TUPE, Short-Term Casual Contracts, Unfair Dismissal, Termination of Agency Agreements

This article features four cases of interest covering the termination of agency agreements, contractual terms for students who undertake casual vacation work, a TUPE case and a case involving unlawful discrimination and redundancy.

1. Quenon K. SPRL V Beobank SA

Key Issues: Termination of Agency Agreements - Compensation
Reference: Case C-338/14, CJEU (Fourth Chamber), 3 December 2015
Legislation: Directive 86/653/EEC

Quenon acted as the commercial agent for Citibank and the insurance agent for Citilife, with effect from 1 December 1997, under two different agency contracts. The banking and insurance businesses were grouped within one and the same agency and Quenon was remunerated exclusively by the commission paid by Citibank on the sale of banking products and by Citilife on the sale of insurance products, respectively.

On 9 January 2004, Citibank terminated its agency contract with Quenon without giving any reasons for doing so and paid Quenon a termination indemnity in the amount of €95,268.30 and also a goodwill indemnity in the amount of €203,326.80. Citibank prohibited Quenon from continuing to represent it and from using its name and its trade mark. From that date, Quenon no longer had access to the computer programme enabling it to manage the portfolio of Citilife insurance products. Quenon submits that this, therefore, made it in fact impossible for it to continue to perform the insurance agency contract.

On 20 December 2004, Quenon summoned Citibank and Citilife before the Tribunal de commerce de Bruxelles (Commercial Court, Brussels) and sought an order requiring them, jointly or severally, to pay compensation in lieu of notice and a goodwill indemnity for the termination of the insurance agency contract, supplementary damages and commission on the business transacted after the agency contract had been terminated. Following the dismissal of its action by judgment of 8 July 2009, Quenon lodged an appeal before the Cour d’appel de Bruxelles (Court of Appeal, Brussels), amending the sums it had claimed at first instance.

The Cour d’appel de Bruxelles decided to stay proceedings and refer a number of questions to the Court of Justice of the EU (CJEU) for a preliminary ruling on the interpretation of Directive 86/653/EEC (“the Directive”).

Consideration by CJEU

As is clear from the second and third recitals in the preamble, the Directive seeks to protect commercial agents in their relations with their principals, to promote the security of commercial transactions, and to facilitate trade in goods between Member States by harmonising their legal systems within the area of commercial representation. To those ends, the Directive establishes, inter alia, rules governing the conclusion and termination of agency contracts, in Articles 13 to 20.

As regards, in particular, termination of contracts, Article 17(1) of the Directive requires Member States to put in place a mechanism for providing
compensation to the commercial agent allowing them to choose between two options, either an indemnity determined according to the criteria set out in Article 17(2) or compensation according to the criteria set out in Article 17(3), namely, the system of compensation for damage. It is common ground that the Kingdom of Belgium opted for the solution laid down in Article 17(2).

According to settled case-law, although the system established by Article 17 of the Directive concerning, in particular, the protection of the commercial agent after termination of the contract is mandatory in nature, it does not, however, give detailed indications as regards the method of calculation of the indemnity for termination of contract. Therefore, the CJEU has held that, within this framework, Member States enjoy discretion as to the choice of methods for calculating the indemnity or the award of damages.

It is in the light of that caselaw that it is appropriate to determine whether the award of additional damages, as provided for in the national legislation at issue in the main proceedings, where the indemnity for clients does not cover all of the loss actually incurred, remains within the limits of the discretion conferred on Member States by the Directive.

In that regard, it should be noted that the indemnity for customers scheme laid down in Article 17(2) of the Directive is broken down into three stages. The aim of the first stage is, first of all, to quantify the benefits accruing to the principal as a result of the volume of business with customers brought by the commercial agent, in accordance with the provisions of the first indent of Article 17(2)(a).

The aim of the second stage is to check, in accordance with the second indent of that provision, whether the amount established on the basis of the above-mentioned criteria is equitable, having regard to all the circumstances of the case and, in particular, to the commission lost by the commercial agent. Finally, at the third stage, the amount of the indemnity is subject to an upper limit provided for in Article 17(2)(b), which comes into play only if the amount calculated during stages one and two exceeds it.

