Francesca Jus-Burke Senior Associate
Is a five-month cessation of activities long enough to disapply TUPE?
The ECJ in Colino Sigüenza v Ayuntamiento de Valladolid and others (Case C-472/16), considered whether the Acquired Rights Directive applied when there was five-month gap between the termination of a concession to run a public school and resumption by another contractor.
Mr Sigüenza commenced employment on 11 November 1996 as a music teacher with the Municipal Music School of Valladolid in Spain (the School). The School was originally managed and Mr Sigüenza employed by the municipal City Council of Valladolid (the City Council). In 1997, Músicos y Escuela (Musicos) took over the management of the school. This included managing the premises, facilities and instruments necessary for the provision of that service. Musicos also took over some of the workers previously employed by the City Council, including Mr Sigüenza.
Owing to a drop in student numbers Musicos sought to terminate the management contract and a subsequent dispute with the City Council resulted in the service contract being terminated by the City Council in August 2013. Concurrently, in early March 2013, Musicos started a consultation process for the collective dismissal of its entire workforce owing to the economic situation arising from the conflict with the City Council. In late March 2013, in the absence of an agreement with the employees’ representatives, Musicos collectively dismissed all its staff. The workers’ representatives appealed against the collective dismissal in the High Court and the Supreme Court, both courts dismissing the appeal.
In August 2013, the City Council assigned the management of the School to In-pulso Musical (In-pulso), which was given the use of School’s premises, instruments and equipment. It started its activities in September 2013 and was awarded subsequent contracts in the 2014 and 2015 academic years. It did not hire any of the employees who previously worked at the School.
The Spanish Courts
Mr Sigüenza brought an individual action in the Social Court against the City Council and In-pulso to challenge his dismissal. The Social Court dismissed the action on the grounds of “res judicata”, that the matter had already been decided in the Supreme Court case brought by the workers’ representatives. It also ruled that the Acquired Rights Directive (the ARD, implemented by TUPE in the UK) did not apply, since nearly five months had elapsed between Mr Sigüenza’s dismissal and In-pulso taking over the management of the School.
Mr Sigüenza appealed against the decision to the High Court. The High Court referred the following admissible questions to the ECJ for a preliminary ruling:
1. Was there a transfer of an undertaking for the purposes of the ARD?
2. If so, were the dismissals effected by Musicos for an economic, technical or organisation reason (ETO reason) entailing changes in the workforce?
Held that this was capable of being a transfer within the scope of the ARD, however that Mr Sigüenza's dismissal appeared to have been for an ETO reason entailing changes in the workforce.
The ECJ, differing in opinion to the Advocate General considered that:
> The economic activity in question was the management of the School.
> The material resources, such as musical instruments, facilities and premises, made available to In-pulso by the City Council were essential to the conduct of the economic activity in question.
> Since the economic activity at issue was an activity based on a significant amount of equipment (rather than manpower), the fact that In-pulso did not take over the workers from Músicos does not preclude the existence of a transfer under the ARD.
> That the tangible assets essential to the performance of the activity at issue belonged to the City Council was not relevant.
> A temporary suspension, of only a few months, of the activities did not preclude the possibility that the economic entity at issue in the main proceedings retained its identity.
In those circumstances, it concluded that the current situation was capable of coming within the scope of the ARD, though it was ultimately for the Spanish court to make this decision.
The ECJ noted that Mr Sigüenza’s dismissal took place well before the date of the transfer of the activity to In-pulso, and the dismissal arose because of a breach of the service contract by the City Council. It was not a deliberate measure intended to deprive those employees of the rights conferred on them by the ARD. It also considered the transfer of the contract to In-Pulso following the unexpected cessation of the activities by Músicos irrelevant in the circumstances.
Accordingly, the ECJ held that the dismissal occurred for 'economic, technical or organisational reasons entailing changes in the workforce' and was not caused by 'the transfer of the undertaking, business or part of the undertaking or business'.
At first glance the ruling may appear to be a concerning escalation in the applicability of TUPE, however the issue of gaps in provision between service providers has been considered in a number of UK cases. For example, in Wood v London Colney Parish Church, Inex Home Improvements Ltd v Hodgkins and others and Mustafa and another v Trek Highways Services Ltd and another, the EAT found that a temporary cessation of work did not deprive employees who had been involved in the activities of their status as an organised grouping of employees, instead it suspended the economic activity, meaning there was still a TUPE business transfer.
However, the purpose, nature and length of the cessation will always be relevant in determining whether or not an organised grouping continues in existence.