Gap in Operations Doesn't Prevent TUPE Transfer

A 5 Month Gap in Operations Does Not Prevent a TUPE Transfer

17th August, 2018 by Paula Bailey

In the Spanish case of Colino Sigüenza v Ayuntamiento de Valladolid and others, the Court of Justice of the European Union (CJEU) has held that a gap of 5 months in the operation of an entity does not preclude a relevant transfer for the purposes of the Acquired Rights Directive.

Mr Colina Sigüenza worked as a music teacher at a music school in Spain (the ‘School’) from November 1996. Initially, the School was run by the Municipality of Valladolid (the ‘Local Authority’) however from 1997 to 2013 the management of the school was outsourced to Musicos y Escuela S.L. (Musicos). Musicos was a small private company set up expressly to tender for this contract; it did not have or seek, any other clients. Musicos took over the facilities, premises, resources and some of the School’s employees (including Mr Siguenza), and continued to operate the school as a music school.

During the 2012/13 academic year, there was a sharp decline in the number of pupils, which meant that the school was no longer profitable. Consequently, in April 2013, following a collective dismissal procedure, Musicos dismissed its entire staff, ceased all activities and was subsequently wound up in July 2013. Representatives of Musicos’ workers appealed the collective dismissal decision in the High Court of Justice and Supreme Court but were unsuccessful on both occasions.

Following a further tender process the Local Authority assigned management of the school to In-pulso Musical Sociedad Cooperative (In-pulso) beginning September 2013. In-pulso used the same premises, instruments and resources, but with an entirely different staff. In-pulso subsequently won contracts to operate the school in the following two academic years.

Mr Siguenza brought an individual action in the Spanish court against Musicos to challenge his dismissal. The action was dismissed on two grounds, one of which being that the court found that In-pulso had not succeeded Musicos as Mr Siguenza’s employer since 5 months had elapsed between his dismissal and In-pulso taking over management of the School. Accordingly it was found that there had been no transfer of undertakings (within the meaning of the Acquired Rights Directive (2001/23/EC) (ARD)).

Mr Siguenza appealed against this decision. The appellate court referred the case to the CJEU for a preliminary ruling on the following issues:

Was there a transfer of undertakings for the purposes of the ARD in these circumstances?
If so, were the dismissals by Musicos for an economic, technical or organisational reason entailing changes in the workforce?

Transfer of an economic entity

The CJEU found that it was possible that there had been a transfer of an entity within the meaning of the ARD, although the final decision on this lay with the Spanish courts. In reaching this decision the CJEU considered all of the facts characterising the transaction, in particular:-

the type of undertaking/business concerned;
whether tangible assets such as buildings, moveable property are transferred;
the value of the intangible assets at the time of transfer;
whether or not the majority of the employees are taken over by the new employer; and
the period, if any, for which the activities were suspended.

When considering the above factors the court noted that:

The main activity in question was the management of the school.
It was common ground that the Local Authority made available to In-pulso all of the same material resources (instruments, facilities and premises etc) that it provided to Musicos and that in this case, it was the material resources that appeared to be essential to the conduct of the economic activity.
Upon winning the contract, In-pulso continued to manage the school as a music school with the same material resources and accordingly the economic entity in question retained its identity.
As the main economic activity was based essentially upon the material resources and equipment it was immaterial that In-pulso did not take over the workers from Musicos.
The fact that the Local Authority retained ownership of the tangible assets was irrelevant.
The fact that the school was temporarily closed for 5 months at the time of the transfer and had no employees was a relevant factor but not sufficient to preclude the existence of a transfer. It was of particular relevance in this case that three of the five months closure period was school holidays.

Reason for the dismissal

When taking into account the objective circumstances in which the dismissal occurred, it was noted that Mr Siguenza’s dismissal took place sometime before the transfer to In-pulso and that the reason for the termination was because Musicos were no longer able to pay their staff. In the circumstances, it was found that the dismissal was for an ETO reason.

Paula Bailey comments:

"This case serves as a reminder that just because there is a period of suspension in the activities prior to or following the transfer, this does not prevent there from being a relevant transfer for the purposes of TUPE. As with any TUPE situation, all of the circumstances have to be examined in order to determine whether or not TUPE applies."

For more information on how Howes Percival can help in this situation, visit our Employment & HR page.

The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.

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