However, it is only after laying down the conditions in which a commercial agent has the right to an indemnity and setting a ceiling for that indemnity, that Article 17(2)(c) of the Directive provides that ‘[The] grant of such an indemnity shall not prevent the commercial agent from seeking damages’. It follows that damages may be granted to commercial agents in addition to the indemnity and that they are not subject to the conditions or to the maximum limit laid down in the Directive.

Given that the Directive does not give any clear guidance as to the circumstances in which a commercial agent may claim damages, it is for the Member States, in the exercise of their discretion, to determine those circumstances and the procedural rules.

That conclusion is confirmed by the CJEU’s case-law in accordance with which Member States may offer greater protection to commercial agents by extending the scope of a Directive or by choosing to make wider use of the discretion afforded by that Directive. However, as the Commission rightly points out and as the Advocate General noted in his Opinion, the discretion which Member States may exercise when implementing Article 17(2)(c) of the Directive is circumscribed by the requirement to choose one of the two compensation schemes laid down in paragraphs 2 and 3 of that article, respectively, without being able to aggregate them.

Consequently, the award of damages may not result in double recovery by combining the indemnity for customers with the compensation for loss resulting, in particular, from the loss of commission following termination of the contract.

The CJEU held that:

1. Article 17(2) of the Directive must be interpreted as not precluding national legislation providing that a commercial agent is entitled, on termination of the agency contract, both to an indemnity for customers limited to a maximum of one year’s remuneration and, if that indemnity does not cover all of the loss actually incurred, to the award of additional damages, provided that such legislation does not result in the agent being compensated twice for the loss of commission following termination of the contract.

2. Article 17(2)(c) of the Directive must be interpreted as meaning that it does not make the award of damages conditional on demonstration of the existence of a fault attributable to the principal which caused the alleged harm, but does require the alleged harm to be distinct from that compensated for by the indemnity for clients.

Why is this decision important?

The Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No. 3053) provide that, upon termination of an agency agreement, the agent shall be entitled to compensation unless the agreement provides otherwise. The decision to appoint an agent requires an assessment of the likely payment to be made on termination so that compensation or an indemnity can be included in the agreement.

2. O v Bio Philippe Auguste SARL

Key Issues: Social Policy – Age Discrimination
Reference: Case C-432/14, CJEU (Seventh Chamber), 1 October 2015
Legislation: Directive 2007/78/EC

On 21 December 2010, the applicant in the main proceedings, while he was a student, was recruited by Bio Philippe Auguste SARL under a fixed-term employment contract for the period from 21 December 2010 to 24 December 2010, during his university vacation. On the expiry of his contract, he was not paid an end-of-contract payment in accordance with French law.

The applicant considered that that provision was contrary to the provisions of the French Constitution guaranteeing the principle of equal treatment and the principle of non-discrimination on grounds of age and brought an action before the Conseil de Prud’hommes de Paris (Labour Tribunal, Paris) seeking the sum of €23.21 in respect of the end-of-contract payment, the re-classification of his fixed-term contract as a contract for an indefinite period and the sum of €4,500 in respect of compensation for dismissal without real and substantial cause.

On 1 March 2012, the applicant in the main proceedings lodged a preliminary objection that the national provision was unconstitutional. By judgment of 10 January 2014, the Conseil de Prud’hommes de Paris sent that question to the Cour de Cassation (Court of Cassation). By judgment of 9 April 2014, the Cour de Cassation referred that objection to the Conseil Constitutionnel (French Constitutional Council).

By Decision No 2014-401 QPC of 13 June 2014, the Conseil Constitutionnel, after observing that ‘the challenged provisions apply solely to pupils or students who fall within the age-limit provided for by Article L. 381-4 of the Code de la Sécurité Sociale to be compulsorily affiliated to the national social security scheme by virtue of their enrolment at a school or university’, went on to hold, first, that ‘the complaint alleging that the legislature, in adopting the challenged provisions, did not define the concept of “a young person” [had] no factual basis’ and, secondly, that ‘the principle of equal treatment is not a bar to making the application of legislative provisions concerning pupils or students subject to an age-limit’.

