European Union: Increased Employee Protection In Belgian Insolvency Proceedings By Transfer Of Undertakings

Judgment of Court of Justice of the European Union

On 16 May 2019, the Court of Justice of the European Union (the "ECJ") held that European 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 (the "Directive"), must be interpreted as precluding national legislation, which, in the event of a transfer of a business which has taken place in proceedings for judicial restructuring by transfer under judicial supervision applied with a view to maintaining all or part of the transferor or its activity, entitles the transferee to choose the employees which it wishes to keep.

On 23 April 2012, Echo NV entered into a judicial reorganisation proceeding. A collective agreement could not be reached and on 19 February 2013, proceedings for judicial restructuring by transfer under judicial supervision ("JRTJ") were initiated. On 22 April 2013, Prefaco NV took over the business of Echo NV together with two-thirds of the total employees of the transferor.

Ms. Plessers, who is one of the dismissed employees, argued that Article 61 § 3 of the Belgian Law on Business Continuity (now Article XX.86 § 3 of the Code of Economic Law) is in breach of the Directive. According to Article 61 § 3 of the Law on Business Continuity, the transferee can choose which employees it wishes to keep, provided that the decision is dictated by technical, economic and organisational reasons and that the choice is carried out without unlawful distinction (the so-called "right of option"). This provision indeed deviates from the principle that the employee's rights and obligations arising from an employment contract existing on the date of a transfer will be transferred to the transferee (Article 3(1) of the Directive).

The question before the ECJ was whether the right of option for the transferee under Belgian law, insofar as the JRTJ is applied with a view to maintaining all or part of the transferor or its activities, is compatible with the Directive.

In order to answer this question, the ECJ had to determine whether:

  • the "right of option" granted to the transferee falls under the exception laid down in Article 5(1) of the Directive, which requires that the transferor is subject to a bankruptcy proceeding or any analogous insolvency proceedings which have been instituted in view of the liquidation of the transferor's assets, and are under the supervision of a competent public authority;

and, if not, whether:

  • Articles 3 and 4 of the Directive preclude the Belgian "right of option".

The ECJ held that the choice granted by Belgian law to the transferee to not keep on all employees does not satisfy the cumulative conditions laid down in Article 5(1) of the Directive, and that, consequently, transfers carried out in such circumstances must comply with Articles 3 and 4 of the Directive. This implies that dismissals which occur in the context of the transfer of an undertaking must be justified by economic, technical or organisational reasons relating to employment which do not intrinsically relate to that transfer.

Yet, current Belgian legislation does not impose on the transferee a requirement to justify its choice with regard to the transferor's employees who are made redundant and to prove the economic, technical or organisational reasons of such redundancies.

As a result, according to the ECJ, the application of Article XX.86 § 3 of the Code of Economic Law seriously jeopardises the principal objective of the Directive, i.e., to protect employees against unjustified dismissals in the event of a transfer of undertaking. The ECJ concluded that the Directive prohibits the transferee from choosing the employees whom it wishes to keep after the transfer in the case at hand.

Implications for Belgium

Belgian law will have to be adapted to fall in line with the Directive.

As long as Article XX.86 §3 of the Code of Economic Law has not been amended, employees who were dismissed in the framework of JRTJ may bring an action against the Belgian State to claim damages because (i) the State has failed to correctly implement the Directive or (ii) Belgian courts have not correctly interpreted Article XX.86 §3 of the Code of Economic Law. However, in that latter case, the dismissed employees must also prove that they suffered damages due to this wrongful behaviour. In other words, they must demonstrate that they were not dismissed for economic, technical or organisational reasons, which might be a difficult hurdle to overcome.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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