Case note

Solution outsourced? – Case comment on C-458/12 Lorenzo Amatori

Julian Emanuel Titze

LLM student, King’s College London

 

A transfer of undertaking providing for the continuity of employment relations is usually in the interest of employees. This was, however, not the case in the preliminary ruling Amatori handed down by the CJEU on 6th March 2014. In its first judgment on transfer of undertakings after the highly contested ruling in Alemo-Herron[1] last year, the Court clarified the freedom of action Member States enjoy to define a transfer beyond the Acquired Rights Directive[2]. Upon the particular facts of Amatori, the application of this finding seems to be in conflict with the purpose of the Directive.

 

The facts of the case concern an outsourcing operation by Telecom Italia. The liberalization of the telecommunication market in Italy resulted in increased competitive pressure. As the incumbent, Telecom Italia carried out a reorganisation in 2010 to drive down costs.[3] It decided to formally split its IT operations department and outsource part of them. The operation of the software and testing services was bundled and transferred to a subsidiary company called ‘Shared Service Center’. The innovation and design operations were kept in the mother company and continued to collaborate with the outsourced employees.

Lorenzo Amatori and other claimants sought a declaration from the Tribunale di Trento that the transfer could not be relied on and their employment with Telecom Italia continued. On 20th September 2012 the Italian court decided to stay its proceedings and make a preliminary reference to the CJEU to ask the Court whether the Acquired Rights Directive 2001/23 precluded national legislation such as article 2112 of the Italian Civil Code. It provides for the continuity of employment relations without the employee’s consent in the case of a transfer of an economic entity that retains its identity. It allows the transferor to identify a functionally autonomous economic entity for the purpose of the transfer.

The question arose whether the Directive precluded defining a transfer without the need to identify a functionally autonomous economic entity existing before the time of the transfer. Linked to this issue is Member States’ freedom of action in the context of a partial minimum harmonization in the area. The application of implementing measures is particularly problematic where a transfer of undertaking is to the material detriment of an employee.

Having revisited the notorious notion of a transfer of undertaking (I), the case revealed the ambiguous nature of a transfer for employees (II).

 

I) The notion of a directive transfer revisited

The Court explained that an economic entity to be transferred must have been independent before the transfer, whereas the transferor’s control over the transferee is immaterial to fall within the scope of the Acquired Rights Directive.

 

A) Independence of the economic entity before the transfer

The CJEU’s point of departure is to recall its previous case law on the notion of a business transfer under Article 1 of the Directive. There must be an economic entity that retains its identity (Spijkers[4] criteria). In addition, the object of this transfer must be a stable economic entity with a sufficient degree of functional autonomy.[5] As can be deduced from Art. 6(1) of the Directive, this autonomy need not be preserved in the transferee’s organizational structure, i.e. a transfer cannot be avoided by a reorganization following the transfer.[6]

However, “the use of the word ‘preserved’ in the first and fourth subparagraphs of Article 6(1) means that the independence of the entity transferred must, in any event, exist before the transfer” (Amatori paragraph 34). If a transferor bundles specific operations ad hoc in order to source them out, it is doubtful whether this will be the case. The present case is therefore likely to fall outside the scope of the Directive. Was there not a differing provision in Italian law, this would be a new way to avoid the application of the transfer guarantees. Arguably, the transferee doesn’t have the economic advantage of taking over a business as a going concern in such a case. Nevertheless, this seems to be an easy way to circumvent the guarantees of the Directive in Member States other than Italy.

 

B) Control over transferee immaterial

Unsurprisingly, the Court rejected the claimants’ argument that there cannot be a transfer of an undertaking where the transferor exercises control over the transferee, notably a subsidiary. As the Court had decided before, the companies in question may well be part of the same group.[7] The emphasis of the Court on the formal separation of distinct legal personalities aims to avoid abuse and guarantee the safeguard of the rights of employees. However, this line of reasoning sits uncomfortably with the CJEU’s functional notion of an employer in the Heineken[8] case and does not sound very convincing, where a transfer is to the material detriment of an employee[9].

