Commercial Law for Employers: Age Discrimination; TUPE; Pensions and Part-Timers

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).

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.

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.

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.

Key Issues: Social Policy – Equal Treatment – Method for calculating acquired pension rights – Part Time Workers
Case:  Ute Kleinsteuber v Mars GmbH
Reference: Case C-354/16, CJEU (First Chamber), 13 July 2017
Legislation: Directive 2000/78/EC

Ms Kleinsteuber, born on 3 April 1965, was employed by Mars and its predecessor in law between 1 October 1990 and 31 May 2014, in various positions. She worked both full-time and part-time, with rates of activity of between 50% and 75% of the activity of a full-time employee. Mrs Kleinsteuber enjoys, in relation to Mars and after having reached the age of 55, the right to an occupational pension.

According to the pension plan, in the case of a worker who is not employed full-time, first of all, the relevant annual salary of the worker who is entitled to a pension is calculated. Then, that salary is reduced by the average rate of activity during the whole of the period of employment. Finally, the different rates relating to the salary’s components are applied to the resulting amount. The amount of the occupational pension is thus calculated using a so-called ‘split pension’ formula. A distinction is thus drawn between the income earned falling below the ceiling for calculating contributions to the statutory pension scheme and income exceeding that ceiling. The ceiling for calculating contributions is, in German social security law, the amount up to which the salary of a person benefiting from statutory cover is used for social insurance. The salary components above the contributions calculation ceiling were valued, during the calculation of Ms Kleinsteuber’s occupational pension, at 2% whereas the salary components under that limit were valued at 0.6%. Mars’ pension scheme lays down, in addition, a ceiling for the years of service which can be taken into account, set at 35 years.

Ms Kleinsteuber challenged before the Arbeitsgericht Verden (Labour Court, Verden) Mars’ calculation of the amount of her occupational pension and considered that she is entitled to a larger pension than that calculated by Mars. The Bundesarbeitsgericht (Federal Labour Court, Germany) has already indicated in that respect that the rules in Paragraph 2 of the German Law on Pensions are appropriate and necessary for achieving a legitimate aim.

The Verden Labour Court decided to stay the proceedings and referred a number of questions to the Court of Justice of the EU (CJUE) for a preliminary ruling.

It was apparent to the CJEU, from the documents before the Court, that the full occupational pension complements, on a voluntary basis by the employer, the benefits received from the statutory pension scheme. Thus, the objective of Mars’ pension scheme is to reflect at the age of retirement, if possible in a full and proportionate way, the standard of living which the employee enjoyed during his employment. The split formula aims, for its part, to take into account the different cover needs for remuneration bands below and above the ceiling for the calculation of contributions, the latter not being taken into account during the calculation of the pension paid by the statutory pension scheme.

It must be considered that such objectives, which aim to establish a balance between the interests at issue, in the context of concerns falling within employment policy and social protection, in order to guarantee the provision of an occupational pension, may be considered public interest objectives.

1. Clause 4.1 and 4.2 of the Framework Agreement on part-time work annexed to Council Directive 97/81/EC of 15 December 1997 must be interpreted as not precluding national legislation which, in calculating the amount of an occupational pension, distinguishes between employment income falling below the ceiling for the calculation of contributions to the statutory pension scheme and employment income above that ceiling, and which does not treat income from part-time employment by calculating first the income payable in respect of corresponding full-time employment, then determining the proportion above and below the contribution assessment ceiling and finally applying that proportion to the reduced income from part-time employment.

2. Clause 4.1 and 4.2 of the Framework Agreement and Article 4 of Directive 2006/54 must be interpreted as not precluding national legislation which, in calculating the amount of the occupational pension of an employee who has accumulated full-time and part-time employment periods, determines a uniform rate of activity for the total duration of the employment relationship, in so far as that calculation method of the pension does not violate the pro rata temporis rule. It is for the national court to satisfy itself that this is the case.

3. Articles 1 and 2 and Article 6(1) of Council Directive 2000/78/EC must be interpreted as not precluding national legislation which provides for an occupational pension in the amount corresponding to the ratio between (i) the employee’s length of service and (ii) the length of the period between taking up employment in the undertaking and the normal retirement age under the statutory pension scheme, and in so doing applies a maximum limit of reckonable years of service.

The rules on pensions and part-time workers are complex and employers will often commit an inadvertent breach. This case demonstrates that, as long as the employer’s calculations are based on legitimate objectives in accordance with the relevant legislation, the distinctions made for part-time workers can still be upheld.