Furthermore, after pointing out that ‘the end-of-contract payment is paid to an employee with a fixed-term contract in order to “compensate for the insecurity of his situation” where, on the expiry of his contract, the contractual relationship does not continue in the form of a contract for an indefinite period’, the Conseil Constitutionnel concluded that ‘students employed under a fixed-term employment contract for a period during their school holidays or university vacations are not in the same situation as either students who work at the same time as pursuing their studies or other employees on fixed-term employment contracts’ and that, consequently, ‘by excluding the grant of that payment where the contract is concluded with a pupil or student employed during his school holidays or university vacation and who intends, at the end of those holidays or that vacation, to return to his schooling or studies, the legislature established a difference in treatment based on a difference in situation directly in line with the purpose of the law’.

In those circumstances, the Conseil de Prud’hommes de Paris decided to stay the proceedings and to refer a question to the Court of Justice of the EU (CJEU) for a preliminary ruling on the interpretation of Directive 2007/78/EC (“the Directive”).

Consideration by CJEU

As regards the question, raised by the European Commission, of whether the applicant in the main proceedings may be classified as a ‘worker’, it must be recalled that according to consistent case-law of the CJEU, that concept has a specific independent meaning and must not be interpreted narrowly. Thus, any person who pursues activities that are real and genuine, to the exclusion of activities on such a small scale as to be regarded as purely marginal and ancillary, must be regarded as a ‘worker’. The essential feature of an employment relationship is, according to that case-law, that for a certain period of time a person performs services for and under the direction of another person in return for which he receives remuneration.

Although the fact that a person works for only a very limited number of hours in the context of an employment relationship may be an indication that the activities performed are marginal and ancillary, the fact remains that, independently of the limited amount of the remuneration for and the number of hours of the activity in question, the possibility cannot be ruled out that, following an overall assessment of the employment relationship in question, that activity may be considered by the national authorities to be real and genuine, thereby allowing its holder to be granted the status of ‘worker’ within the meaning of EU law.

The overall assessment of the employment relationship of the applicant in the main proceedings makes it necessary to take into account factors relating not only to the number of working hours and the level of remuneration but also to any rights to paid leave, to the continued payment of wages in the event of sickness, and to a contract of employment which is subject to the relevant collective agreement, to the payment of contributions and, if this applies, to the nature of those contributions.

The analysis of the consequences which all those factors which characterise an employment relationship may have for the finding as to whether the employment of the applicant in the main proceedings is real and genuine and, therefore, for his status as a worker is a matter coming within the jurisdiction of the national court. The national court alone has direct knowledge of the facts giving rise to the dispute and it is, consequently, best placed to make the necessary determinations.

It is therefore for the referring court to make a detailed assessment of all the relevant factors in order to establish whether the employment contract held by the applicant in the main proceedings is such as to enable him to claim the status of ‘worker’ within the meaning of EU law.

The CJEU held that:

The principle of non-discrimination on grounds of age, enshrined in Article 21 of the Charter of Fundamental Rights of the European Union and given specific expression by the Directive, must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, under which an end-of-contract payment, paid in addition to an employee’s salary on the expiry of a fixed-term employment contract where the contractual relationship is not continued in the form of a contract for an indefinite period, is not payable in the event that the contract is concluded with a young person for a period during his school holidays or university vacation.

Why is this decision important?

Many employers take on students during vacations as casual labour. Such employers should consider whether workers’ rights are likely to extend to students and seek advice on the terms of the contracts which they offer to them.

3. Administrador de Infraestructuras Ferroviarias (ADIF) v Luis Aira Pascual

Key Issues: Transfer of Undertaking (TUPE)
Reference: Case C-509/14, CJEU (Sixth Chamber), 26 November 2015
Legislation: Directive 2001/23/EC

ADIF is a public undertaking responsible for the service of handling intermodal transport units at the Bilbao terminal (Spain). That service is provided to Renfe Operadora. Pursuant to a public service operating agreement which came into force on 1 March 2008, ADIF outsourced the management of that service to Algeposa. Algeposa provided that service in ADIF’s facilities, using cranes belonging to the latter. The agreement was concluded for a period of 48 months. Upon the expiry of that period, the agreement was extended until 30 June 2013. In May 2013, ADIF seconded some of its employees to Algeposa in order for them to complete an immersion training programme among the staff of that company.

In June 2013, ADIF informed Algeposa that it did not wish to extend the agreement beyond 30 June 2013 on the ground that, as from that date, it would itself provide the service at issue in the main proceedings with its own staff. ADIF also indicated to Algeposa that it refused to take over the latter’s rights and obligations as regards its employees.