 

II) The ambiguous nature of a transfer for employees

The Court makes it clear that Member States are free to adopt a wider concept of a transfer than the Directive. Upon the particular facts of the main proceeding, its application of this finding appears to be in conflict with the objective of the directive.

A)     A partial minimum harmonisation

Having indicated that services bundled ad hoc to be outsourced are not covered by the Directive, the CJEU analyses whether a national law such as article 2112 Italian Civil Code is compatible with the Directive. By not requiring functional autonomy before the transfer, Italian law essentially adopts a broader notion of a transfer than the directive.

The Court refers to the preamble of the Directive providing for the protection of employees by appropriate measures. “Therefore, the mere lack of functional autonomy of the entity transferred cannot, in itself, prevent a Member State from ensuring in its national law for the safeguarding of employees’ rights after the change of the employer” (paragraph 39). To support this finding the Court refers to Article 8 of the directive allowing for regulations more favourable to employees than the directive itself (minimum harmonisation). Moreover, it refers to the fact that Article 4(1) of the Directive doesn’t harmonise the general protection against dismissal in national law, but merely excludes a dismissal on the ground of a transfer itself (partial harmonisation).

This is an important finding for the UK. Its TUPE Regulation[10] also adopts a broader notion of a business transfer. The legal effects of a transfer are not only attached to a ‘directive transfer’ under Art 3(1)(a), but also beyond the scope of the directive to service provision changes under Art 3(1)(b). The contested recourse in Alemo-Herron to the transferee’s freedom to carry out a business under Article 17 of the Charter of Fundamental Rights has been interpreted as changing the nature of the harmonisation of business transfers from “floor to ceiling”[11]. This threw some doubts on the compatibility of the TUPE regulation. Amatori now makes it clear that Member States remain free to adopt a wider concept of a business transfer than the Directive. However the Court should have explained this distinction in the judgment. Arguably, it is based on the fact that the notion of a transfer discussed in Amatori defines the scope of application of the directive, whereas Alemo-Herron concerned the interpretation of its legal effects. It is unfortunate that the Court decided to deal with the case without a written opinion of an Advocate General. Upon closer examination Amatori contains new questions of law that should have been further analysed.

In summary, if the Tribunal di Trento finds that the outsourced services were not functionally autonomous before the transfer – as indicated by the CJEU – the Directive doesn’t preclude the tribunal from attaching the legal effects of a business transfer to this operation. It should be noted that in any case, the Italian courts should verify if article 2112 Italian Civil Code is really intended to deviate from the directive or if its interpretation should be modified in line with the interpretation of the CJEU.

 

B) An application of the Directive in conflict with its purpose

In order to approve of Member States’ freedom of action to adopt a broader notion of a transfer, the Court refers to the need of protecting employees from the risks of business transfer. With reference to Rask[12] the Court recalls that the aim of the Directive is to “ensure that the employee is protected in his relations with the transferee to the same extent as he was in his relations with the transferor under the legal rules of the Member State concerned” (paragraph 41). No reference is made to the most recent ruling on the directive in Alemo-Herron. In that judgment, the Court suggested for the first time that the objective of the Directive was not only protecting employees concerned by a transfer, but to ensure “a fair balance between the interests of those employees (…) and those of the transferee”[13]. It can be inferred that the Court’s Ninth Chamber doesn’t seem to endorse such a re-interpretation of the objective of the Directive.

Unfortunately, it did not take into account the characteristics of the corporate transfer at hand. Upon the particular facts of the main proceeding, the assumption that a wider transfer notion under Italian law was in line with employee protection was mistaken. In fact, Mr. Amatori sought to defend himself against an outsourcing transfer materially undesirable for him.

