The European Court of Justice (ECJ) has decided in Abler v Sodexho MM Catering Gesellschaft (IDS Brief 749) that the EC Acquired Rights Directive applies to a second generation contractor, where they take over substantial chunks of the premises and equipment used by the outgoing contractor. This applies even if the assets belong to the contracting authority.

Who lost what?

In November 1990, an orthopaedic hospital contracted out its catering services to a company called Sanrest. It prepared and served meals, using equipment and premises provided by the hospital.

Several years later, the contract was transferred to Sodexho, following a re-tender, on the same basis as Sanrest. In other words, providing the service using the hospital's premises and equipment.

Sanrest argued that this constituted a transfer of an undertaking, although Sodexho had refused to take on any of their employees and did not inherit any of their stock or materials, with the exception of the menus for the kindergarten.

Sanrest terminated all its employees' contracts in November 1999, but supported their arguments that their employment had transferred to Sodexho.

What was the view of the courts?

The Austrian labour court dismissed their claims. It said there was no transfer of staff, work organisation or even customers. The regional court overturned that decision on the basis that an identifiable economic entity had been transferred to the second generation contractor.

The Supreme Court referred the matter to the ECJ. After reviewing its decisions in Spijkers and Suzen, the court confirmed that the decisive criterion in ascertaining if there has been a transfer is whether the entity retains its identity following the transfer. 
It also pointed out that the directive covers transfers of people or assets that facilitate a specific economic activity.

The court emphasised the importance of looking at all the factors that characterise a transfer - the type of undertaking, whether the tangible assets have transferred; the value of intangible assets; whether most of the employees have been taken on; whether customers have transferred; and whether the entity has retained its identity. The importance to be attached to each factor will vary in different circumstances.

So what did the ECJ decide?

The court observed that catering isn't an activity that relies essentially on manpower, as it requires a lot of equipment.

In this case, Sodexho had taken over the tangible assets needed to do the job. In other words, the customers, premises and equipment, but not staff.

Sodexho tried to argue that the directive could not therefore apply, but the court said that the transfer of the premises and the equipment from the hospital - in particular the obligation to prepare meals in the hospital kitchen - was enough to make this a transfer of an economic entity.

It was irrelevant, according to the court, that the assets taken over by Sodexho did not belong to the outgoing contractor, but by the hospital itself. The directive applies where there is a change in the person responsible for carrying on the business 'regardless of whether ownership of the tangible assets is transferred'.

Nor did there have to be a direct contractual relationship between Sodexho and Sanrest. The court said that a protected transfer could take place through a third party - in this case the hospital management.