We analyse the recent ruling of the Court of Justice of the European Union and how it improves the position of employees when their employment contracts are terminated due to the employer's retirement. This decision examines the compatibility of Spanish legislation with Directive 98/59, opening up new opportunities for the protection of workers' rights.
Reference: ruling of the Court of Justice of the European Union, 11 July 2024
Written by Cyrielle Agut
Employment lawyer – Spanish, French and English.
background: business closure due to employer retirement
The claimants in these proceedings were employed at one of the eight workplaces belonging to FC's company. On 17 June 2020, the company notified its 54 employees of its intention to terminate their employment contracts, with effect from 17 July 2020, due to the employer's retirement.
The retirement was formalised with effect from 3 August 2020, resulting in the termination of all 54 employment contracts then in force.
Disagreeing with both the decision and the procedure followed by the company, eight of those employees brought a claim before the employment tribunal of Barcelona, challenging what they considered to be an irregular dismissal. The following rulings were issued:
- employment tribunal of Barcelona: dismissed the claim.
- High Court of Justice of Catalonia: held that the provisions of Article 51 of the Workers' Statute (collective dismissal) did not apply in this case, since that provision refers to the termination of employment contracts upon the dissolution of the legal personality of one of the contracting parties, and not to the retirement of an employer who is a natural person. The High Court of Justice (TSJ) expressly noted its concern regarding the exclusion of this situation from Spanish legislation, given that Directive 98/59 sets a different standard, and chose to stay the proceedings, referring the following preliminary questions to the Court of Justice of the EU (CJEU):
- "1) Is legislation such as that of Spain — which, under Article 49.1(g) of the [Workers' Statute], does not provide for a consultation period in cases where employment contracts are terminated in numbers exceeding the threshold set out in Article 1 of that Directive as a result of the retirement of an employer who is a natural person — compatible with Article 2 of Directive [98/59]?
- 2) If the answer to that question is not in the affirmative, does Directive 98/59 have horizontal direct effect between private parties?"
- "1) Is legislation such as that of Spain — which, under Article 49.1(g) of the [Workers' Statute], does not provide for a consultation period in cases where employment contracts are terminated in numbers exceeding the threshold set out in Article 1 of that Directive as a result of the retirement of an employer who is a natural person — compatible with Article 2 of Directive [98/59]?
RULING ON THE PRELIMINARY QUESTIONS REFERRED
1. Is Spanish legislation (Article 49.1 of the Workers' Statute) contrary to EU law (Article 2 of Directive 98/59)?
Any national legislation or interpretation thereof that led to the conclusion that the termination of employment contracts caused by the retirement of an employer who is a natural person cannot constitute a "dismissal" within the meaning of Directive 98/59 would alter the scope of that Directive and thereby deprive it of its full effectiveness.
The Court of Justice of the EU (CJEU) responded to the first preliminary question that Articles 1(1) and 2 of Directive 98/59 must be interpreted as precluding national legislation by virtue of which the termination of employment contracts of a number of workers exceeding that provided for in Article 1(1), on the grounds of the employer's retirement, is not classified as a "collective dismissal".
Therefore, Article 49.1(g) of the Workers' Statute is indeed contrary to EU law, as it fails to comply with the requirements and procedures laid down for the "collective dismissal" under Article 51 of the Workers' Statute, particularly as regards the obligation to inform and consult employee representatives.
2. If the answer to the first question is in the negative, should national courts apply Directive 98/59 directly?
National courts have an OBLIGATION TO INTERPRET EU law as far as possible with the sole aim of achieving the result pursued by Article 288 of the Treaty on the Functioning of the European Union.
However, they are NOT obliged to disapply national law applicable to disputes between private parties.
How to close a workplace upon the employer's retirement
Directive 98/59 applies within the Spanish legal order. Accordingly, following the ruling discussed in this article, the procedure to be followed must comply with the formalities of the collective dismissal in cases of employer retirement, provided that the thresholds for affected employees set out in Article 51 of the Workers' Statute are met. This is so for two reasons:
- The termination of employment contracts due to the employer's retirement occurs without the consent of the affected employees.
- The European directive aims to encourage that such terminations be preceded by consultation with employees' legal representatives and notification to the competent labour authority.
advice from our employment lawyer
As employment lawyers specialising in collective bargaining, we believe this ruling will give employees and their representatives the opportunity to negotiate in order to mitigate the consequences of employment contract terminations. It will also open the door for employee representatives to seek higher severance amounts than the one-month salary payment provided for employer retirement under Article 49.1(g) of the Workers' Statute, bearing in mind that the legislation provides for compensation equivalent to 20 days' salary per year of service, up to a maximum of 12 monthly payments, for standard ETOP collective dismissals under Article 53.1(b) of the Workers' Statute — and that there is also a risk of the dismissal being declared null and void if the formal requirements set out in Article 51 of the Workers' Statute for collective dismissals are not met.
Article written by Employment Lawyer Cyrielle Agut:
