international employment law firm alliance L&E Global

Germany: A transfer of undertaking (TUPE) may also occur in cases where the main technical equipment of the business is not taken over by the acquirer

In the local proceeding that initiated this recent ECJ ruling and took place before a German labour court, two employees challenged the effectiveness of their dismissals. Their original employer had been operating public passenger transport by bus on behalf of a German district since 2008. The district carried out a new tendering procedure for the transport services. As the plaintiffs’ original employer could not submit an economically viable tender, it ceased operation and gave notice of termination of employment to its employees. A social plan was concluded with the works council, which provided for severance payments in the absence of any re-employment offer by the new successful tenderer.

The new successful tenderer recruited the majority of the bus drivers and management staff from the original employer, after it was awarded the contract for the public transport bus services in August 2017. However, it did not intend to either purchase or lease the former employer’s buses, depots or other operating facilities or to use its workshop services. One of the plaintiffs was rehired by the successful tenderer. However, the tenderer did not recognise his previous periods of employment and therefore classified him at the entry level of the applicable collective wage agreement. The other plaintiff’s employment was terminated too, but he was not rehired. Due to worsened working conditions and the fact of not being rehired the plaintiffs – both former bus drivers – challenged their dismissals in order to remain employed by their original employer or at least to receive compensation.

The original employer argued that no claims can be asserted against him as the employment contracts were transferred to the successful tenderer through a TUPE. The tenderer on the other hand argued that since operating resources, including buses, had not been taken over, no TUPE took place.

Based on the corresponding EU directive and its adaption in German law, the question whether a TUPE took place depends whether the economic entity that was transferred retains its identity. In order to determine whether that condition is met, it is necessary to consider all the facts characterising the transaction concerned. In this respect, the ECJ has established the following criteria:

  • The type of the transferred undertaking
  • Whether tangible assets, such as buildings and movable property, have been transferred and the value of these assets
  • Whether the majority of the employees have been transferred
  • Whether customers have been transferred
  • The extent to which the activities carried out before the transfer are similar to the activities carried out after the transfer
  • The duration of the suspension of the activity (if any)

However, all those circumstances are merely single factors in the overall assessment which must be made. Thus, the degree of importance each criterion has will vary according to type of business and activity.

The local German labour court turned to the ECJ, asking whether the economic entity retained its identity in the specific case even though the tenderer had not taken over the operating resources owned by the economic entity, e.g. the buses.

In a previous judgement (“Liikenne” – C-172/99), the ECJ had stated that bus transport cannot be regarded as an activity based essentially on manpower, as it requires substantial plant and equipment. Therefore, the criterion of taking over the operating resources is of particular importance in order to determine whether the economic entity retains its identity.

In the present case, however, the ECJ did not rule out the possibility that a TUPE had taken place despite the fact that operating resources, such as buses, had not been taken over. With this ruling, the ECJ abandons the rigid application of the above criteria and assesses the question whether there is a TUPE on the basis of the overall circumstances of the individual case. In this case, the decisive factor for the ECJ’s ruling was that the new technical and environmental requirements for the operating resources made it economically and legally impossible to use the existing operating resources previously used for operating the public transport. The successful tenderer was unable to take over the technical equipment due to external constraints and the original employer would have also needed to replace the buses in the near future, if he had continued to operate the public transport. Therefore, the fact that the successful tenderer had not taken over the buses does not lead to the conclusion that TUPE is ruled out.

It will be the responsibility of the German labour courts to review and potentially adapt their view on TUPE  according to these considerations from the EJC. The ruling of the EJC will probably have a considerable impact on future decisions by German courts regarding the questions of TUPE in cases of businesses that require significant operational resources.