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Case law: termination of labour relations after transfer of a business

22 Mar 2012

On 20 February 2012, the Supreme Court of the Republic of Lithuania adopted a decision concerning termination of labour relations after the transfer of business or its part. 

The claim is concerned with the dismissal of employees after liquidation procedures in accordance with Article 136 (1) (6) of the Labour Code of the Republic of Lithuania. The claimants claimed that they had been dismissed unlawfully, since the company had been reorganized and not liquidated. The claimants alleged that pursuant to Article 138 of the Labour Code the transfer of business or a part may not constitute a legitimate reason to terminate employment relationships.

The Court summarised the case law of the European Court of Justice concerning the transfer of an undertaking or business falling under Directive 2001/23/EC (hereinafter - the Directive). The Court held that:

  • European case law does not have a uniform definition of the transfer of business. Nevertheless, the decisive factor mentioned in a number of cases is the fact that the new employer continues or resumes the management of the economic entity, retaining its identity.
  • The fact of transfer is evidenced by the so called “stable economic entity”, i.e. conclusion of one-off agreements for specific works will not be considered as the transfer of a business.
  • Structural changes of the transferred economic entity do not preclude the application of the Directive.
  • The transfer of asset, which have been used for the activities of an undertaking, business or its part, cannot be regarded as the transfer of the undertaking, business or its part; the transfer of an undertaking, business or its part can be stated only if the undertaking, business or its part is transferred as an operating economic entity. The fact that the accepting person took over the undertaking, business or its part as an operating economic entity can be evidenced by the fact that the accepting person is given every possibility to continue the same activity of the undertaking, business or its part that has been performed before the transfer.

In this case, the Court submitted the case back to the Court of First Instance for examination of the factual circumstances in light of the case law of the European Court of Justice. For more information see.

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