Luís Manuel Piscarreta Ricardo v Portimão Urbis, E.M., SA, in liquidation [2017]

Key Issues: Social Policy – TUPE – Concept of “employee”

Case:  Luís Manuel Piscarreta Ricardo v Portimão Urbis, E.M., SA, in liquidation

Reference: Case C-416/16, CJEU (Eighth Chamber), 20 July 2017

Legislation: Directive 2001/23/EC

Mr Piscarreta Ricardo performed duties as an administrator, and later as director, of Portimão Urbis. In September 2011, Mr Piscarreta Ricardo requested –– and was granted –– unpaid leave for a period of two years. In July 2013, that leave was renewed, at his request, for a further two-year period. In October 2014, the Municipality of Portimão decided to wind up Portimão Urbis, of which it was the sole shareholder. Some of the activities of that undertaking were taken over by the Municipality of Portimão and the remaining activities were outsourced to Emarp, of which the Municipality of Portimão was also the sole shareholder. In accordance with those decisions, part of the workforce of Portimão Urbis was the subject of a ‘public-interest transfer agreement’ and was thus taken on directly by the Municipality of Portimão. The other part of the workforce was the subject of a ‘transfer of contractual position’ and was taken on by Emarp. As Mr Piscarreta Ricardo was not covered by either of those plans, namely either bringing activities in-house or outsourcing them, he was informed that his employment contract had come to an end following the definitive closure of Portimão Urbis.

Mr Piscarreta Ricardo brought an action before the District Court, Faro, Portugal for a declaration that his dismissal was unlawful, arguing that there had been a transfer of a business from Portimão Urbis to the Municipality of Portimão and Emarp. The other parties rejected that argument and they maintained that, as Mr Piscarreta Ricardo was on unpaid leave, in other words was not actually carrying out any duties, his employment contract could not be transferred to either of the transferees. They also submitted that there was no transfer of a business, since Portimão Urbis had been wound up as required by law and had ceased to carry on business.

The District Court, Faro, decided to stay the proceedings and to refer a number of questions to the Court of Justice of the EU (CJEU).

Consideration by CJEU

The CJEU has already held that the fact that the transferee is a public-law body cannot be a ground for excluding the existence of a transfer within the scope of Directive 2001/23, whether that body is a public undertaking responsible for a public service or a municipal authority. Activities which fall within the exercise of public powers are excluded as a matter of principle from classification as economic activity. However, services which are carried out in the public interest and without a profit motive and are in competition with those offered by operators who seek to make a profit may be classified as economic activities for the purposes of Article 1(1)(c) of Directive 2001/23

It should be noted that, under Article 2(1) (d) of Directive 2001/23, any person who, in the Member State concerned, is protected as an employee under national employment law is considered to be an ‘employee’. As is clear from the very wording of the first subparagraph of Article 3(1) of Directive 2001/23, the protection that the directive is intended to provide concerns only workers who have an employment contract or employment relationship existing at the date of the transfer. However, while the employment contract is suspended, the national law of Portugal provides that the rights, obligations and safeguards of parties who are not required to be in active service are maintained.

The CJEU held that:

1. Article 1(1) of Council Directive 2001/23/EC must be interpreted to the effect that, where a municipal undertaking, whose sole shareholder is a municipality, is wound up by a decision of the municipality’s executive body and its activities are transferred in part to the municipality to be carried on directly by it and in part to another municipal undertaking re-formed for that purpose, whose sole shareholder is also that same municipality, that situation falls within the scope of the directive, provided that the identity of the undertaking in question is preserved after the transfer, which is a matter for the referring court to determine.

2.      A person such as the applicant in the main proceedings who, because his employment contract is suspended, is not actually performing his duties, is covered by the concept of ‘employee’ within the meaning of Article 2(1) (d) of Directive 2001/23 in so far as that person is protected as an employee under the national law concerned, which is, however, a matter for the referring court to verify. Subject to that verification, in circumstances such as those at issue in the main proceedings, the rights and obligations arising from that person’s employment contract must be considered to have been transferred to the transferee, in accordance with Article 3(1) of the directive.

Why is this decision important?

When an undertaking is to be transferred and the TUPE Regulations apply, the parties should include all employees, including those who may be on long-term unpaid leave, in the list of transferring employees.
The TUPE Regulations will often apply to transfers involving public and municipal bodies.