The conditions for qualifying a transfer of undertaking: an analysis by the CJEU

The Court of Justice of the European Union recently clarified the conditions under which the takeover of a public passenger transport activity by bus may be regarded as a “transfer of undertaking.”
To determine whether a transfer of undertaking has occurred, national courts must assess whether the transferred economic entity retains its identity in light of a range of indicators, including in particular the transfer of tangible assets, the value of intangible assets at the time of the transfer, the takeover of most of the workforce, the transfer of the clientele, and the degree of similarity between the activities performed. The decisive nature of these factors varies depending on the activity carried out and the methods of production or operation used within the undertaking.

With regard specifically to the takeover of a public passenger bus transport activity as part of the renewal of a public contract, the Court had previously held that the qualification of a transfer of undertaking could not be based essentially on the rehiring of the workforce, given that the tangible assets used to operate the routes—particularly the buses—play an important role in the performance of the activity. Thus, the mere rehiring of part of the staff could not, on its own, be sufficient to establish a transfer of undertaking.

In the decision discussed here, the CJEU clarifies that the transfer of operating assets should not, however, be regarded as the sole determining factor in qualifying a transfer of undertaking. The absence of a transfer of operating assets resulting from legal, environmental, or technical constraints does not necessarily preclude the existence of a transfer of undertaking.

In this case, the new operator’s decision not to take over the buses was dictated by external constraints, as the buses no longer met the (notably environmental) requirements set by the contracting authority. The national court must therefore take into account other factual circumstances when assessing whether a transfer of undertaking has occurred, including the takeover of most of the drivers by the new operator, their assignment to identical or similar tasks, and their specific qualifications and skills, which are indispensable for ensuring the uninterrupted continuation of the economic activity.

The qualification of a transfer of undertaking must therefore result from a precise analysis of all relevant circumstances. Depending on the specific conditions of the business takeover, the transfer of human resources or the transfer of operating assets may each constitute a determining factor in identifying a transfer of undertaking, and may lead to the transfer of ongoing employment contracts.

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