The Transfer of Undertakings (Protection of Employment) Regulations (TUPE Regulations) were incorporated in their current form into the laws of the European Union (EU) with Directive 2001/23/EC of March 12, 2001 (TUPE Directive), with Croatia ensuring its transposition in its legal system via the Labor Act (albeit with a few missed opportunities). Although TUPE Regulations are relatively simple to comprehend, with the main goal being the protection of employee rights in the event of a transfer of an undertaking, business, or part of an undertaking or business as a result of a legal transfer or merger, their application in practice raises many questions to which statutory provisions of Croatian law do not provide an answer.
For example, there is no provision answering the question of how long the new employer must uphold the rights of transferring employees after the transfer (the TUPE Directive envisages the possibility for member states to regulate this question), nor answering the question of employees’ right to object to the transfer of their employment. Therefore, court practice of the ECJ, and Croatian courts especially, is essential for understanding all the fine details of TUPE Regulations and for finding the answers to these questions.
With this in mind, on May 4, 2023, the Croatian Supreme Court adopted a decision in a revision procedure regarding the transfer of employees under TUPE Regulations. A civil law revision is a court procedure in which the Supreme Court has the power to answer questions important for the development of law through judicial practice, especially when there is no court practice related to a certain question, or if the practice differs between courts. As such, it is always interesting to monitor the Supreme Court’s revision decisions. In this case, the question was raised as to whether employees who are transferred to a new employer based on the fact that an undertaking or part of an undertaking in which they are employed is transferred under TUPE Regulations must consent to the transfer of their employment contract (i.e., whether the transferring employees have a right to object to the transfer of their employment to the new employer).
Interestingly, the Supreme Court made a differentiation between situations in which the transfer of an undertaking or part of an undertaking occurs in a way that (i) the original employer (i.e., the transferring employer) continues to operate after the transfer and (ii) the original employer ceases to exist.
The Supreme Court argued that in situations where the original employer ceases to operate, the transferred employees do not have a legal interest to object to the transfer and therefore cannot object to the transfer of their employment. However, if the original employer continues to operate, its employees have the right to object to the transfer of their employment contracts to the new employer, irrespective of their legal interest to object to the transfer. In other words, the employee can have a legal interest/reason to object to the transfer, but it is not a necessary condition. The court argued that employees cannot influence the decision of the transfer of the undertaking or part of the undertaking in which they are employed, since this is (in most cases) an autonomous decision of the original employer. However, employees have the right to choose their employer. Therefore, when the original employer continues to operate, its employees have the right to stay employed with the original employer. This opinion is also in line with the court practice of the ECJ. Furthermore, the Supreme Court indirectly confirmed the stance that when transferring employees object to the transfer of their employment, they lose their protection under the TUPE Regulations. This does not mean that the original employer would have the right to terminate their employment simply based on the fact that they objected to the transfer of their employment. However, if the original employer does not have a need for the work of the employees post-transfer, this could represent a valid, business-related termination reason.
The decision of the Supreme Court is logical and in line with the court practice of the ECJ. Its adoption has certainly added an additional (and much-needed) dimension toward understanding the practical implications of the transfer of employees under Croatian law. Although there are many unanswered questions still left, this is certainly a step in the right direction for the development of Croatian court practice and law.
By Mia Kalajdzic, Partner, and Antonio Sabljic, Attorney at Law, CMS
This article was originally published in Issue 11.10 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
