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There are conflicting views on the main motivation for the adoption of the ARD.

One view opines that it was purely economic and Common Market protection motivated. The other view, which is supported by the preamble to the 2001 ARD³², posits a social and employee protection-motivated reason for its adoption.

However, the legislative history of the ARD seems to reveal that there were both social and economic reasons that underpinned the Council of Ministers’ decision to adopt the first ARD in 1977. These reasons are considered briefly below.

4.4.1 To protect the common market

There is the notion that the adoption of the ARD was motivated by a desire to protect the Common Market.³³ There were concerns that if economic trends in Europe were to bring changes in the structure of undertakings through transfers of undertakings, businesses or parts of businesses to other employers as a result of legal transfers or mergers of the scale and frequency that was anticipated, it would lead to large scale redundancies and unemployment³⁴ that could have a direct effect on the functioning of the Common Market.This fear was borne out of the differences that existed in the protection given to employees in the Member States in transfer situations. It was feared that these differences could push labour standards to low levels and distort competition between firms in the Common Market.³⁵

32 According to its preamble, the ARD was adopted to ‘provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded’.

33 Michael Shanks, ‘The Social Policy of the European Communities’ (1977) 14 CMLR 373; Davies (n 6).

See also P Watson, ‘Social Policy after Maastricht’ (1993) Common Market Law Review 30, 481-513.

34 Peter Hoeller and Marie-Odile Louppe, ‘The EC’s Internal Market: Implementation and Economic Effects’ (1994) 23 OECD Economic Studies 55.

35 S Hardy and N Adnett `Entrepreneurial Freedom versus Employee Rights’: the Acquired Rights Directive and EU Social Policy Post-Amsterdam (1999) 9 Journal of European Social Policy 130.

163 To avoid that happening, the EU thought it necessary to harmonise the discrete employment laws of the Member States.³⁶ This has provided the basis for the argument that the main reason for the adoption of the ARD was to protect the functioning of the Common Market. The contention is that employee protection as a social goal was subordinate to the economic objective of preventing distortion to the functioning of the Common Market in the adoption of the ARD.³⁷

There are a couple of reasons that could support the veracity of the above view.

First, the directives adopted in the period 1975-1986, that is, the period between the adoption of the Social Action Programme (SAP)³⁸ and the Single European Act (SEA), were, as articulated, mainly measures directed at ‘limiting the social impacts of the economic crisis and of the industrial transformations that took place in Europe’.³⁹ Second, as far as the EC Treaties were concerned, a common market presupposed an undistorted competition. Besides, Article 100 of the Rome Treaty which provided the legal basis for the ARD required any measures proposed to be justified on the basis of removing obstacles which could directly affect the establishment or functioning of the Common Market. Therefore, the ARD, like any other social policy measures enacted on the basis of that article was expected to genuinely have as its object the improvement of conditions for ‘the establishment and functioning of the Common Market.’⁴⁰ This requirement, it has been argued, was intended to strengthen ‘the economic basis for social measures and to prevent the express articulation of social policy as an end in itself.’⁴¹

36 The preamble to the 1977 ARD gives credence to this view. It states, inter alia that ‘these differences can have a direct effect on the functioning of the common market... Whereas it is therefore necessary to promote the approximation of laws in this field while maintaining the improvement described in Article 117 of the [Rome] Treaty. Article 117 concerns the agreement by the Member States on ‘the need to promote improved working conditions and an improved standard of living for workers’.

37 B Bercusson, European Labour Law (Butterworth, London 1996) 234.

38 See full discussion on this in chapter 3.

39 J Kenner, EU Employment Law: From Rome to Amsterdam and Beyond (Hart Publishing, Oxford 2003); Olivier De Schutter, ‘The Balance Between Economic and Social Objectives in the European Treaties’ (2006) 5 Revue française des affaires socials <http://www.cairn.info/revue-francaise-des-affaires-sociales-2006-5-page-119.htm> accessed 30 April 2012.

40 On this see Article 115 TFEU (ex Art 95 EC/ ex Art. 100 1957 Rome Treaty). The Lisbon Treaty also defines the Internal Market as an area without distortions of competition under Protocol No. 27 (On the Internal Market and Competition).

41 Davies (n 6) 329.

164

4.4.2 To protect employees during business transfers

To claim that the ARD was adopted primarily to ensure an undistorted Common Market would be both erroneous and fallacious given that the ARD regime itself is all about the safeguarding of the rights of the employees during a business transfer resulting in a change in employer.⁴² The European economic integration process discussed in chapter 3 was expected to trigger a lot of business restructuring activities in the EU.⁴³ The absence, both at the national and EU levels, of any legislation offering a robust protection for the rights of employees in business transfer situations was disturbing to the European Commission.⁴⁴

The closest to a prospect of statutory protection that workers affected by a business transfer had in the pre-ARD era was in the form of the Draft Third Mergers Directive (DTMC)⁴⁵ and the Draft International Mergers Convention (DIMC) respectively. These two regimes, however, had several limitations vis-à-vis employee protection.