Consequently, Algeposa carried out a collective dismissal for economic reasons of several workers, including Mr Aira Pascual, who had hitherto been assigned to the performance of the public service operating agreement concluded with ADIF. 

On 30 July 2013, Mr Aira Pascual brought proceedings before the Juzgado de lo Social No 10 de Bilbao (Labour Tribunal No 10, Bilbao) against ADIF, the Wages Guarantee Fund and Algeposa, alleging that, upon the expiry of the agreement concluded with Algeposa, ADIF was required to take over Algeposa’s rights and obligations relating to its employment relationships with its employees.

According to Mr Aira Pascual, the resumption of ADIF’s direct management of the provision of the service at issue in the main proceedings constituted a transfer of undertaking for the purposes of Spanish law. Accordingly, Mr Aira Pascual claimed that his dismissal should be annulled or, in the alternative, declared unlawful, and that ADIF should be ordered to reinstate him within its staff.

The court granted Mr Aira Pascual’s action, declaring his dismissal unlawful and ordering ADIF to pay him compensation amounting to €28,793.29. Mr Aira Pascual was ordered to reimburse to Algeposa the sum of €9,557.87 paid to him by way of compensation for the termination of his contract of employment. The court held that, by refusing to take over Algeposa’s rights and obligations relating to its employment relationship with Mr Aira Pascual, ADIF had failed to fulfil its obligation under Spanish law, as interpreted in conformity with Directive 2001/23. According to the court, a transfer of undertaking had taken place, since the service at issue in the main proceedings had continued to be provided, using the same material resources essential to its provision, for the same customer and in the same facilities.

ADIF lodged an appeal against that judgment before the Tribunal Superior de Justicia de la Comunidad Autónoma del País Vasco (High Court of Justice of the Basque Country). That appellate court considers that the Court of Justice of the EU (CJEU) has not yet ruled on whether the concept of a transfer of undertaking within the meaning of Directive 2001/23/EC (“the Directive”) encompasses cases in which an undertaking responsible for providing a public service resumes the direct management of that service, where (i) that undertaking decides to perform that service using its own staff, without taking on the staff employed by the subcontractor to which it had previously entrusted the management of that service and (ii) the material resources used, essential to the provision of that service, belonged at all times to that undertaking, which stipulated their use by the subcontractor.

In those circumstances, the Tribunal Superior de Justicia de la Comunidad Autónoma del País Vasco decided to stay the proceedings and to refer the following question to the CJEU for a preliminary ruling on the interpretation of the Directive.

Consideration by CJEU

It must be noted in the first place that, pursuant to Article 1(1)(c), the Directive applies to public undertakings engaged in economic activities whether or not they are operating for gain. The CJEU has held that the mere fact that the transferee is a public-law body cannot be a ground for excluding the existence of a transfer within the scope of the Directive 2001/23. Accordingly, the fact that the legal person at issue in the main proceedings is a public undertaking responsible for a public service does not exclude it from the scope of the Directive.

In the second place, it must be pointed out that, pursuant to Article 1(1)(a), the Directive applies to any transfer of an undertaking, business or part of an undertaking or business to another employer as a result of a legal transfer or merger.

In that respect, it is settled case-law of the CJEU that the Directive is applicable wherever, in the context of contractual relations, there is a change in the legal or natural person who is responsible for carrying on the undertaking and who by virtue of that fact incurs the obligations of an employer vis-à-vis the employees of the undertaking, regardless of whether or not ownership of the tangible assets is transferred. Thus the CJEU has held that the Directive is capable of applying to a situation in which an undertaking, which entrusted to another undertaking the effective performance of work, decides to terminate its contract with that other undertaking and to carry out that work itself.

The CJEU held that:

Article 1(1) of the Directive must be interpreted as meaning that the scope of that Directive covers a situation in which a public undertaking, responsible for the economic activity of handling intermodal transport units, entrusts, by a public service operating agreement, the performance of that activity to another undertaking, providing to the latter undertaking the necessary facilities and equipment, which it owns, and subsequently decides to terminate that agreement without taking over the employees of the latter undertaking, on the ground that it will henceforth perform that activity itself with its own staff.

Why is this decision important?