In Member States like Italy where collective agreements are legally binding on the parties, employers such as Telecom Italia use transfer arrangements in a purposeful way to modify the employment conditions of their employees.[14] This can be done by transferring staff to a (subsidiary) company bound by a less generous collective agreement. If the wording of Art 3(3) of Directive 2001/23 seems to allow such practice, the Court’s ruling in Scattolon has created a heated debate whether the purpose of the Directive precludes any overall deterioration of collective agreement provisions. A preliminary reference[15] by the Austrian Supreme court in the proceeding between the Austrian Trade Union Federation and Austrian Airlines about the continued effect of a defunct collective agreement of the transferor could clarify matters.

The underlying contradictions about the purpose and effect of the Acquired Rights Directive that surfaced in Alemo-Herron remained undiscussed in Amatori. It is to be hoped that the preliminary reference by the Austrian Supreme Court will give rise to an extended Advocate General’s opinion engaging with corporate practice and the rationale of the Directive. For the time being, Amatori exemplifies that the extending the scope of a transfer is ambiguous for employees. If the legal consequences of a transfer can include a deterioration of collectively agreed work conditions, a closer scrutiny of transposing regulation will be warranted. The Court must double-check whether Member States’ regulations going beyond the directive are “more favourable to employees” (Article 8 of the Directive) upon the particular facts of a case. In the absence of legally binding collective agreements under UK law, this should not be a problem for the compatibility of the British TUPE regulation.

 


[1] C-426/11

[2] Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses

[3] See http://2010annualreport.telecomitalia.com/sren/Internalstakeholders/Industrialrelations.html

[4] C-24/85

[5] C-108/10 Scattolon

[6] C-466/07 Klarenberg

[7] C-234/98 Allen

[8] C-242/09 Albron Catering

[9] This is the case where the transferee is subject to a collective agreement binding on the employee that is less generous than one concluded with the transferor, cf. II B)

[10] Transfer of Undertakings (Protection of Employment) Regulations (SI 2006 No. 246) transposing the Acquired Rights Directive into UK law

[11] Prassl J, ‘Freedom of Contract as a General Principle of EU Law? Transfers of Undertakings and the Protection of Employer Rights in EU Labour Law Case ’ 42 Industrial Law Journal 434

[12] C-209/91 – the very first case applying the directive to outsourcing

[13] C-426/11, [25]

[14] http://eulawradar.com/case-c-45812-lorenzo-amatori-transfer-of-undertakings-and-telecom-italia/ with reference to the concerns of the Italian judge in the main proceeding

Case note, News/notes

Case Note on C-466/12 Svensson

Justin Koo, PhD Candidate at King’s College London

 

The much anticipated hyperlinking case of Svensson[1] was delivered by the CJEU on the 13th February 2014. Such was the importance of the impending decision, several cases were stayed pending its outcome – C More Entertainment (Case C-279/13),[2] Bestwater (Case C-348/13)[3] and Paramount v B Sky B.[4] Oddly enough, there was no Advocate General’s Opinion which was surprising given the potential implications of the case including the undermining of the Internet as well as the possibility of changes for use and licensing of copyright works online.

The dispute at hand concerned the provision of clickable hyperlinks to the claimant’s newspaper articles. As such the claimants argued that the provision of clickable links by the defendant made the works available to the public and as a result was a communication to the public under Article 3(1) of the Information Society Directive 2001. In response the defendant argued that providing links to works communicated to the public on other websites does not constitute copyright infringement. Furthermore, the act of hyperlinking was not a transmission of the work as it involved mere indication to their clients of websites containing works of interest. In light of this, the Swedish court referred 4 questions to the CJEU (only the first three will be discussed in this article):

(1) If anyone other than the holder of copyright in a certain work supplies a clickable link to the work on his website, does that constitute communication to the public within the meaning of Article 3(1) of Directive [2001/29]?

(2) Is the assessment under question 1 affected if the work to which the link refers is on a website on the Internet which can be accessed by anyone without restrictions or if access is restricted in some way?

