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Bulgaria’s Application of the ECJ’s Rules for Keeping Employment Relationships in Transfers of Undertakings

Bulgaria’s Application of the ECJ’s Rules for Keeping Employment Relationships in Transfers of Undertakings

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Employment relationships require special protection both at European and national levels. Although largely enshrined in European legislation, those protections remain subject to modifications to ensure efficiency and security of the employment process. 

In addition to discrepancies existing between the European and national systems, ambiguities in the application of national legal norms may arise due to their non-compliance with EU legislation.

The EU Approach

The European Court of Justice (the “Court”) has developed case law involving the application of Directive 2001/23/EC (and the consolidated Directives 77/187/EEC and 98/57/EC), which regulates the preservation of employment relationships in cases of transfer of activities and tangible assets.

The Directive covers all cases of legal transfer (including mergers) of enterprises or business activities, or distinct parts thereof. The Directive applies to any transfers where an entity retains its identity. 

In Abels, 135/83, the Court held that since the Member States have differences in their national legal systems about the scope of the “legal transfer” concept, the Court’s analysis cannot be confined to the literal understanding of the text. A transfer can be based on a contract, a unilateral act, a court decision, or a law, and in some cases there is no direct contractual relationship between the transferor and the transferee.

The Court has established criteria for determining when there is a transfer of a business entity which retains its identity and when the employment relationships are being preserved. Thus, national courts are required to make a comprehensive examination in each case as to whether the following criteria are present: (i) the type of business or activity; (ii) whether tangible assets are transferred; (iii) the value of the intangible assets at the time of transfer; (iv) whether the majority of staff is taken over by the new employer; (v) whether the customers are transferred; (vi) the degree of similarity between the activities carried out before and after the transfer; and (vii) the discontinuation of the activities. 

Applying the Directive is of major importance for public procurement, outsourcing, and other cases where one contractor of a service is replaced by another, yet the Court has applied its criteria inconsistently. Thus, in Abler C-340/01, it confirmed the transfer of staff between employers without a direct contractual relationship. Overall, the Court has ruled that existing employment relationships should be taken over by the purchaser of a tangible asset or activity. 

Keeping Employment Relationships According to the Practice of the Bulgarian Supreme Court 

The Bulgarian Labor Code regulates the preservation of employment relations, especially where the employer is changed because of a transfer of the “aggregates” of activities, personnel, and assets. In two of its interpretative decisions, the Bulgarian Supreme Court (BSC) has confirmed that the list of retained employment relationships in the law is exclusive and has held that the protection of Bulgarian law is more extensive than that provided in the Directive. Furthermore, the BSC has held that the existing legislative approach protects the interests of each party to the employment relationship and that the legislative balance must not be violated by interpretation in favor of either side. The BSC stated that “protection is established in imperative order and it can neither be expanded nor narrowed.” 

It is not clear whether the European Court of Justicse’s criteria in favor of better protection for employees are applied by the Bulgarian courts. However, the BSC generally preserves employment relations in cases of change of contractor in public procurement contracts when the original contractor has ceased operations. The BSC also accepts that the application of the provision of the Bulgarian Labor Code involving transfer of part of an activity or of tangible assets does not require the existence of a contract with specific clauses between the two enterprises. The BSC accepts that the transfer of activity and the preservation of the employment relationships exists when a law abolishes the existence of an administrative body and another body undertakes its functions.

The Expectations 

Implementing Directive 2001/23/EC and the European Court of Justice’s case law in the national legislation of the Member States is an ongoing process and remains subject to disagreement. A synchronization at the European level as well as future engagement of the Bulgarian courts to create specific rules will ensure a proper balance in the country’s legal system and better protection of employment relationships in the country.

By Maria Drenska, Head of Employment, CMS Bulgaria

This Article was originally published in Issue 4.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

CMS at a Glance

CMS Sofia is a full-service law firm, the largest international law firm in Bulgaria and one of the largest providers of legal services in the local market as a whole. The breadth and depth of our practice means that our lawyers are specialised, with a level of specialisation that few of our competitors can match.

CMS Sofia is the Bulgarian branch of CMS, a top ten global legal and tax services provider with over 5000 lawyers in 43 countries and 78 offices across the world.

CMS entered the Bulgarian market as one of the first internationally active law firms in 2005 and is now among the most respected legal advisors in the country. We have 7 partners, 4 counsel and over 30 lawyers in our office in Sofia.

Our legal experts, who are rooted in Bulgaria’s local culture, can also draw on years of experience in foreign countries and are at home in several legal systems at once. We know the particularities of the local market just as well as the needs of our clients and combine both to achieve optimum solutions. Our lawyers are Bulgarian qualified and we also have English qualified experts – all of them regularly working on cross-border mandates.

In our work, we focus on M&A, Energy, Projects and Construction, Banking and Finance, Real Estate, Media, IP and IT law, Tax, Employment law, Competition, Procurement and any kind of Dispute resolution, including arbitration and mediation. What’s more, we also take care of the entire legal management of our clients’ projects.

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