A recent judgment of the Court of Justice of the European Union (C-509/17, the "EU Court") threatens the applicability of WCO 3 in the future.
In the Plessers case, the EU Court decided on 16 May 2019 that the European Directive 2001/23/EC regulating employees' rights in the event of transfers of undertakings ("Directive") precludes Article 61, §3 of the Belgian Act on the Continuity of Enterprises (commonly abbreviated to "WCO", and now Article XX. 86, §3 of the Belgian Economic Law Code ("ELC")).
In the context of a judicial restructuring by transfer under judicial supervision (commonly referred to as "WCO 3"), Article XX.86, § 3 ELC provides that the transferee of the debtor's activities can choose which employees it will take over. This choice must be determined by technical, economic and organisational reasons and must be made without prohibited differentiation. This article offers the transferee the important advantage of being able to decide for himself which personnel he wants to take over and is an exception to Collective Labour Agreement 32bis, whereby the transferee is obliged to take over all personnel in the context of a transfer of (part of) a company. It is this freedom of choice of the transferee that may now be restricted by the judgment of the EU Court.
The Plessers case
On 23 April 2012, at the request of Echo NV, the Commercial Court of Hasselt started a judicial restructuring procedure with a view to reaching a collective agreement with the creditors (better known as "WCO 2"). At the request of Echo NV, the legal approach was changed to a transfer under judicial supervision ("WCO 3"). On 22 April 2013, Prefaco took over the activities of Echo NV together with approximately 2/3 of Echo NV’s employees. Ms Plessers, however, was not taken over and argued that this was contrary to Articles 3 to 5 of the Directive.
The principle of the Directive is that employment contracts are automatically transferred in the event of a transfer of an undertaking and that a transfer in itself is not a reason to dismiss employees. Redundancies in the context of a transfer of an undertaking must be justified by economic, technical or organisational reasons relating to employment which do not intrinsically relate to that transfer (Articles 3 and 4 of the Directive).
However, this protection for employees does not apply in the case of (i) a transfer of (a part of) an undertaking (ii) that is the subject of bankruptcy or similar proceedings (iii) with a view to the liquidation of its assets under the supervision of a competent public authority (Article 5 of the Directive).
The EU Court has ruled that a transfer under judicial supervision (WCO 3) does not meet these conditions and therefore does not fall under the exception of Article 5 of the Directive. The EU Court has ruled that the Directive precludes national legislation that, in the context of judicial restructuring by transfer under judicial supervision, gives the transferee the right to choose the employees he wishes to take over.
Impact on Belgian restructuring business or much ado about nothing?
As a result of this recent judgment of the EU Court, the Enterprise Court of Hasselt has to decide whether Article XX.86, § 3 ELC is in accordance with Articles 3 and 4 of the Directive.
Article XX.86, §3 ELC stipulates that the transferee may choose which employees he will take over. This choice must be justified by technical, economic and organisational reasons without prohibited differentiation.
Article 4 of the Directive provides that, in the context of a transfer of undertaking, employees may be dismissed for technical, economic and organisational reasons entailing changes in the workforce.
The Belgian legislation in the context of WCO 3 therefore provides a justification for the choice of the personnel to be taken over, whereas the Directive focuses on a justification for the dismissal of employees of the transferred undertaking.
The Belgian court must therefore verify whether Article XX.86, §3 of the ELC is in conformity with the Directive. The court will have to decide whether an interpretation of Article XX.86, §3 ELC in compliance with the Directive is possible, in particular whether the transferee has to prove that the dismissal was justified by technical, economic and organisational reasons.
The judgment of the Belgian court may have an important impact on the application of WCO 3 in the Belgian restructuring business. If the judge rules that Article XX.86, §3 ELC conflicts with the Directive, this may lead to even less interest in a takeover under judicial supervision.
How PwC Legal can help
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