CJEC, 6th chamber, January 25, 2001, No C-172/99

THE COURT (Sixth Chamber),

1. By order of 27 April 1999, received at the Court on 7 May 1999, the Korkein oikeus (Supreme Court) referred to the Court for a preliminary ruling under Article 177 of the EC Treaty (now Article 234 EC) a question on the interpretation of Article 1(1) of Council Directive 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 (OJ 1977 L 61, p. 26).

2. That question was raised in proceedings between Oy Liikenne Ab ('Liikenne'), a bus transport undertaking, and two of its drivers, Mr Liskojärvi and Mr Juntunen, concerning its refusal to grant them the same conditions of employment as those under which they had worked for their previous employer.

Legal background

3. Directive 77-187 applies, as stated in Article 1(1) thereof, to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger. Under Article 1(3), it does not apply to sea-going vessels.

4. Council Directive 92-50-EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts (OJ 1992 L 209, p. 1) is intended, as the 20th recital in its preamble states, to improve the access of service providers to procedures for the award of contracts, in order to eliminate practices that restrict competition in general and participation in contracts by other Member States' nationals in particular.

5. Article 1(a) of Directive 92-50 defines 'public service contracts' as contracts for pecuniary interest concluded in writing between a service provider and a contracting authority. Under Article 1(b), 'contracting authorities' are the State, regional or local authorities, bodies governed by public law, and associations formed by one or more of such authorities or bodies governed by public law.

6. Article 3(1) of Directive 92-50 prescribes that in awarding public service contracts contracting authorities are to apply procedures adapted to the provisions of the directive. Under Article 3(2), they must ensure that there is no discrimination between different service providers.

7. By virtue of Annex I A, to which Article 8 refers, Directive 92-50 covers inter alia land transport services.

The main proceedings

8. Following a tender procedure, Pääkaupunkiseudun yhteistyövaltuuskunta (Greater Helsinki Joint Board, YTV) awarded the operation of seven local bus routes, previously operated by Hakunilan Liikenne Oy ('Hakunilan Liikenne'), to Liikenne for three years.

9. Hakunilan Liikenne, which operated those routes with 26 buses, thereupon dismissed 45 drivers, 33 of whom - that is, all those who applied - were re-engaged by Liikenne. Liikenne also engaged 18 other drivers. The former Hakunilan Liikenne drivers were re-engaged on the conditions laid down by the national collective agreement in the sector, which are less favourable overall than those which applied in Hakunilan Liikenne.

10. When Liikenne replaced Hakunilan Liikenne, no vehicles or other assets connected with the operation of the bus routes concerned were transferred. Liikenne merely leased two buses from Hakunilan Liikenne for two or three months while waiting for the 22 new buses it had ordered to be delivered, and bought from Hakunilan Liikenne the uniforms of some of the drivers who entered its service.

11. Mr Liskojärvi and Mr Juntunen are among the 33 drivers dismissed by Hakunilan Liikenne and taken on by Liikenne. Since they considered that there had been a transfer of an economic entity between the two undertakings and they were therefore entitled to continue to enjoy the conditions of employment applied by their former employer, they brought an action against Liikenne in the Vantaan käräjäoikeus (Vantaa District Court). Liikenne denied that a transfer had taken place.

12. By judgment of 17 June 1996, the Vantaan käräjäoikeus ruled in favour of Mr Liskojärvi and Mr Juntunen. The Helsingin hovioikeus (Helsinki Court of Appeal) dismissed Liikenne's appeal against that decision by judgment of 23 October 1997, and Liikenne appealed on a point of law to the Korkein oikeus.

13. In its order for reference, the Korkein oikeus considers that the concept of a transfer of an undertaking remains unclear, especially in cases such as this one where the taking over of an activity is not based on a contract between the parties and no significant assets are transferred. It further observes that the context of the case before it is an award procedure conducted in accordance with Directive 92-50. Application of Directive 77-187 in such a context, while protecting the rights of employees, may obstruct competition between undertakings and prejudice the aim of effectiveness pursued by Directive 92-50. The Korkein oikeus is uncertain as to the interrelationship of the two directives in those circumstances.

