly brought both out in support of the ARD, saying that his opinion would create instability.

In the short term, despite the ECJ's desire to provide greater certainty, the Suzen case will create uncertainty. But the signs are that fewer contracts will be subject to the ARD. Litigation will determine how many fewer.

In the longer term, a more realistic compromise may be forged in the political forum between the interests of employees and service-providing employers. Only then will the jurisprudence come to rest.