Both incidentally touched upon the position of the workers. They lacked express provisions on protection of the workers’ rights. Both focused solely on asset mergers where the assets and liabilities of the acquired company were transferred to the purchasing company and the company acquired was then dissolved without liquidation. This type of ‘asset merger’ whilst banal in the original six founding members of the then EEC, is found in only in a small proportion in the UK⁴⁶ and so the draft directives would have done little to bolster the protection of UK employees.

The draft directives were also confined to mergers occurring in either one, or two Member States, where the companies merging were located. These directives were further limited by the fact that they were, in comparison to the ARD (see 4.6

42 See preamble to the 1977 ARD.

43 Bob Hepple, ‘Workers’ Rights in Mergers and Takeovers: The EEC Proposals’ (1976) 5 ILJ, 197, 198.

44See e.g. Mary Ann S Bartlett, ‘Employees’ Rights in Mergers and Takeovers-EEC Proposals and the American Approach,’ (1976) 25 ICLQ 621. See also similar sentiments expressed by the Commission in the Proposal for a Council Directive, on the Harmonisation of the Legislation of Member States on the Retention of the Rights and Advantages of Employees- In the Case of Mergers, Takeovers and Amalgamations, May 31, 1974, J O C E., No.-G104/I, Sept. 13, 1974 (Preamble).

45 This Directive which had as its purpose the regulating of mergers between public limited liability companies from the same Member State was later adopted as ‘Third Council Directive 78/855/EC of 9 October 1978 based on Article 54(3)(g) of the Treaty concerning mergers of public limited liability companies.

46 Bob Hepple, ‘Community Measures for the Protection of Workers against Dismissal’ (1977)14 CMLR 489, 493.

165 on modus operandi below), conceived as tools of company law applicable only to one form of economic organisation: the limited company. The implications were that where an economic entity other than a limited company was acquired and, in a mode other than a merger, the employees in those entities were not protected.

The limited nature of the draft directives in relation to employee protection in business transfers and the social injustice caused by the application of different provisions to employees impacted, in comparative terms, by business transfers in the Member States called for a European-wide legislative solution. Thus, it was thought necessary to adopt special legal rules to cope with the social impact that business transfers within the EU were expected to bring.⁴⁷ One way of realising this goal was to offer a legislative response that was capable, not just of mitigating the immediate challenges that business transfers were expected to have for the workers, but to offer a lasting solution in the form of harmonised rules that can be applied in the management or resolution of any collective discontents that might arise, during and after, a legal business transfer involving a change in ownership in the Member States.⁴⁸ The consensus was to promote laws that would keep workers in their jobs over those that would put them back on the labour markets.⁴⁹ This is the type of law championed by the ARD.⁵⁰ Therefore, it was borne out of genuine concerns for employee protection during transfers of undertakings or businesses that the ARD was adopted in 1977.⁵¹

Based on the above analyses, a conclusion may be reached that, although there was an underlying economic goal of protecting the Common Market, the reason for the adoption of the ARD in 1977, however, was primarily to safeguard the rights of employees in business transfers situations involving changes in

47 C Ohly, ‘What Have We Learned about the Economic Effect of EC Integration?’ (1993) 103 Economic Papers; J M Burniaux & J Waelbroeck, ‘Effects of Firm Closures on Employment: is the Single European Market a Real Shock of the Third Kind? (1993) mimeo.

48 D Marsden, ‘The ‘’Social Dimension’’ as a Basis for the Single Market’, in J T Addison & W S Siebert (eds) Labour Markets in Europe: Issues of Harmonization and Regulation (London, Dryden Press 1997).

49 Upex & Ryley (62); R Upex, R Benny & S Hardy, Labour Law (2^nd edn., OUP, Oxford 2006) 4. This approach, it is submitted, may not have been unconnected to the civil law tradition of some of the Member States, especially, the French, which has had a law dating back to 1928, providing for transfer of employees’ contracts of employment/ continuity of employment when there is a transfer of an undertaking.

50 Hardy & Adnett (n 32); Mark Jeffery, ‘European Union Developments: European Labour Laws Relating to Business Restructuring’ (2003) 24 Comp. Labour Law & Policy Journal 670.

51 See explanatory statement of Council proposal for a Directive on the harmonisation of the Member States relating to redundancies. COM (72) Brussels November 8, 1972.

166 ownerships of the businesses or undertakings that employ them in Member States.⁵²