Breaking news: Belgian state held liable for incorrect implementation of European Directive 2001/23/EC within the context of judicial reorganisations by transfer under judicial supervision

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In a judgment on 24 March 2021, the Labour Court of Antwerp, Division Hasselt, ordered the Belgian State to pay a compensation to an employee who was not taken over within the framework of a judicial reorganisation by transfer under judicial supervision. This judgment is part of the well-known "Plessers" case that led to a decision of the European Court of Justice (ECJ) on 16 May 2019. In this article, we will set out the principles and look at the impact of this judgment on judicial reorganisations by transfer under judicial supervision.

Legal framework

The judicial reorganisation by transfer under legal supervision foresees, in a right of choice for the transferee, the right to take over only certain employees if this choice is determined by technical, economic and organisational reasons and without prohibited differentiation. In the absence of proof to the contrary, the absence of any prohibited differentiation is deemed to be established if the relationship existing before the transfer under a judicial supervision between the employees of the undertaking or the transferred part of the undertaking and their representatives in the bodies of that undertaking or part of that undertaking is maintained after the transfer. This principle was enshrined in Article 61 of the Law on Continuity of Enterprises (LCE) and has also been adopted in Article XX.86 of the Belgian Code on Economics (BCE), which entered into force on 1 May 2018.

This possibility of "cherry picking" of employees has been a point of discussion for a long time. The question has been asked more than once whether such a mechanism is in accordance with European Directive 2001/23/EC.  This directive provides for the following main principles:

  • Articles 3 and 4 provide for the main principle of automatic transfer of all rights and obligations of all employment contracts existing at the time of the transfer. The transfer of part or all of an undertaking does not in itself constitute grounds for dismissal, although dismissals for economic, technical or organisational reasons for changes in employment are still possible.
  • Article 5 provides that the rules set out in Articles 3 and 4 do not apply to a transfer within the framework of bankruptcy or similar proceedings aimed at liquidating the assets of the transferor under the supervision of a competent public authority. In such proceedings, the transferee may take over only part of the staff and the terms and conditions of employment may also be changed.

The Plessers case

This discussion gave rise to proceedings before the Labour Court of Antwerp, Division Hasselt, in which an employee, Ms. Plessers, claimed compensation from the purchaser of a company in which she was employed because she believed that her employment contract had wrongfully not been taken over. The claim was rejected in first instance, but an appeal was lodged against the decision before the Labour Court of Antwerp, Division Hasselt.

Within the framework of these appeal proceedings, a preliminary question was posed to the ECJ. On 16 May 2019, the ECJ ruled that a judicial reorganisation by transfer under judicial supervision cannot be qualified as bankruptcy proceedings and is also not aimed at the liquidation of the assets of the company, but, on the contrary, is aimed at the preservation of all or part of the transferor or its activities. Consequently, the ECJ decided that the Belgian law that grants a right of option to the transferee is contrary to the principles set out in Articles 3 to 5 of European Directive 2001/23/EC because the right of choice does not contain sufficient guarantees to protect employees against unjustified dismissal. After all, the transferee is not required to demonstrate that the redundancies within the framework of the transfer are due to technical, economic or organisational reasons.             

Subsequently, the proceedings before the Labour Court were resumed. Following the ECJ's judgment, Plessers dropped her claim against the transferee and is now focussing solely on the Belgian state on the grounds of extra-contractual liability. Plessers is of the opinion that without the Belgian state's breach of the Directive, the transferee would have become her employer and the refusal of the transferee to continue employing her would have led to the payment of a severance payment by the latter. Thus, according to Plessers, there is a fault that has a causal link to her damage, in particular the amount of severance pay that she is claiming. Plessers states, as a subsidiary argument, that due to the same fault of the Belgian state, an opportunity to terminate her employment contract with payment of the alleged severance pay has been lost.

In its judgment of 24 March 2021, the Labour Court ruled that article 61 §4 of the Continuity of Enterprises Act (now XX.86 BCE) cannot be interpreted in conformity with the Directive and that the Belgian state errored by implementing legislation in contradiction with the Directive 2001/23/EC.

However, the Labour Court also stated that if this option was not provided for in the Belgian legislation, this does not imply that the transferee was in any case obliged to take over all employees. Indeed, both Belgian legislation (in particular article XX.86 BCE and article 12 CLA 102) and Directive 2001/23/EC provide for the possibility to take over only part of the staff if this is justified by technical, economic or organisational reasons not intrinsically linked to the transfer. This is important because it confirms that, as a transferee, you are not obliged to take over the entire staff as provided for in Belgian law.

In the present case, the Labour Court ruled that Plessers did not provide proof that she would have been transferred if the Belgian procedure had contained sufficient safeguards to check preventively whether the transferee had based the dismissal or the non-transfer on technical, economic or organisational reasons entailing changes in employment not intrinsically linked to the transfer. For this reason, the Court ruled that there is no causal link between the fault of the Belgian state and the alleged damage suffered by Plessers.

The Labour Court did consider whether the fault of the Belgian state resulted in a loss of opportunity for employment. The Labour Court, however, estimates this probability to be low since the company tribunal would probably have accepted the technical, economic or organisational reasons put forward by the purchaser. It is also not certain that Plessers could continue to work for the purchaser until reaching retirement age. Therefore, the Labour Court limited the damages for loss of opportunity to EUR 1,000.

What now?

To date, XX.86 BCE has not been amended. Consequently, purchasers still have a right of choice within the framework of a judicial reorganisation by means of a transfer under judicial supervision. Article XX.86 BCE cannot be interpreted in a manner consistent with the Directive. As the Directive does not have direct effect between individuals, the national courts cannot overrule this local rule as long as it is in force. This has already been confirmed several times by various tribunals, which, following the ECJ judgment of 16 May 2019, have had to rule on a transfer proposal in which only part of the staff was taken over. However, to be on the safe side, it should also be explained that this partial transfer may also be justified for technical, economic or organisational reasons.

As long as the Belgian legislation is not amended, the Belgian state risks being held liable due to incorrect implementation of European Directive 2001/23/EC. The question is, however, whether the Belgian state runs a real risk of being ordered to pay substantial damages since the Labour Court ruled in its judgment of 24 March 2021 that there is no causal link between the fault and the damage suffered by Plessers since a partial transfer for technical, economic or organisational reasons conforms with the Directive.

In the meantime, on 21 October 2020, politician and legal expert Koen Geens submitted a legal proposal, which provides for various amendments to Book XX BCE, including an amendment to the procedure of judicial reorganisation by transfer under judicial supervision. Thus, the "Judicial reorganisation by transfer under judicial supervision" would be transformed into a "Judicial reorganisation by orderly liquidation of the company by transfer under judicial supervision". The purpose of this change is clearly to emphasise the liquidation of the enterprise rather than the preservation of its continuity in order to be able to fall under the exception in Article 5 of European Directive 2001/23/EC. On 14 January 2021, the Council of State issued its opinion on this draft law, which is currently being discussed in the Parliamentary Commission.

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