14. Since it considered that the outcome of the case thus depended on the interpretation of Article 1(1) of Directive 77-187, the Korkein oikeus stayed the proceedings and referred the following question to the Court for a preliminary ruling:

'Is a situation in which the operation of bus routes passes from one bus undertaking to another as a consequence of a tender procedure under Directive 92-50-EEC onpublic service contracts to be regarded as a transfer of a business for the purposes of Article 1(1) of Directive 77-187-EEC?'

The question referred for a preliminary ruling

15. By its question the national court asks essentially whether the taking over by an undertaking of non-maritime public transport activities - such as the operation of scheduled local bus routes - previously operated by another undertaking, following a procedure for the award of a public service contract under Directive 92-50, may fall within the material scope of Directive 77-187, as set out in Article 1(1) of that directive.

16. Liikenne submits that the answer to the Korkein oikeus's question must necessarily be in the negative. First, Hakunilan Liikenne and itself did not enter into any contractual relationship when the contract was awarded and did not agree on any objective of transferring an operation. While the Court has held that a transfer may take place in two stages through the intermediary of a third party such as the owner or the person putting up the capital, YTV is not such a third party, since it is not the owner of the bus routes it awards or the assets needed to operate those routes. Second, a transfer must relate to an economic entity, and a bus route or even a group of routes clearly does not constitute such an entity. Third, the assets of Hakunilan Liikenne needed to operate the routes in question were not taken over by Liikenne. Fourth, the Hakunilan Liikenne drivers taken on by Liikenne were engaged at their request by Liikenne, which could moreover have recruited any worker entitled to carry on that occupation. Finally, application of Directive 77-187 to awards of road transport services would cause serious problems, as the successful undertaking would have to take on obligations it had no knowledge of.

17. Mr Liskojärvi and Mr Juntunen, the Finnish, Netherlands and United Kingdom Governments and the Commission submit that the test for establishing the existence of a transfer is whether the economic entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed. It makes no difference that the transfer takes place on the occasion of a procedure for the award of public contracts, that there is no direct contractual relationship between the transferor and the transferee, and that the transfer follows from a unilateral decision of the public authorities.

18. Mr Liskojärvi and Mr Juntunen consider that in those circumstances the Korkein oikeus's question should be answered in the affirmative. The three Governments which submitted observations pursuant to Article 20 of the EC Statute of the Court of Justice and the Commission submit that it is for the national court to determine, on the basis of all the factual circumstances of the transaction at issue in the main proceedings, whether a transfer actually took place in the present case.

19. It must be recalled that the aim of Directive 77-187 is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The fact that the activity carried on by such an entity is awarded successively to different operators by a public body cannot exclude the application of Directive 77-187, if passenger transport by bus does not involve the exercise of public authority (see, to that effect, Joined Cases C-173-96 and C-247-96 Sánchez Hidalgo and Others [1998] ECR I-8237, paragraphs 21 and 24).

20. The Court has thus held that Directive 77-187 may apply to a situation in which a public body which has contracted out its home-help service for persons in need or awarded a contract for the surveillance of some of its premises to one undertaking decides, on expiry or after termination of its contract with that undertaking, to contract out that service or award that contract to another undertaking (Sánchez Hidalgo, paragraph 34).

21. That conclusion cannot be challenged on the ground that the contract for bus transport in question was awarded following a public procurement procedure conducted in accordance with Directive 92-50. Directive 77-187 does not provide for any such exception to its scope, nor does Directive 92-50 contain any provision to that effect. So the circumstance that a transaction comes under Directive 92-50 does not of itself rule out the application of Directive 77-187 (see, similarly, the advisory opinions of the EFTA Court in Case E-2-95 Eidesund v Stavanger Catering A/S, Report of the EFTA Court 1 July 1995 - 31 December 1996, p. 1, paragraph 50, and Case E-3-96 Ask and Others v ABB Offshore Technology AS and Aker Offshore Partner AS, Report of the EFTA Court 1997, p. 1, paragraph 33).

22. The fact that the provisions of Directive 77-187 may in certain cases be applicable in the context of a transaction which comes under Directive 92-50 cannot be seen as calling into question the objectives of the latter directive. Directive 92-50 is not intended to exempt contracting authorities and service providers who offer their services for the contracts in question from all the laws and regulations applicable to the activities concerned, in particular in the social sphere or that of safety, so that offers can be made without any constraints. The aim of Directive 92-50 is that, in compliance with those laws and regulations and under the conditions it lays down, economic operators may have equal opportunities, in particular for putting into practice their rights of freedom of establishment and freedom to provide services.

