Transfer of bus service without the actual buses was a transfer of undertaking

This case concerned outsourcing of a bus service where a company took over the bus service from another company. The latter had decided not to bid on the new outsourcing of the same assignment. 

As part of the takeover, the new company employed most of the previous company’s drivers and leading employees but did not acquire any operating resources such as buses, depots, or other operating facilities. The reason for not including the buses in the takeover was based on technical and environmental reasons, namely because the buses did not meet technical and environmental standards and in any case were due to be replaced within the foreseen future.

One bus driver, who had been employed by the previous company and now was employed in the new company, claimed that he was entitled to seniority supplements. The new company rejected the claim, reasoning that the takeover did not constitute a transfer of undertaking.

Another bus driver had been terminated by the previous company but not reemployed by the new company. He challenged the termination and claimed that he was entitled to severance pay from the previous company. The previous company claimed that the takeover was a transfer of undertaking, wherefore it was not liable to pay the employee any severance pay.

Since the parties could not agree on whether there had been a transfer of undertaking or not, the case was postponed until the European Court of Justice decided on the preliminary question of the case. 

On this basis, the main question of the case was if the transfer of the bus service and employees could be considered a transfer of undertaking despite the fact that no operating resources, including buses, were transferred.

The company had retained its identity

Application of the Danish Act on Transfer of Undertakings is conditioned upon the entity in question has retained its identity after the transfer. This assessment should be based on an overall evaluation of all the circumstances surrounding the takeover. 

In this case, the European Court of Justice emphasised that it would not have been possible for the new company to take over the buses from a financial and legal perspective, just as it would not have been rational. The buses did not comply with new technical and environmental standards, and due to their age, it would be necessary to replace them in the near future. The decision not to take over the operating resources, including the busses, was therefore dictated by external circumstances.

The decision mentions that in cases where a new company continues the same activity and has taken over a large part of the employees, but not the operating resources due to external circumstances, it can result in the entity having retained its identity in the transfer, and it can therefore be considered a transfer of undertaking.

In this case, the European Court of Justice found that although there had been no transfer of operating resources for financial and technical reasons, it did not prevent a transfer of undertaking because the bus service had kept its identity, including service of the same bus routes which by a large part still were being carried out by the same employees. In other words, the company had retained its identity based on an overall assessment.

IUNO’s opinion

The decision demonstrates that there can be significant pitfalls which companies should consider in situations where parts of a company are taken over. Especially where a takeover includes the transfer of employees and/or assets, and where the transfer can be considered to be in a grey-zone, companies should consider if the takeover could constitute a transfer of undertaking in advance and consider the related issues which may arise as a consequence.

In light of the crisis triggered by the coronavirus which unfortunately has impacted the Danish business environment, which has announced bankruptcies, IUNO recommends that namely buyers should make an in-depth evaluation on whether it’s a transfer of undertakings, before making deals regarding purchasing of assets or activities, especially when involving destitute or bankrupt companies.   

 [The European Court of Justice in case C-298/18 of 27 February 2020]