The Court of Justice of the European Union (CJEU) has held in Ferreira da Silva e Brito and ors v Estado Portugues that when deciding whether there has been a transfer of a business under the Acquired Rights Directive, the key question was whether the entity in question had retained its identity. This could be ascertained by looking at whether the operations of the transferor had been continued or resumed by the transferee.
Following the winding up of Air Atlantis (AIA) in February 1993, Mr Ferreira da Silva and 96 other employees were dismissed as part of a collective redundancy. In May 1993, TAP (AIA’s main shareholder) began operating some of the charter flights that AIA had been providing. As part of that process, it used some of the equipment and assets, including four planes that AIA had used for its business as well as office equipment and other moveable property. In addition TAP reinstated some staff previously seconded to AIA and engaged them to perform identical tasks.
Decisions of lower courts
Mr Ferreira da Silva and his colleagues brought an action before the Lisbon Labour Court seeking reinstatement and compensation. It found that there had been a transfer of a business and that the applicants should be reinstated and receive compensation.
The Lisbon Court of Appeal overturned that decision, holding that the action was time-barred. The Supreme Court, in turn, held that merely continuing a commercial activity was not a sufficient ground for concluding that there had been a transfer of a business, since the business must also retain its identity.
The employees then brought an action before the Court of First Instance asking for the state to compensate them for their loss, arguing that the Supreme Court had incorrectly interpreted the concept of a “transfer of a business”. It then asked the CJEU to decide whether the concept of a “transfer of a business” within the directive covered the situation in which the AIA employees found themselves.
Decision of CJEU
The CJEU noted firstly that the aim of the directive was to ensure continuity of employment for employees within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer was whether the entity in question had retained its identity. This could be ascertained by looking at whether the operations of the transferor had been continued or resumed by the transferee.
When deciding whether the identity of an entity had been preserved as part of a transfer, it was therefore crucial to consider whether the functional link between the activity that was carried on before and after the transfer was retained, and not whether the undertaking had retained how the various elements of production were organised.
The fact that equipment and assets transferred over in this case was therefore a key factor in deciding whether there had been a “transfer of a business” under the directive. TAP had replaced AIA in the aircraft leasing contracts and actually used the aircraft concerned, proving that it took over assets that were essential for pursuing the activity previously carried on by AIA. It was irrelevant therefore that some of AIA’s assets and staff were integrated into TAP’s structure as a link was preserved between, on the one hand, the assets and staff transferred to TAP and, on the other, the pursuit of activities previously carried on by AIA.
It held that there had been a transfer under the provisions contained in the Acquired Rights Directive.