23. In such a context, operators retain their room to manœuvre and compete with one another and submit different bids. In the field of passenger transport by scheduled bus services they may, for instance, adjust the standard of facilities of the vehicles and their performance in terms of energy and ecology, the efficiency of the organisation and methods of contact with the public, and, as with any undertaking, the profit margin desired. An operator who makes a bid must also be able to assess whether, if his bid is accepted, it will be in his interests to acquire significant assets from the present contractor and take over some or all of his staff, or whether he will be obliged to doso, and, if so, whether he will be in a situation of a transfer of an undertaking within the meaning of Directive 77-187.

24. That assessment, and that of the costs involved in the various possible solutions, are also part of the workings of competition and, contrary to Liikenne's submissions, cannot be regarded as disclosing an infringement of the principle of legal certainty. Any action in the field of competition will be subject to some uncertainty in relation to a number of factors, and it is the responsibility of operators to make realistic analyses. Admittedly, unlike its competitors, the undertaking which formerly had the contract knows precisely the costs it incurs in order to provide the service which is the subject of the contract; but this is inherent in the system and cannot justify not applying the social legislation, and that advantage is probably offset in most cases by the greater difficulty for that undertaking of changing its operating conditions in order to adapt them to the new conditions of the call for tenders, compared with competitors who make a bid from scratch.

25. The first answer to be given to the national court must therefore be that the taking over by an undertaking of non-maritime public transport activities - such as the operation of scheduled local bus routes - previously operated by another undertaking, following a procedure for the award of a public service contract under Directive 92-50, may fall within the material scope of Directive 77-187, as set out in Article 1(1) of that directive.

26. In view of the possible application of Directive 77-187 to a situation such as that before the national court, that court should, second, be given the criteria necessary to enable it to assess whether there was a transfer within the meaning of Article 1(1) of that directive in the present case. The national court observes in this respect that the takeover of the bus routes was not based on a contract between the old and new contractors and no significant assets were transferred between them.

27. The test for establishing the existence of a transfer within the meaning of Directive 77-187 is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (Case 24-85 Spijkers [1986] ECR 1119, paragraphs 11 and 12, and Case C-234-98 Allen and Others [1999] ECR I-8643, paragraph 23).

28. While the absence of any contractual link between the transferor and the transferee or, as in this case, between the two undertakings successively entrusted with the operation of bus routes may point to the absence of a transfer within the meaning of Directive 77-187, it is certainly not conclusive (Case C-13-95 Süzen [1997] ECR I-1259, paragraph 11).

29. Directive 77-187 is applicable wherever, in the context of contractual relations, there is a change in the natural or legal person responsible for carrying on the business and entering into the obligations of an employer towards employees of the undertaking.Thus there is no need, in order for that directive to be applicable, for there to be any direct contractual relationship between the transferor and the transferee: the transfer may take place in two stages, through the intermediary of a third party such as the owner or the person putting up the capital (see, inter alia, Joined Cases C-171-94 and C-172-94 Merckx and Neuhuys [1996] ECR I-1253, paragraphs 28 to 30, and Süzen, paragraph 12).

30. Directive 77-187 can therefore apply where there is no direct contractual link between two undertakings successively awarded a contract, following procedures for the award of public service contracts in accordance with Directive 92-50, for a non-maritime public transport service, such as the operation of scheduled local bus routes, by a legal person governed by public law.

31. For Directive 77-187 to be applicable, however, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (Case C-48-94 Rygaard [1995] ECR I-2745, paragraph 20). The term 'entity' thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective (Süzen, paragraph 13).

32. It is for the national court to establish if necessary, in the light of the guiding factors set out above, whether the operation of the bus routes at issue in the main proceedings was organised as an economic entity within Hakunilan Liikenne before being entrusted to Liikenne.

33. However, to determine whether the conditions for the transfer of an economic entity are satisfied, it is also necessary to consider all the factual circumstances characterising the transaction in question, including in particular the type of undertaking or business involved, whether or not its tangible assets such as buildings and movable property are transferred, the value of its intangible assets at the time of the transfer, whether or not the core of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. These are, however, merely single factors in the overall assessment which must be made, and cannot therefore be considered in isolation (see, in particular, Spijkers, paragraphs 13, and Süzen, paragraph 14).

