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calendar 16 October 2022
globus Norway

It can be hard to understand when a transfer of undertaking takes place, and the special rules apply. In a recent case, the court found that a transfer had not occurred after a company lost a customer to a competitor. This was despite the competitor performing the same service, the same way, for the same customer, with some of the same employees as the company.

A company performing ground handling services for airlines terminated 172 employees after losing a contract for one of its customers. The company used to provide services for the customer in 15 different airports. However, following a tender, the ground handling services for three of the 15 airports went to a competitive company.

Due to a staffing shortage, the competitor employed 29 of the company’s terminated employees. Because of this, 38 other terminated employees expected to be employed as well, based on the rules on transfer of undertakings.

Identity confusion, not identity transfer

A transfer of undertakings occurs when an independent economic unit transfers and keeps its identity. The court concluded that a transfer of undertakings had not occurred because there was no independent economic unit, and the identity was not intact.

A ground handling company’s services mainly consists of the employees’ manual labour and the equipment used. The company’s main assets are crucial to determine if a transfer has taken place. The court found that there had not been an independent economic unit tied to the customer. The company performed services for many other customers at the three lost airports. Neither the employees nor the equipment was specific to the customers. All the employees performed the same service for all of the company’s customers using the same equipment.

Despite the similarities, the court concluded that the identity had changed. The identity threshold had to be higher because the change of activities was caused by a tender. Even so, the court pointed out that the competitor had hired less than 10 % of the employees. In addition, the competitor had not taken over any of the company’s equipment or immaterial assets. The infrastructure was further owned and assigned by the airport. The identity transfer was therefore minimal.

IUNO’s opinion

When there is a risk of a transfer of undertakings, IUNO recommends that companies do a case-by-case assessment. Although the number of transferred employees was not sufficient to constitute a transfer of undertakings in this case, different circumstances could have led to the opposite result. Factors such as the industry or the number of transferrable assets can play a decisive role in the assessment.

[The Norwegian Court of Appeals’ judgement in case LG-2022-13283 of 30 September 2022]

A company performing ground handling services for airlines terminated 172 employees after losing a contract for one of its customers. The company used to provide services for the customer in 15 different airports. However, following a tender, the ground handling services for three of the 15 airports went to a competitive company.

Due to a staffing shortage, the competitor employed 29 of the company’s terminated employees. Because of this, 38 other terminated employees expected to be employed as well, based on the rules on transfer of undertakings.

Identity confusion, not identity transfer

A transfer of undertakings occurs when an independent economic unit transfers and keeps its identity. The court concluded that a transfer of undertakings had not occurred because there was no independent economic unit, and the identity was not intact.

A ground handling company’s services mainly consists of the employees’ manual labour and the equipment used. The company’s main assets are crucial to determine if a transfer has taken place. The court found that there had not been an independent economic unit tied to the customer. The company performed services for many other customers at the three lost airports. Neither the employees nor the equipment was specific to the customers. All the employees performed the same service for all of the company’s customers using the same equipment.

Despite the similarities, the court concluded that the identity had changed. The identity threshold had to be higher because the change of activities was caused by a tender. Even so, the court pointed out that the competitor had hired less than 10 % of the employees. In addition, the competitor had not taken over any of the company’s equipment or immaterial assets. The infrastructure was further owned and assigned by the airport. The identity transfer was therefore minimal.

IUNO’s opinion

When there is a risk of a transfer of undertakings, IUNO recommends that companies do a case-by-case assessment. Although the number of transferred employees was not sufficient to constitute a transfer of undertakings in this case, different circumstances could have led to the opposite result. Factors such as the industry or the number of transferrable assets can play a decisive role in the assessment.

[The Norwegian Court of Appeals’ judgement in case LG-2022-13283 of 30 September 2022]

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