Back in the groove

Outsourcing may be flavour of the month at the moment, but what happens to employment rights when an activity is brought back in? Jack Hayward reports on a recent ECJ ruling.

At a time when outsourcing is so topical and many local authority staff are concerned about the protection of employment rights, it is interesting to see a case which deals with the reverse position.

The European Court of Justice held on 20 January 2011 that Article 1(1)(a) and (b) of Council Directive 2001/23 does not apply to a situation in which a municipal authority which has contracted out the cleaning of its premises to a private company, decides to terminate its contract with that company and to undertake the cleaning of those premises itself, by hiring new staff for that purpose.

The interest for practitioners lies in the consideration given by the ECJ to the definition of ‘economic entity’, particularly in what is essentially a labour-driven activity. The case that was reported on 20 January – C‑463/09 CLECE SA v María Socorro Martín Valor, Ayuntamiento de Cobisa – considers the cases relating to identifiable entities such as Suzen and Hernández Vidal and Others.

The facts in this case were briefly as follows. A company, CLECE, had a contract with a local authority for the cleaning of schools. The complainant was employed by CLECE as a cleaner from March 2004. In November 2007, the local authority informed CLECE that it was terminating its contract with that company with effect from 31 December 2007.

On 2 January 2008, CLECE informed the complainant that, as of 1 January 2008, she would become a member of the staff of the local authority, since that body would henceforth carry out the cleaning of the premises in question. On the same day, the complainant presented herself for work at the school premises, but was not permitted to carry out her work there.

The matter proceeded to litigation and the referring court asked whether a situation in which a municipal authority takes over the cleaning of its premises, using its own staff, in circumstances where that work was previously carried out by a cleaning company under a contract which has been terminated, the main undertaking has hired new staff to carry out the cleaning work, and a Collective Agreement on the cleaning of buildings and premises, which creates a subrogation obligation in such situations, does not apply to it, falls within the scope of Article 1(1)(a) and (b) of Directive 2001/23

The real interest for local authorities will be the clarification of the situation where they decide to take a labour-intensive service back in house. The ECJ has previously held that in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity and such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis.

Therefore a group of employees who are permanently assigned to the common task of cleaning may, in the absence of other factors of production, amount to an economic entity. That entity’s identity must nonetheless be retained after the transfer in question.

However, the mere fact that the activity carried out by the contractor and that carried out by the local authority are similar, even identical, does not lead to the conclusion that an economic entity has retained its identity. An entity cannot be reduced to the activity entrusted to it. Its identity emerges from several indissociable factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate, the operational resources available to it

Jack Hayward is a consultant procurement solicitor in the corporate law team at City of Bradford Metropolitan District Council. He can be contacted on 01274 434784 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..