Court of Appeal Criticises Industrial Tribunal in a Transfer of Business Case

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Recent decision of the Court of Appeal regarding transfer of business.

In the judgment delivered on the 5th of October 2018, in the names of Antoinette Farrugia vs Optical (CCSG) Company Limited and Classic Group (Appeal nr. 16/2018) the Court of Appeal (Inferior Jurisdiction) delved into the issue of what constitutes a transfer within the meaning of the Transfer of Business (Protection of Employment) Regulations and article 38 of the Employment and Industrial Relations Act.

The case in question was initiated by a claim filed before the Industrial Tribunal by Antoinette Farrugia ('claimant') who was employed with Optical (CCSG) Company Limited ("Optical") on an indefinite basis. On the 8th of December 2014 Optical (had, through a termination letter, informed the claimant that her employment contract would be terminated as of April 2015 on the basis of redundancy, and this due to the company's contract to operate from the premises of the Malta International Airport ('MIA'), initially awarded on a tender basis, not being extended. In the same termination letter Opticalinformed the claimant that Classic Group Limited ("Classic"), an 'associated company', had agreed to "re-employ" her.

The claimant refused the terms of the employment contract, which were less favourable than the terms she had with Optical and challenged the termination decision claiming that it was not based on redundancy. She further claimed that there was a transfer of business between the companies thereby entitling her to the same conditions of employment with Classic.

Contestation in relation to whether there had indeed been a transfer of business between the companies in question arose as a preliminary matter which matter has a substantial impact on the legal relationship between the claimant and Classic as well as the rights of the claimant.

The Industrial Tribunal had decided that there was a transfer. The Court stated that although it had read the decision several times, it could not understand on what basis the Tribunal had arrived at this finding as the decision was not properly explained and thereby lacked certain fundamental requirements. The Court took this opportunity to comment that the Industrial Tribunal should be presided over by a person who has the necessary legal background and experience. This was also said in view of the exponential growth of the Maltese labour market. However, the Court stated that since the case had been pending since 2015, it did not think it was fair to send the acts of the proceedings back to the Tribunal in order for it to reconsider this issue as it would cause prejudice to all parties involved. It therefore decided the issue itself. In arriving at its decision, the Court considered the following:

  1. One of the signatories on the termination letter who was signing as one of the directors of Optical was also the Managing Director of Classic ;
  2. It was only the claimant who was not kept in employment with Classic;
  3. It was apparent to the Court that what led to the employee with the longest employment relationship with Optical (CCSG) Company Limited being the only one terminated was a dispute during negotiations;
  4. Classic owned one third of the shares issued by Optical;
  5. The MIA had offered Optical the possibility to extend the lease agreement, however, Optical had no interest in extending it;
  6. Classic was granted a lease on the space that was previously leased by Optical
  7. MIA had not issued a call for applications but had instead directly reached an agreement with Classic;
  8. Classic had already been operating from a different section of the same premises while selling different objects;
  9. There was a close connection between the companies that used to operate in their own allocated spaces on the same premises. Indeed, the uniforms used to be handed out by Classic;
  10. There was no lengthy interruption of business (approximately two weeks) and moreover Optical had been permitted to continue operations until April 2015 notwithstanding that its lease agreement with the MIA had terminated on the 31st of December 2014 and the agreement signed by Classic with the MIA became effective on the 1st of January 2015;
  11. Classic continued the business of selling eyewear;
  12. Approximately 30% of the stock owned by Optical and some furniture was left at the premises for Classic;
  13. Since the shop in question continued to be used for the sale of eyewear, Classic would be benefiting from the goodwill earned by Optical over the years.

Moreover, in deciding on this preliminary matter, the Court quoted extensively from the jurisprudence of the Court of Justice of the European Union, stating that even if the transfer is effected in two stages; the first stage being the transfer of the undertaking from the original lessee to the owner and second the transfer from the owner to the new lessee, this does not exclude a business transfer in circumstances were the new employer continues the same or similar activities thereby retaining the identity of the business.

In light of the foregoing, the Court decided that a transfer of business had taken place and in its final comments also stated that for there to be a transfer of business it was not necessary for Classic to take control of Optical as the defendants had argued.

The acts of the proceedings were sent back to the Industrial Tribunal so that the merits of the claim may be considered following confirmation of the transfer of business.

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