ECONOMIC ENTITY

CLECE SA v María Socorro Martín Valor and Ayuntamiento de Cobisa

The European Acquired Rights Directive (ARD) safeguards the rights of employees if the “economic entity retains its identity” after the transfer. In CLECE SA v María Socorro Martín Valor and Ayuntamiento de Cobisa, the European Court of Justice (ECJ) said that the employee’s rights were not protected when a municipal authority terminated a cleaning contract with a private company and brought the cleaning back in-house.

Basic facts

In 2003, a company called CLECE SA won a contract with a local authority to clean its schools and premises and shortly afterwards hired Mrs Valor as a cleaner. In November 2007, the municipal authority told CLECE SA that it was terminating the contract with effect from 31 December 2007.

Although the company told Mrs Valor that her employment had transferred to the authority, it refused to take her on and instead hired its own workers through an employment agency, nor did CLECE SA offer Mrs Valor alternative employment.

Mrs Valor claimed that she had been unfairly dismissed and brought proceedings against both CLECE SA and the municipal authority.

Decisions of the national courts

The local court ruled that CLECE had unlawfully dismissed Mrs Valor and ordered the company to either reinstate her or to compensate her.

CLECE SA appealed, and the appeal court referred the issue to the ECJ, asking for a ruling as to whether the situation fell within the scope of the ARD.

Relevant law

Article 1(1)(b) of the ARD states that there is a transfer within the meaning of the ARD when there is a transfer of “an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity”.

ECJ decision

The ECJ began by stressing that in order to honour the whole point of the directive (which is to safeguard employees in the event of a transfer of their job), generally the term “legal transfer” was interpreted fairly flexibly.

The ECJ further noted that the ARD applies to public undertakings engaged in economic activities, whether or not they were operating for gain. Therefore the fact that one of the parties in the dispute was a municipal authority did not necessarily prevent the ARD from applying.

It also said that the ARD was capable of applying to a situation in which an undertaking, which had previously used the services of another undertaking to clean its premises decided to terminate the contract and in future carry out the work itself.

However for the ARD to apply, the ECJ said that the transfer had to involve “an economic entity which retains its identity” after the change of employer. To decide whether an entity had retained its identity, the ECJ had to “consider all the facts characterising the transaction in question”.

In this case the municipal authority had not taken on any of CLECE SA’s employees, nor had it taken over any of its tangible or intangible assets. The only factor creating a link between the activities carried out by CLECE SA and the municipal authority was the activity in question - the cleaning of premises. However, the ECJ said that an entity cannot just be reduced to the activity entrusted to it.

Instead, it ruled that an entity’s identity emerges from several factors, including its workforce, its management staff, the way in which its work is organised, its operating methods and indeed, where appropriate, the operational resources available to it.

The ECJ found that the identity of an economic entity, in this case was essentially based on manpower and it could not be retained if the majority of its employees were not taken on by the municipal authority. The directive did not therefore apply.