Transfer of a going concern and employment claims: time limit and suggested course of action
*TUPE stands for the Transfer of Undertakings (Protection of Employment) – Directive (2001/23/EC) 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

In Italy, a part of the going concern must be a functionally autonomous business unit that is existent and operative before the transfer. Consequently, the parties are not totally free to identify the business to be transferred – including the employees involved in the transfer. Employment claims connected with the transfer are subject to the following time limits: (i) 60-day time limit for challenging the transfer (to continue working with the transferor), and (ii) 10 years from the transfer date to claim the right to be transferred. The above creates an uncertain scenario over a long period and can have significant impact on corporate transactions. The parties can minimize the risk of employment claims by signing trade union and settlement agreements with the employees concerned. 

The transferor may transfer to the transferee the entire going concern or just a portion of it.

Article 2112 of the Italian Civil Code defines “part of the going concern” as a functionally autonomous undertaking of an organized economic activity, identified as such by the transferor and transferee at the time of its transfer.

In other words, the part of the going concern being transferred should include assets (e.g. building, machinery, commercial agreements, licenses and employment agreements) and must have organizational cohesion (organizational autonomy) that allows the transferee to carry out an autonomous activity (functional autonomy).

However, the parties are not fully free to determine the part of the going concern to be transferred, as they are subject to some limitations provided by Italian caselaw and have some employment implications.

THE DEFINITION OF A PART OF A GOING CONCERN UNDER ITALIAN CASELAW

Over the years, Italian caselaw has offered guidelines on how to identify the part of a going concern when it is not perfectly aligned with the above legislation.

Specifically, according to the Italian Supreme Court, a part of a going concern, intended as an organized business unit, must already exist and be operative at the time of the transfer, including assets and any other resources to autonomously run the business.

The right of the parties to determine the scope of the part of the going concern to be transferred is therefore limited considering that the pre-existence of the business unit is a mandatory requirement (in addition to the requirement already set by the Italian Civil Code).

This creates some uncertainties with determining the part of the going concern to be transferred, which could slow down negotiating corporate transactions.

SOME EXAMPLES OF A PART OF A GOING CONCERN

The Supreme Court has determined that a part of the going concern exists even where there is no transfer of physical assets: for example, a group of employees having specific know-how or intangibles having an autonomous economic value (e.g. use of copyright or patents) in the case of labor-intensive activities.

However, the part of the going concern is not transferred in cases where services are merely outsourced or selected services contracts, that do not interact with each other in a productive process to deliver final products, are transferred.

This may also occur in the case of ancillary activities that do not represent the core business of the going concern, that can be clearly identified within the going concern and that offer final services (e.g. canteen services). 

EMPLOYMENT IMPLICATIONS WHERE THE PART OF THE GOING CONCERN IS NOT IDENTIFIED

The difficulties with identifying the part of the going concern to be transferred have significant employment implications: are the parties free to choose the employees to be transferred with the part of the going concern?

Unregulated “cherry picking” is not permitted under Italian law since employees working exclusively or primarily for the business to be transferred must continue to be employed in that part of the business (thus being transferred to the transferee).

THE LIMITATION PERIODS FOR EMPLOYMENT CLAIMS

Employees may submit complaints to obtain the right to be transferred or to remain employed by the transferor.

Employees who want to return to work with the transferor may challenge the transfer within 60 days from the transfer date.

However, the Supreme Court in Decision No. 28750 of November 7, 2019, clarified that the short 60-day time limit does not also apply to employment claims to obtain the transfer by employees originally excluded from the transfer of a part of the going concern. A special provision provides for this that just covers the challenge to the transfer, the application of which cannot be extended to new employment claims by analogy. Therefore the general 10-year limitation period applies to claims made by non-transferred employees who want to continue working in the transferred part of the business (with the transferee). 

SOLUTIONS

Within the codetermination procedure, to be implemented when a transfer of business employing at least 15 employees, the parties can decide, together with the trade unions, on the team to be transferred, defining the selection criteria for employees who do not only work for that part of the business but for other departments as well.

Moreover, the parties can enter into settlement agreements with employees excluded from the transfer of the going concern, whereby the latter recognize their exclusion from the business being transferred and waive raising any claims against the transferee and the transferor.

In the event where the codetermination procedure is not applicable, the parties might enter into individual settlement agreements with all the employees hired by the transferor (regardless of whether they belong to the part of the business being transferred) to obtain formal waivers to any employment claim connected with the transfer.

CONCLUSIONS 

The difficulties with defining the scope of the part of a going concern to be transferred can slow down negotiating corporate transactions.

The parties can minimize the risk of employment claims by cooperating with the trade union to establish the team to be included in the transfer and by entering into specific settlement agreements with employees excluded from the transfer. 

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