Legal Consequences of the Change of Insolvent Employer in the European Union and EU Member States Legislature

Abstract

Since the 1970s, the majority of European states have witnessed serious changes at the labor market. Business organizations in all European Union economic sectors were included in the process of business operations reorganization with the aim of increasing competitiveness, making functional and administrative unity, and improving the quality of products and services. The presumption that numerous reorganizations would occur after the establishment of the unique market, as well as concern regarding the potential impact that the processes could have on the employees resulted in the adoption of law which would protect employees in case of transfer of undertakings (i.e., change of employer). Directive 77/187/EEC 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 business was adopted at the level of the European Union in 1977 (amended in 1998 and 2001). The primary objective of adopting this crucial legal regulation was the need to safeguard employment in the event of a change of employer, primarily by adopting the rule that all rights and liabilities of the transferor arising from a contract of employment or from an employment relationship existing on the date of the transfer should be (by operation of law) transferred to the transferee.

The scope of validity, possibility and justification of the application of the above-mentioned rule were especially challenged by a very specific and delicate circumstance of initiating insolvency proceedings on an undertaking. Namely, in case of insolvency of the transferor, there is an expressed conflict between the labor law (which aims at safeguarding employment) and insolvency law (which aims at rescuing insolvent undertaking). In order to rescue the enterprise, which is facing financial difficulties, insolvent employer will tend to sacrifice (some of the) work positions to be able to sell the business cheaper and easier. On the other hand, the employees will tend to keep their employment, which usually discourages potential buyers from buying insolvent companies, and results in closing the business and making all employees redundant. Having in mind the above stated, the paper analyzes the ways the European legislator has resolved (attempted to resolve) the conflicting tendencies, as well as the ways EU member states have dealt with the identical issue. The focus will be on the presentation of the legal solutions of those member states (current and former) which, in the author’s opinion, have achieved an appropriate balance of conflicting interests of employees and other creditors (such as France, Germany, Spain, Great Britain).