Judgment of the Court (Fifth Chamber), 11 July 1985

In Case 105/84 REFERENCE to the Court under Article 177 of the EEC Treaty by the Vestre Landsret [Western Division of the Danish High Court] for a preliminary ruling in the proceedings pending before that court between

THE COURT (Fifth Chamber) composed of: Lord Mackenzie Stuart, President, O. Due (President of Chamber), U. Everling, Y. Galmot and R. Joliet, Judges, Advocate General: Sir Gordon Slynn Registrar: H. A. Rühl, Principal Administrator

after considering the observations submitted on behalf of: Foreningen af Arbejdsledere i Danmark, by L. Svenning Andersen, Danmols Inventar A/S, in liquidation, by Mr Søgaard-Christensen, the Commission of the European Communities, by H. P. Hartvig and J. F. Buhl, after hearing the Opinion of the Advocate General delivered at the sitting on 30 April 1985,

gives the following

JUDGMENT

Decision

The applicability of Directive No 77/187 where an undertaking suspends payment of its debts

The first question

The second question

Costs

1. By a request dated 10 April 1984, which was received at the Court on 16 April 1984, the Vestre Landsret [Western Division of the Danish High Court] referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions concerning the interpretation of Council Directive No 77/187/EEC of 14 February 1977 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 businesses (Official Journal 1977, L 61, p. 26).

2. Those questions were raised in proceedings instituted by the Foreningen af Arbejdsledere i Danmark, acting on behalf of Hans Erik Mikkelsen, against Danmols Inventar A/S, a company in liquidation.

3. Mr Mikkelsen was employed by Danmols Inventar A/S as works foreman. On 3 September 1981 that company announced that it was suspending payment of its debts and dismissed Mr Mikkelsen with effect from 31 December 1981.

4. With effect from 19 October 1981, the undertaking was transferred to Danmols Inventar- og Møbelfabrik A/S, a company in formation, of which Mr Mikkelsen became a co-owner, acquiring a 33% shareholding and 50% of the voting rights at the General Meeting; in addition he was appointed Chairman of the Board of Directors. He continued to carry out his duties as works foreman in the new company, doing the same work and receiving the same salary as prior to the transfer.

5. On 2 December 1981 Danmols Inventar A/S was adjudged insolvent, whereupon Mikkelsen filed a claim against the company for compensation corresponding to two months' pay, from 1 November to 31 December 1981, for the premature termination of his employment contract, and for holiday pay for the period from 1 January to 31 October 1981.

6. By a judgment of 6 September 1982 the bankruptcy court ruled that Mikkelsen had no claim against the company because, in the light of the background to the law on the transfer of undertakings and, in particular, the EEC directive on which it is based and the explanatory memorandum to the bill, Article 2 of the law must be interpreted to the effect that the transferor of the undertaking is released from all his obligations towards the employees of the undertaking since all those obligations are transferred to the transferee. The Danish law in question, namely law No 111 of 21 March 1979 on the rights of employees on the transfer of undertakings, was adopted in order to implement Council Directive No 77/187 of 14 February 1977.

7. That directive, which was adopted on the basis of, in particular, Article 100 of the Treaty, is intended, according to its preamble, to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded. To that end, Article 3 (1) provides for the transfer of the transferor's rights and obligations arising from a contract of employment or from an employment relationship. Article 4 (1) provides for the protection of the workers concerned against dismissal by the transferor or the transferee where the dismissal is due solely to the transfer. In addition, Article 6 of the directive requires the transferor and the transferee to inform and consult the representatives of the workers affected by the transfer. Finally, Article 7 provides that the directive is not to affect the right of Member States to apply or introduce laws, regulations or administrative provisions which are more favourable to employees.

8. On appeal the case came before the Vestre Landsret, which took the view that its decision depended upon the interpretation to be given to Directive No 77/187. It therefore stayed the proceedings and referred the case to the Court for a preliminary ruling on the following questions:

9. Since the transfer of the undertaking in question took place after the transferor had announced that it was suspending payment of its debts but before it was adjudged insolvent, it is appropriate to refer in the first place to the judgment of 7 February 1985 (Case 135/83, Abels, [1985] ECR 479), in which the Court held that:

10. It follows that the mere fact that the transfer of an undertaking, business or part of a business has occurred after the transferor has suspended payment of its debts is not enough to exclude the said transactions from the scope of Directive No 77/187. It therefore applies to a transfer as defined in Article 1 (1) which is effected in the course of a procedure, or at a stage, prior to the commencement of liquidation proceedings.

11. By the first question the Vestre Landsret asks essentially whether Article 3 (1) of Council Directive No 77/187 of 14 February 1977 must be interpreted as applying also to the transfer of the rights and obligations of persons who were employed by the transferor at the date of the transfer but who do not continue to work as employees of the transferee.

12. The parties to the main proceedings and the Commission suggest that that question should be answered in the negative. That follows both from a linguistic interpretation of the provision and from an interpretation based on the objectives of the directive. The actual wording of the provision in question shows that it applies only where there is a change of employer, in other words where the person concerned continues as an employee of the transferee. That conclusion is in their view supported by reference to the aim of the directive, which is to ensure the continuity of the employment relationship of the employee vis-à-vis the person acquiring the undertaking.

13. It must be noted that, according to the first subparagraph of Article 3 (1) of the directive, the transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee. The second subparagraph states however that Member States may provide that, after the date of transfer within the meaning of Article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship. Moreover, according to Article 3 (2) the transferee shall continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement.

14. In this connection it is also necessary to refer to Article 4 (1) of Directive No 77/187, which provides that the transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. However, that provision is not to stand in the way of dismissals that may take place for economic, technical or organizational reasons entailing changes in the workforce.

