TUPE: meaning of a “transfer” when subsidiary wound up

The ECJ has held, in the Portuguese case of Ferreira da Silva e Brito and others v Estado portuges, that under the Acquired Rights Directive (the EU Directive which is implemented in the UK by the TUPE Regulations) a transfer of a business can occur when a majority shareholder takes over a subsidiary’s activities, once the subsidiary has been wound up.

28th September 2015

The ECJ has held, in the Portuguese case of Ferreira da Silva e Brito and others v Estado portuges, that under the Acquired Rights Directive (“ARD”) (the EU Directive which is implemented in the UK by the TUPE Regulations) a transfer of a business can occur when a majority shareholder takes over a subsidiary’s activities, once the subsidiary has been wound up.

TAP, a Portuguese airline, was a majority shareholder in AA, a company which operated charter flights.  AA was wound up following a resolution by TAP and a number of AA’s employees were made redundant as a result.  A few months later, TAP assumed AA’s obligations under various contracts with tour operators, developed a charter flight business on routes previously served by AA (having not been active in the charter flight sector previously) using AA’s aeroplanes, took over AA’s office equipment and other moveable property and employed staff, who had previously been seconded to AA, in the same roles they had performed for AA.

A number of the redundant employees brought proceedings against TAP arguing that their redundancies were unlawful and that their employment should have transferred to TAP under the ARD.  The case was ultimately referred by the Portuguese courts to the ECJ, which has now confirmed that a transfer of AA’s business did occur.  Relevant factors included: (1) the fact that TAP took over assets of AA that were essential for pursuing the activity previously carried out by AA; (2) that it actually pursued activities previously carried out by AA (i.e. the charter flight business) and; (3) that there was a transfer of customers and assignment of staff to roles they had previously carried out for AA. 

In assessing whether the identity of the entity had transferred, the fact that it had been integrated into TAP’s structure without retaining a separate organisational structure in the form of a subsidiary company was irrelevant.  Instead what was relevant was simply whether there had been a sufficient transfer of the various elements of the economic entity which allowed the transferee to use them to pursue an identical or analogous activity. 

The ECJ's decision that the circumstances in this case fell within the definition of a "transfer of a business" is not surprising, but it serves as a useful reminder that TUPE transfers can arise in circumstances other than a straight-forward business transfer.  Where a number of assets are being acquired and incorporated into a company’s business, there is a risk that a TUPE transfer could occur, if those assets are then used to pursue the same or a similar economic activity.  Whilst this case arose in the context of an insolvent subsidiary, it could similarly arise if a number of the assets of a trading company were acquired and incorporated into a company’s business.  A company must therefore be alive to these issues, in order that it can consider any employment related obligations or liabilities that might arise.

 Another less common set of circumstances which could give rise to a TUPE transfer is a share sale.  For a recent article on a case in which this occurred, please click here