New ruling on the scope of the Danish Act on Transfers of Undertakings and the criterion "a substantial part of the workforce

Facts of the case:

The case involved a transfer of an undertaking within the cleaning business where the cleaning activities for a municipality should be transferred from cleaning company A to cleaning company B. There were 100 employees of whom 56 were permanently employed and 44 were temporarily employed with A, and 34 employees who had been permanently employed with A were transferred to B.  
 
It follows from case law of the Court of Justice of the European Union that all factual circumstances relating to the transfer in question must be considered in order to decide whether a transfer of an undertaking has taken place. In that connection, the type of the transferred activities is decisive. If the activities primarily consist of manpower, it is a transfer of an undertaking "if the transferred undertaking has not only continued the financial activities, but also has taken over a substantial part as to the number and qualifications of the employees of the workforce which carried out the activities in question for the former employer."

The Labour Court was to decide whether the 44 fixed-term employees with A should be included in the total count to form the basis for establishing whether the transfer of the 34 employees could be regarded as a "substantial part of the workforce".

The employee side argued that only the 56 permanently employed persons should count since only the permanent staff could be considered as constituting the identity of the undertaking, and therefore, the transfer in terms of the number (34 out of 56 permanently employed persons) constituted a substantial part of the workforce, which was why the Act on Transfers of Undertakings should apply. The employer side argued that all 100 employees should count in the calculation of the workforce and that 34 out of 100 employees would therefore not constitute a substantial part of the workforce. 

Remarks of the Labour Court:

The Labour Court established that the group of 100 employees belonging to the transferring party in total constituted en economic entity – regardless of the fact that 44 employees were fixed-term employees hired for shorter periods. The Labour Court reasoned this by the fact that the transferring party would not have been able to carry out the cleaning tasks for the municipality in a stable manner without the 44 fixed-term employees. 

On that basis, the court takes the view that it was not a substantial part of the workforce as to number and qualifications, which is why it was not a transfer on an undertaking – even if the employee side had maintained that some of the 34 transferred employees were "key employees".  

Bird & Bird's comments:

• From the ruling it may be deduced that fixed-term employment relationships – regardless of the lengths – must be included in the calculation of the workforce in case the transferring party would not be able to carry out the key services of the undertaking in a stable manner without the employees in question. Clearly, the general rule must be that a business undertaking does not employ more staff than actually needed in order to provide its services.
  
  
• The decision of the Labour Court supports other case law, including i.a. a judgment passed on 23 November 2018 by the Danish High Court, Western Division, in which the employment of less than half of the staff did not constitute a substantial part of a former employer's workforce.
  
  
• By that judgment the High Court also emphasised the importance of the positions of the employees in question, including whether the group contained any leading employees. This issue does not seem to be as decisive in itself in this case since only about a third of the workforce was transferred. You may find our newsletter about the High Court judgment, written in Danish, here.