The Directive has been implemented in the UK by the Transfer of Undertakings (Protection of Employment) Regulations 2006. A public body responsible for economic activities must consider the application of the TUPE Regulations when entrusting the performance of such activities to a third party.

4.  María Auxiliadora Arjona Camacho v Securitas Seguridad España SA

Key Issues: Social Policy – Equal Treatment
Reference: Case C-407/14, CJEU (Fourth Chamber), 17 December 2015
Legislation: Directive 2006/54/EC

On 1 July 2012, Ms Arjona Camacho was employed by Securitas Seguridad España, as a security guard, to work full-time within a juvenile detention centre in Cordoba (Spain). She was dismissed on 24 April 2014. Objecting to her dismissal, Ms Arjona Camacho submitted an application for conciliation with her employer before the centre for mediation, arbitration and conciliation of Cordoba on 6 May 2014.

The conciliation was unsuccessful. On 26 May 2014, Ms Arjona Camacho brought an action before the Juzgado de lo Social No 1 de Córdoba (Social Court No 1, Cordoba) contesting her dismissal and claiming that it should be declared invalid. In that regard, Ms Arjona Camacho submitted, principally, that her dismissal constituted, in particular, discrimination on grounds of sex. She requested that damages of €6,000 be awarded for the loss and damage sustained.

The referring court states that it accepts that Ms Arjona Camacho’s dismissal constitutes discrimination on grounds of sex and that the judgment which it will deliver following the answer from the Court of Justice of the EU (CJEU) will set out the evidence on which that finding is based. The referring court adds that its forthcoming judgment will also specify the reasons for its view that the sum of €3,000, by way of damages, is sufficient to compensate Ms Arjona Camacho in full for the loss and damage which she sustained by reason of her dismissal on grounds of sex.

However, the referring court expresses uncertainty as to whether, pursuant to Article 18 of Directive 2006/54 (“the Directive”), according to which the loss and damage must be the subject of compensation or reparation in a way which is dissuasive, it must award Ms Arjona Camacho damages which go beyond full compensation for the loss and damage which she sustained, in the form of punitive damages, in order to serve as an example to her former employer and others.

The referring court states that the concept of ‘punitive damages’ does not exist in Spanish law. In those circumstances the Juzgado de lo Social No 1 de Córdoba decided to stay the proceedings and to refer a question to the CJEU for a preliminary ruling on the interpretation of the Directive.

Consideration by CJEU

Under Article 18 of the Directive, Member States are required to introduce into their national legal systems such measures as are necessary to ensure real and effective compensation or reparation as they so determine for the loss and damage sustained by a person injured as a result of discrimination on grounds of sex, in a way which is dissuasive and proportionate to the damage suffered, that compensation not being restricted by the fixing of a prior upper limit, except in the case of refusal to take that person’s job application into consideration.

It is necessary to recall that the CJEU has stated that the Member States are obliged to take the necessary measures to enable all persons who consider themselves wronged by discrimination, contrary to the Directive, to pursue their claims by judicial process. Such an obligation implies that the measures in question should be sufficiently effective to achieve the objective pursued by the Directive and should be capable of being effectively relied upon by the persons concerned before national courts.

According to the CJEU’s case-law, Article 6 of the Directive does not prescribe a specific measure to be taken by Member States in the event of a breach of the prohibition of discrimination, but leaves them free to choose between the different solutions suitable for achieving the objective of the Directive, depending on the different situations which may arise. However, the measures appropriate to restore genuine equality of opportunity must guarantee real and effective judicial protection and have a genuine deterrent effect on the employer.

The CJEU held that:

Article 18 of the Directive must be interpreted as meaning that, in order for the loss and damage sustained as a result of discrimination on grounds of sex to be the subject of genuine and effective compensation or reparation in a way which is dissuasive and proportionate, that article requires Member States which choose the financial form of compensation to introduce in their national legal systems, in accordance with detailed arrangements which they determine, measures providing for payment to the person injured of compensation which covers in full the loss and damage sustained. 

Why is this decision important?

If an employer is making one or more employees redundant, the decision should always be made on appropriate grounds and should not discriminate unlawfully against any employee. This decision means that employers may ultimately be required to pay more to an employee who has been unlawfully dismissed if national law does not provide for compensation which covers in full the loss and damage sustained.

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