Court introduces non-statutory transfer of employees

In the Netherlands (the European part of the Kingdom), when an undertaking (onderneming) is transferred from one person or entity to another, by operation of law the employees have an employment relationship with the new owner on the terms and conditions agreed with the old employer. For example, such a transfer of the employment relationship may occur in the case of a take-over or merger. Following the transfer, the new owner must respect all existing employment terms and conditions, including the terms of any applicable collective labor agreement. In principle, the rules with respect to transfer by operation of law do not exist if the undertaking is acquired from an owner that has been declared bankrupt.

Curacao and St. Maarten do not have similar rules to protect the rights of employees. In Curacao and St. Maarten, statutory provisions protecting employee rights in the event of a ‘transfer of an undertaking’ do not exist. In other words: the concept of an automatic transfer of employees (and their rights) does not exist under the laws of Curacao and St. Maarten.

On April 2, 2012, in a surprise decision, the Court in First Instance in St. Maarten ruled differently. The case involved the Pelican Resort. The Workers Institute for Organized Labor (Wifol) had a collective labor agreement with the former owner of the resort, the Tenant’s Association Pelican Resort Club (TAPRC). When the resort was sold in foreclosure, the new resort owner, Simpson Bay Resort Management Company (SBRMC), asserted that it had no connection to the prior resort owner and therefore did not have an obligation to employ all 182 Wifol members under TAPRC’s labor agreement. Wifol went to court two separate times in injunction proceedings and won, however the appellate court reversed or stayed the lower court decisions. Wifol then brought the most recent case as a regular proceeding, and not as an injunction case.

In rendering the April 2, 2012 decision, the court in first instance ruled that Simpson Bay had to assume Wifol’s collective labor agreement, adding that Simpson Bay must pay all back wages to all the Wifol employees, regardless of whether they still work at the resort, and a $50,000.00 fine within two days.

According to the court, if the owner of an undertaking sells and transfers his undertaking to a new owner, while the employees without protesting continue to carry out their duties, it is to be held that the employment agreements were tacitly transferred from the old to the new owner. The court used this rationale to find that the new resort owner was bound by the terms of Wifol’s collective labor agreement.

This ruling raises several questions. First, St. Maarten labor law following the former Netherlands Antilles labor law answers the question “who must be considered an employer” based on a firm rule in the contractual law and that is by looking at which parties entered into an agreement. The party who entered into an employment agreement is the so-called formal employer. The formal employer is responsible for all obligations stemming from individual and/or collective labor agreements. Employees do not automatically go into the service of a possible new operator, owner, company or person who starts operating the same business as the formal employer. This means that unless the new operator or new owner offers the employees employment and they accept, in principle the employees remained employed by the formal employer, even if the new operator starts to exercise authority over the employees as the so-called material employer because the employees in question simply remained in the business that the new operator/new owner started operating.

This cardinal principle of our labor law that the formal employer remains responsible for the individual and collective labor agreements with the employees, is only crossed in case it is established that there is “misuse of corporate identity” between the formal and the material employer or another form of a tortuous act, in which case it is – under certain conditions – possible to unify the formal with the material employer, thereby making the material employer responsible for the individual and/or collective labor agreements, on the same foot as the formal employer. The case law clearly shows that exceptional circumstances are required to unify the formal employer with the material employer.

In its judgment dated November 4th and 7th, 2011, in the injunction case, the Court of Appeals specifically ruled that in the Pelican Resort case there is no misuse of corporate identity or a tortuous act and as such no grounds to unify SBRMC with the formal employer Pelican Resort Club, The Management Company N.V. (PRCMC).

The transfer, in the opinion of the court, by the formal employer PRCMC of its business to another party is governed by article 6:159 of the St. Maarten Civil Code. This article requires a deed of transfer. Next, the formal employer is compelled to procure for a correct termination of the employment agreements with its employees. The buyer (new owner) can opt to enter into labor agreements with the employees and to that extent make offers to the employees as per the terms deemed prudent by the buyer/new owner. The buyer does not have any form or sort of obligation to maintain the employees of the previous employer in its service.

In its April 2, 2012 ruling the court assumed that it was not likely for the employees to work on behalf of the previous owner for a short period of time following the take-over of Pelican resort. The court further assumed that the employees must therefore have formed the same employee-employer relationship with the new owner as with the previous resort owner, and under the same terms. In making these assumptions, the court did not determine:

  1. whether or not all employees continued to work;
  2. if they entered into new agreements with the new operator following possible job offers by the new operator; and
  3. if the employment agreements between the employees and the previous owner have been terminated.

In other words: without considering whether each employee actually had a particular relationship with the new owner, the court also ordered SBRMC to retroactively pay all of the former workers.

And what about the collective labor agreement? Given the fact that the concept of an automatic transfer of employees (and their rights) does not exist under the laws of Curacao and St. Maarten, and that the new owner can only become employer if in relation to particular person he either has concluded an employment agreement or he acts if he is the employer (i.e. giving instructions, paying salary etc.), what is the basis for the court’s ruling that SBRMC is obligated to fulfill the employers’ obligations laid down in the collective labor agreement?

The court’s ruling came much as a surprise. In my opinion, the ruling goes beyond applying and interpreting the law. The court should have limited itself to the question as to whether each and every individual employee (i) was offered, and subsequently accepted, an employment agreement with the new owner, or (ii) whether or not there exist, in case it is determined in a substantiated matter that the employees are working for the new owner as a consequence whereof the new owner should be considered the material employer, grounds to establish that the previous owner (formal employer) must be unified with the new owner (material employer). In my opinion the lower court failed to adduce sufficient reasons for its finding that the new owner is also the subsequent employer of all the employees of the former owner.

This court ruling makes it almost impossible to initiate a reorganization process in which, through the transfer of a business to a new owner, costs – and in particular labor costs – can be reduced. Let’s hope that the appeal court will be given the chance to review this lower court decision soon. Appellate proceedings in Curacao and St. Maarten (as in the other islands of the Dutch Caribbean) provide for a full review of the appealed decision: the grounds on which the appeal court can reverse the original judgment are not, as in certain other jurisdictions, limited to procedural matters.

Karel Frielink
Attorney (Lawyer) / Partner

(4 April 2012)

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