Court rules on employee rights in event of branch transfer

The Supreme Court recently issued two decisions on the transfer of a business pursuant to Article 2112 of the Civil Code.

The first decision (7144/2015) dealt with the transfer of a branch of a business and the definition of functional autonomy. The court held that for a transfer to be lawful, part of the undertaking must maintain its original identity. The court also held that the branch of a business had to have existed before the transfer and had to retain the same identity after the transfer. This ruling adopts a strict interpretation of pre-existence that fails to take account of relevant EU case law.

In applying this principle, the court held that the transfer of a branch of a pharmaceutical company excluded 20% of the business's sales representatives and management personnel (executives and managers who had not been transferred), and therefore deprived the sales representatives of the organisational link needed to maintain the branch's functional autonomy. This last point appears to be consistent with the concept of functional autonomy specified by the European Court of Justice (C108/2010), which focuses on the inevitable independence of branches. Further, the tangible assets transferred were modest and lacked a directorial and organisational centre. Finally, the fact that pharmaceutical products would not be transferred proved that the branch could not organise and carry out work independently.

The second decision (7281/2015) concerned the situation where a transfer of a branch of business is held to be ineffective. If employees continue to work for the transferee because the transferor fails to comply with the decision that the sale of the branch is null and void, they are entitled to compensation only in the case of concrete differences in pay.

Consistent with previous case law from similar cases, the Supreme Court has rejected the claims of employees who seek the application of legislation regarding civil damages. Therefore, employees who continue to work for the transferee, but who have changed employer due to the (allegedly illegal) transfer of a company without any financial loss, are not entitled to compensation if there is a lack of proof of damage suffered by the employees. In the case in question, the court did not award damages, as the working relationship continued with the purchaser of the branch, preserving the protection of the employees' relative rights.

This is a narrow interpretation of EU rules on the transfer of a company, with no grounds in an EU interpretative context. Therefore, the decision makes Italy an unfavourable market for outsourcing operations. The priority given to the legislation on collective redundancies opens the door to offshoring in lieu of protecting work in Italy.

For further information on this topic please contact Andrea Stanchi or Annamaria Pedroni at Stanchi Studio Legale by telephone (+39 02 546 9522) or email (a.stanchi@stanchilaw.it, a.pedroni@stanchilaw.it or studio@stanchilaw.it).