34. So the mere fact that the service provided by the old and the new contractors is similar does not justify the conclusion that there has been a transfer of an economic entity between the two undertakings. Such an entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate, the operational resources available to it (Süzen, paragraph 15, Sánchez Hidalgo, paragraph 30, and Allen, paragraph 27; see also Joined Cases C-127-96, C-229-96 and C-74-97 Hernández Vidal and Others [1998] ECR I-8179, paragraph 30).

35. As pointed out in paragraph 32 above, the national court, in assessing the facts characterising the transaction in question, must take into account among other things the type of undertaking or business concerned. It follows that the degree of importance to be attached to the various criteria for determining whether or not there has been a transfer within the meaning of the directive will necessarily vary according to the activity carried on, and indeed the production or operating methods employed in the relevant undertaking, business or part of a business (Süzen, paragraph 18, Hernández Vidal, paragraph 31, and Sánchez Hidalgo, paragraph 31).

36. On this point, the Commission submits, referring to Süzen, that the absence of a transfer of assets between the old and new holders of the contract for bus transport is of no importance, whereas the fact that the new contractor took on an essential part of the employees of the old contractor is decisive.

37. The Court has indeed held that an economic entity may, in certain sectors, be able to function without any significant tangible or intangible assets, so that the maintenance of the identity of such an entity following the transaction affecting it cannot, logically, depend on the transfer of such assets (Süzen, paragraph 18, Hernández Vidal, paragraph 31, and Sánchez Hidalgo, paragraph 31).

38. The Court thus held that, since in certain sectors in which activities are based essentially on manpower a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over an organised body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis (Süzen, paragraph 21, Hernández Vidal, paragraph 32, and Sánchez Hidalgo, paragraph 32).

39. However, bus transport cannot be regarded as an activity based essentially on manpower, as it requires substantial plant and equipment (see, reaching the same conclusion with respect to driveage work in mines, Allen, paragraph 30). The fact that the tangible assets used for operating the bus routes were not transferred from the old to the new contractor therefore constitutes a circumstance to be taken into account.

40. At the hearing, the representative of the defendants in the main proceedings emphasised the economic value of the contract between the contracting authority YTV and Liikenne, and submitted that this was a significant intangible asset. That value cannot be denied; but in the context of an award which is to be renewed, the value of such an intangible asset in principle falls to nil on the expiry of the old contract, since the award is necessarily thrown open again.

41. If an award procedure such as that at issue in the main proceedings provides for the new contractor to take over the existing contracts with customers, or if the majority of the customers may be regarded as captive, then it should nevertheless be considered that there is a transfer of customers.

42. However, in a sector such as scheduled public transport by bus, where the tangible assets contribute significantly to the performance of the activity, the absence of a transfer to a significant extent from the old to the new contractor of such assets, which are necessary for the proper functioning of the entity, must lead to the conclusion that the entity does not retain its identity.

43. Consequently, in a situation such as that in the main proceedings, Directive 77-187 does not apply in the absence of a transfer of significant tangible assets from the old to the new contractor.

44. The second answer to be given to the national court must therefore be that Article 1(1) of Directive 77-187 is to be interpreted as meaning that

- that directive may apply where there is no direct contractual link between two undertakings which are successively awarded, following procedures for the award of public service contracts conducted in accordance with Directive 92-50, a non-maritime public transport service - such as the operation of scheduled local bus routes - by a legal person governed by public law;

- in a situation such as that in the main proceedings, Directive 77-187 does not apply where there is no transfer of significant tangible assets between those two undertakings.

Costs

45. The costs incurred by the Finnish, Dutch and United Kingdom Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT (Sixth Chamber),

in answer to the question referred to it by the Korkein oikeus by order of 27 April 1999, hereby rules:

1. The taking over by an undertaking of non-maritime public transport activities - such as the operation of scheduled local bus routes - previously operated by another undertaking, following a procedure for the award of a public service contract under Council Directive 92-50-EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts, may fall within the material scope of Council Directive 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, as set out in Article 1(1) of that directive.

2. Article 1(1) of Directive 77-187 must be interpreted as meaning that

- that directive may apply where there is no direct contractual link between two undertakings which are successively awarded, following procedures for the award of public service contracts conducted in accordance with Directive 92-50, a non-maritime public transport service - such as the operation of scheduled local bus routes - by a legal person governed by public law;