(3) When making the assessment under question 1, should any distinction be drawn between a case where the work, after the user has clicked on the link, is shown on another website and one where the work, after the user has clicked on the link, is shown in such a way as to give the impression that it is appearing on the same website?

(4) Is it possible for a Member State to give wider protection to authors’ exclusive right by enabling communication to the public to cover a greater range of acts than provided for in Article 3(1) of Directive 2001/29?’

The CJEU in delivering its judgment addressed the first three questions together interpreting it to mean whether “the provision on a website of clickable links to protected works available on another website constitutes an act of communication to the public…where on that other site the works concerned are freely accessible.” Thus, the question for the Court in simple form was whether the act of hyperlinking already freely available works on the Internet was a communication to the public requiring authorisation. In order to determine this, the Court followed the established rule that the act must be a ‘communication’ and to a ‘public’.[5] Following this, the CJEU held that the provision of clickable links was an act of communication because it made the works available and moreover, it was to a public because the act of communication was made available to an indeterminate and fairly large number of recipients – Internet users.[6]

However, for the defendant’s act of hyperlinking to require the claimant’s authorisation, the communication must have been made to a new public. That is a public not taken into account by the copyright holders when they authorised the initial communication to the public.[7] But as the works being linked to were already freely accessible on the Internet, the Court held that the defendant’s links were not directed at a new public because the initial communication by the claimant would include all of the defendant’s public because the works were freely available to any Internet user. In other words, there was no new public because the initial communication was aimed to all Internet users in virtue of it being freely accessible. Therefore, it was irrelevant for the Court whether the works were being displayed on the defendant’s page so as to give the impression that the information originated from there rather than from an external source.

Despite the Court’s finding that the defendant’s act was not a communication to the public requiring authorisation, the possibility is left open that an act of hyperlinking can amount to an infringement of Article 3(1) where the provision of the link makes accessible a work which is not ordinarily accessible for example through the circumvention of security procedures on the website being linked to. As a result of this the hypothetical question must be asked whether a hyperlink to a work that was uploaded without permission would amount to an infringement of Article 3(1) (for example links to websites streaming unauthorised content such as films or sports). This is problematic not only because the Svensson case does not give us clear guidance about the answer but also because of the general undesirability of the criteria used in the Svensson case.

In the first place, the new public criteria should not be used given that it was expressly rejected in the preparatory works of the Berne Convention. Instead the concept of the ‘organisation other than the original’ was adopted under Article 11bis(1)(ii) and that is the correct criterion to be used. Secondly, from a normative perspective it is highly questionable whether the act of hyperlinking should attract copyright infringement. This is because the act of hyperlinking is essential to the infrastructure of the Internet and moreover, is more about facilitating access to works than causing actual use and infringement. As such the act of hyperlinking should fall outside the scope of the communication to the public right given its technological and informational purpose. However, if this is ignored, a useful alternative may be to treat hyperlinks in terms of secondary liability akin to authorisation in Australian copyright law or contributory liability in American copyright law.

Although many a copyright lawyer breathed a sigh of relief on hearing that hyperlinking does not amount to a communication to the public on the facts of Svensson, the CJEU’s handling of the case leaves a lot to be desired.


[1] Case C-466/12 Svensson and others v Retrierver Sverige AB

[2] Case C-279/13 C More Entertainment AB v Sandberg

[3] Case C-348/13 Best Water International v Mebes and Potsch

[4] Paramount Home Entertainment International Ltd and others v British Sky Broadcasting Ltd and others [2013] EWHC 3479 (Ch)

[5] See Case C-607-11 ITV Broadcasting Ltd v TV Catchup Ltd

[6] See Case C-306/05 SGAE v Rafael Hoteles SL

[7] See SGAE v Rafael Hoteles and Case C-136/09 Organismos Sillogikis Diacheirisis Dimiourgon Theatrikon kai Optikoakoustikon Ergon