A recent decision by the Supreme Court of Cyprus (sitting as Appellate Court) in the Civil Appeal No. 7/2016, revisits key legal principles surrounding the transfer of business and employment rights. The case addresses the dismissal of employees who were working for a previous employer (the transferor), following a transfer of business to the new employer (the transferee). The court’s ruling sheds light on the application of both European Union law and national legislation in protecting employees’ rights during business transfers, particularly the continuation of employment rights in Cyprus.

The appellants, who were teachers employed by the transferor, were dismissed after the transfer of a school business to the transferee. The transferor ceased operations, and the business activities, including the employment of staff and the continuation of educational services, were taken over by the new employer. The key issue in the case was whether the dismissals were lawful or whether the appellants’ employment should have continued with the new employer/transferee as part of the transfer of business.

Legal Framework and Case Law

The case primarily revolves around the interpretation of Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses, which is aimed at protecting employees in the event of a transfer of business and The Law on the Preservation and Safeguarding of Employees’ Rights in the Event of Transfers of Undertakings, Businesses or Parts of Undertakings or Businesses, Law of 2000 (104(I)/2000), the national law that governs the protection of employees when the business or part of it is transferred to a new employer.

In line with decisions of the European Court of Justice, including Oy Liikenne Ab v. Liskojarvi (C-172/99, 25 January 2001), Suzen v. Zennacker Gebaudereinigung GmbH Krankenhausservice (C-13/95, 11 March 1997), and Spijkers v. Gebroeders Benedik Abattoir CV (C-24/85, 18 March 1986), as well as Savvidis v. SSP Catering Cyprus Ltd (2012), the Supreme Court emphasized that the preservation of the economic entity’s identity, regardless of the manner of transfer, is a decisive criterion in determining whether a business transfer has occurred.

The court referred to the following factors as central in determining whether a business transfer had taken place:

• The transfer or non-transfer of tangible assets, such as buildings, machinery, etc;
• The transfer or non-transfer of intangible assets and their value;
• The assumption or non-assumption of a significant portion of the workforce by the new employer;
• The transfer or non-transfer of the customer base;
• The degree of similarity between the activities carried out before and after the transfer, and
• The duration of any suspension of the business activities.

Court’s Findings

The court found that the transferor had ceased its operations, but the transferee continued the educational activities. In reaching this conclusion, the court took into account the following factors:

• Continuity of Operations: The school continued to operate on the same premises, using the same furniture and equipment.
• Licences Granted by the Ministry of Education: Correspondence between the transferor and the Ministry of Education clearly indicated the intention that the transferee would continue operating the school under the licenses previously held by the transferor, with the only change being the ownership of the school, an arrangement that was later approved by the Ministry, along with the change of the school’s name.
• Communication with Parents and Status of Existing Students: Announcements issued by both the transferor and the transferee to inform parents of current students were directed to the same clientele and business circle. These communications made it clear that the students’ continued enrollment at the school was guaranteed and automatic, without the need for entrance examinations, as would have been required for new students.

Consequently, the court indicated that the business was indeed transferred and not merely closed down.

The court also highlighted that, under the relevant laws, the employment rights of the employees were automatically transferred to the new employer, with the same terms and conditions of employment. This meant that the dismissals by the transferor were unlawful.

Conclusion

The case serves as a critical reminder of the importance of preserving employees’ rights in business transfers.  Failure to comply with the relevant law could lead to significant legal consequences, including claims for compensation by wrongfully dismissed employees.

It also reinforces the need for employers to carefully consider their obligations when transferring a business and to ensure they are fully compliant with both European Union and Cypriot laws aimed at protecting employee rights during such transfers.

Our firm provides expert guidance on navigating legal obligations for employers and protecting employees during business transfers. Explore our legal services to learn how we can assist your business and staff.