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Headline Labour & Employment: Insourcing can also give rise to "transfer of undertaking"

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A university college, who had outsourced the catering services to an external caterer, decided after a while to prepare the meals for its students and staff internally again. It was disputed before the court whether this kind of “insourcing” of the catering services fell within the notion of “transfer of undertaking”.

According to article 6 of the Belgian CBA no. 32bis, a “transfer of undertaking” is defined as “a transfer, aimed at the continuation of an activity, whether that activity is mainly economic or not, of an economic entity which retains its identity, meaning an organised grouping of resources”. Many different situations can give rise to a transfer of undertaking, such as the takeover of a business unit, the outsourcing of an activity, the situation where a new contractor continues carrying out a service which had already been outsourced before, etc. If the conditions of a transfer of undertaking are met, the transferee is in principle obliged to take over the concerned employees and to observe (regardless of some exceptions) the existing terms and conditions of employment.

On 7 May 2012, the Belgian Supreme Court had to pronounce a judgment on a case where a university college had initially outsourced its catering services. The university college had put the necessary rooms and kitchen gear at the disposal of the caterer. After having terminated the contract with the caterer, the university college began to run the restaurant by itself and used the same rooms and kitchen gear. Apparently, an employee of the caterer was not transferred to the university college, but terminated. The employee claimed an indemnity in lieu of notice. A discussion arose as to the question whether this situation should be qualified as a transfer of undertaking.

The Labour Court of Appeal of Brussels judged that there was no transfer of undertaking and condemned the caterer to pay an indemnity in lieu of notice to the concerned employee. In this regard, the Court started from the principle that, if a new caterer would have pursued the catering services, the transfer of the rooms and kitchen gear put at the disposal by the university college would have sufficed to have a transfer of an economic entity. However, the Labour Court of Appeal found that in this case, no “transfer” of the rooms and gear made available took place, as the university college no longer granted the right to use these rooms and gear following its decision to insource the activities. In the Court’s view, no transfer of tangible assets had occurred. This in combination with the fact that neither a transfer of staff took place, led the Labour Court of Appeal to the conclusion that there was no “transfer of undertaking”.

In its judgment of 7 May 2012, the Belgian Supreme Court came to the opposite conclusion. According to the Supreme Court, a transfer of undertaking can take place if a principal initially outsources a service to a contractor, who makes use of essential tangible assets and subsequently decides to provide the service itself by making use of the tangible assets made available. As a consequence, insourcing can thus entail a transfer of undertaking and the subsequent obligation to take over the concerned employees.