Albron Catering BV v. FNV Bondgenoten and John Roest, European Court of Justice, case no. C-242/09, 21 October 2010
The Albron case made headlines in the Dutch press as a victory for the little guy. The Dutch labour union FNV and 4 ex-Heineken employees took Albron to court in connection with an outsourcing by Heineken of its catering activities to Albron. At issue was the use within the Heineken group of a special purpose vehicle (Personnel BV) as the formal contracting party for all Heineken employees and a social plan between Heineken and the labour unions stipulating that an outsourcing did not qualify as a transfer of undertaking (TUPE). The rationale put forward by Heineken and Albron was that the unit to be outsourced (catering) was not the same as the formal employer (Personnel BV) and therefore no TUPE situation could arise.
FNV and the ex-employees disagreed. In their view, Directive 2001/23/EG was intended to protect the rights of employees, irrespective of who the formal employer is. FNV and the ex-employees therefore sought a declaratory ruling confirming that the catering outsourcing qualified as a TUPE and the catering employees were therefore entitled to retention of their Heineken employment terms. The plaintiffs further sought payment of back wages and statutory interest from March 2005 on, to be increased by a statutory penalty of 50%.
After the plaintiffs won on virtually all points at the cantonal court level, Albron took the case to the Amsterdam Court of Appeals who submitted a request for a preliminary ruling from the European Court of Justice regarding the interpretation of Directive 2001/23/EG. The Court of Justice confirmed that it is possible to have two "transferors" within the meaning of the Directive, the formal employer and the de facto employer, i.e. the unit outsourced.
While the case has been remanded to the Amsterdam Court of Appeals for final judgement, it is all but certain that Albron will be required to compensate the plaintiffs for back wages. In their wake will no doubt follow the other 40-odd employees involved in the outsourcing.
What happens now with the original service agreement between Heineken and Albron? As in any service agreement, the parties will have agreed upon a scope of services and rates. In the context of an outsourcing, it is common for these rates to bear an initial resemblance to the legacy cost base (i.e. employees) to be assumed by the insourcer. The outsourcer however will demand material adjustments, for example by requiring market-conform rates to apply irrespective of the legacy cost base and/or by demanding cost reductions as measured from the legacy cost base. The risk for achieving these cost reductions is usually allocated to the insourcer, as the party with the greatest expertise in the provision of these services and the only party capable of deploying its personnel for the benefit of multiple customers.
Albron undoubtedly offered highly attractive commercial terms in order to win the Heineken catering contract. Since labour is one of the major cost components for catering, the factor wage would weigh heavily. If, as FNV has suggested, the average difference in compensation between Heineken and Albron was 35% and in some cases as high as 55%, the savings Albron could have offered to Heineken would have been material.
Suppose Albron "guaranteed" this level of cost-savings to Heineken. Can Albron retract this guarantee in the face of the Court of Justice ruling? To do so, Albron would have to plead error (mutual or otherwise) or perhaps unforeseen circumstances. The former ground would not succeed as a lack of knowledge of the law generally does not qualify as an error that justifies dissolution or alteration of a contract. The ground of unforeseen circumstances would be equally unsuccessful as the type of developments envisioned here are of the truly extraordinary type. The outcome of this case on the other hand has been predicted by legal and non-legal experts for years now.
More probable is that no guarantee was given by Albron but rather an arrangement reached early on between Albron and Heineken regarding the allocation of risks associated with this lawsuit. The rumour in the market is that a significant sum of money was set aside at the time of the outsourcing for this contingency, presumably by Heineken as compensation for Albron. In that case, the cost-savings offered by Albron in 2005 will be returned to Albron by Heineken, in whole or in part, once final judgment is issued by the Amsterdam Court of Appeals.
By that time, the catering contract between Albron and Heineken will have expired since most catering is tendered on a cycle of 3 to 5 years. Heineken will then have the option of bringing the catering activities back in-house or retendering the contract to the market. In the latter case, the legacy cost base of Heineken anno 2005 will once again play a role. Which caterer will bite next?
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.