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28 May 2014
On April 15 2014 the Supreme Court issued Decision 8756 concerning a transfer of part of an undertaking. The Supreme Court confirmed the Court of Appeal's decision, which held that the transfer of part of an undertaking and the related transfer of employment contracts had no effect on employees; as a result, the employment relationship with the transferor remained unchanged.
The Court of Appeal held that the transferor had not proved the functional and organisational autonomy of the transferred part of the undertaking. Specifically, the transferor had not provided evidence of:
Rather, the transferor had proved only that the transfer of a service and of a number of employees had taken place.
The Supreme Court underlined the case law definition of 'part of an undertaking' pursuant to Article 2112 of the Civil Code, which includes capital goods directed to a business activity or other resources organised for this purpose. For a transfer to be lawful, the resources and/or capital goods must maintain their original identity and function. The Supreme Court clarified that even where a branch of a business includes intangible assets, it may not consist exclusively of intangible assets. In applying this principle, the court held that however minimal the tangible assets may be, they are crucial to the definition of a 'company' under Article 2555 of the Civil Code. However, even if the intangible assets are predominant, the undertaking must have organised and coordinated long-term staff with particular know-how, or staff who possess copyrights, patents or trademarks, in order to avoid a mere transfer of people.
The case in question was regulated by the previous version of Article 2112 of the Civil Code, as introduced by Decree-Law 18/2001. Previously, the law required that a branch of a business exist before the transfer, and that it retain that same identity after the transfer. Following the amendment to Article 2112 introduced by Article 32 of Decree-Law 276/2003, the business branch that is to be transferred can now be identified by the parties at the time of the transfer.
Pursuant to the previous version of Article 2112, the court held that the branch of the business had to have existed before the transfer and had to retain that same identity after the transfer. However, this ruling was not particularly persuasive, since it took into account the definition of 'company' stipulated in Article 2555 of the Civil Code.
In any case, the previous concept appears to be superseded by a recent European Court of Justice (ECJ) decision, which upheld the legality of the parties identifying a branch at the time of the transfer, pursuant to the amendments introduced by Decree-Law 276/2003 to Article 2112 of the Civil Code. The Supreme Court upheld the same principle in another recent case.(1) In its judgment,(2) the ECJ responded to a question posed by the Tribunal of Trento and addressed the issue of Article 2112's compliance with EU law – namely, whether in the sale of a business branch, the branch can be understood as an independent function of an organised economic activity when identified as such by the transferor and the transferee at the time of the transfer. The ECJ held that this provision complies with EU law, and that the regime governing transfers of business units applies to parts of the production that become independent at the time of the transfer.
(1) Cass 2151/2013.
(2) C-458/12, March 6 2014.
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