15. Taken together those provisions show that the directive is intended to safeguard the rights of workers in the event of a change of employer by making it possible for them to continue to work for the transferee under the same conditions as those agreed with the transferor. As the Court stated in its judgment of 7 February 1985 (Case 19/83, Wendelboe [1985] ECR 462), it is intended to ensure, as far as possible, that the employment relationship continues unchanged with the transferee, in particular by obliging the transferee to continue to observe the terms and conditions of any collective agreement Article 3 (2)) and by protecting workers against dismissals motivated solely by the fact of transfer (Article 4(1)).

16. The protection which the directive is intended to guarantee is however redundant where the person concerned decides of his own accord not to continue the employment relationship with the new employer after the transfer. That is the case where the employee in question terminates the employment contract or employment relationship of his own free will with effect from the date of the transfer, or where that contract or relationship is terminated with effect from the date of the transfer by virtue of an agreement voluntarily concluded between the worker and the transferor or the transferee of the undertaking. In that situation Article 3 (1) of the directive does not apply.

17. For those reasons it must be held in reply to the first question that Article 3 (1) of Council Directive No 77/187 of 14 February 1977 must be construed as not covering the transfer of the rights and obligations of persons who were employed by the transferor at the date of the transfer, but who, by their own decision, do not continue to work as employees of the transferee.

18. The second question concerns the meaning of the term employee in Directive No 77/187.

19. By that question the Vestre Landsret seeks to establish whether or not a person who holds a large stake in a company and who is also the Chairman of its Board of Directors may be regarded as an employee of that company within the meaning of the directive.

20. In that regard the plaintiff in the main proceedings claims that the term employee means a person who works for an employer and is subject to the instructions and orders of that employer. That does not apply to a person who carries out work for a company in which he holds a large percentage of the shares.

21. The defendant in the main proceedings, on the other hand, maintains that the term employee within the meaning of Directive No. 77/187 does extend to a person who holds shares in, or is a member of the Board of Directors of, the company by which he is employed, provided that he does not occupy a dominant position on that Board.

22. The Commission observes in the first place that it is necessary to establish a Community definition of the term employee within the meaning of Directive No 77/187. It takes the view that the term covers any person who in return for remuneration carries out work on behalf of, and as the subordinate party in a relationship with, another person. That definition does not mean that a person cannot be regarded as an employee within the meaning of the directive because he possesses a certain, or even a substantial, shareholding in the undertaking. On the other hand, the directive does not apply where the person's position in the undertaking is such that he is no longer the subordinate party in an employment relationship.

23. It is common ground that Directive No 77/187 does not contain an express definition of the term employee. In order to establish its meaning it is necessary to apply generally recognized principles of interpretation by referring in the first place to the ordinary meaning to be attributed to that term in its context and by obtaining such guidance as may be derived from Community texts and from concepts common to the legal systems of the Member States.

24. It may be recalled that the Court, inter alia in its judgment of 23 March 1982 (Case 53/81, Levin, [1982] ECR 1035), held that the term worker as used in the Treaty, may not be defined by reference to the national laws of the Member States but has a Community meaning. If that were not the case, the Community rules on freedom of movement for workers would be frustrated, since the meaning of the term could be decided upon and modified unilaterally, without any control by the Community institutions, by the Member States, which would thus be able to exclude at will certain categories of persons from the benefit of the Treaty.

25. It is necessary to consider whether similar considerations apply to the definition of the term employee in the context of Directive No 77/187. According to its preamble, the directive is intended to ensure that employees' rights are safeguarded in the event of a change of employer by providing for, inter alia, the transfer from the transferor to the transferee of the employees' rights arising from a contract of employment or from an employment relationship (Article 3) and by protecting employees against dismissals motivated solely by the fact of the transfer of the undertaking (Article 4).

26. It is clear from those provisions that Directive No 77/187 is intended to achieve only partial harmonization essentially by extending the protection guaranteed to workers independently by the laws of the individual Member States to cover the case where an undertaking is transferred. Its aim is therefore to ensure, as far as possible, that the contract of employment or the employment relationship continues unchanged with the transferee so that the employees affected by the transfer of the undertaking are not placed in a less favourable position solely as a result of the transfer. It is not however intended to establish a uniform level of protection throughout the Community on the basis of common criteria.

27. It follows that Directive No 77/187 may be relied upon only by persons who are, in one way or another, protected as employees under the law of the Member State concerned. If they are so protected, the directive ensures that their rights arising from a contract of employment or an employment relationship are not diminished as a result of the transfer.

28. In reply to the second question it must therefore be held that the term employee within the meaning of Directive No 77/187 must be interpreted as covering any person who, in the Member State concerned, is protected as an employee under national employment law. It is for the national court to establish whether that is the case in this instance.

29. The costs incurred by the Conmission of the European Communities, which has submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT (Fifth Chamber), in answer to the questions referred to it by the Vestre Landsret by a request of 10 April 1984, hereby rules:

(1) Article 3 (1) of Council Directive No 77/187 of 14 February 1977 must be construed as not covering the transfer of the rights and obligations of persons who were employed by the transferor at the date of the transfer, but who, by their own decision, do not continue to work as employees of the transferee.

(2) The expression employee within the meaning of Directive No 77/187 must be interpreted as covering any person who, in the Member State concerned, is protected as an employee under national employment law. It is for the national court to establish whether that is the case in this instance.

1 Language of the Case: Danish.

2 Translator's note: It will be noted that the English-language version of Directive No 77/87 uses a different word (employee) from that used in the Treaty (worker). In other language versions the same word is used in both texts.