Company transfer and demotion

The Court of Cassation, in its ruling of 20 May 2021, no. 13787 established that if a company transfer is declared illegitimate, liability for any resulting employee demotion falls on the transferee who used the service and not the transferor.

This case follows a judicial application for investigations into a demotion by an employee who had been transferred together with a business branch and who, since March 2004, had become an employee of the transferee company.

The court of first instance upheld the employee’s claim and ordered the transferor and the transferee jointly to pay damages. This decision was then confirmed in the appeal and challenged in the Court of Cassation by the transferor company.

According to the transferor company – having ascertained that (i) the demotion lasted from April 2002 until October 2010 and (ii) from March 2004, the employee was employed exclusively by the transferee company – the joint and liability for the entire period was flawed. It argued that the demotion liability fell on the company using the services, and who had the power to assign the duties.

In upholding the company’s appeal, the Court of Cassation ruled that if a business transfer is judicially invalid, the employment relationship continues with the transferor, and a new and different relationship is established with the former, and no longer, transferee, under whose the employee materially continued to work.

According to the Court of Cassation, “in addition to the dormant employment relationship with the original transferor company (…), there is a service materially provided for the party with whom the employee, unlawfully transferred with the business branch transfer, has established a de facto employment relationship. This service produces legal effects and obligations for the party who uses the work within its business organisation, including that which derives from art. 2103 of the Italian Civil Code, so that any violation of this rule cannot be attributed to the transferor who does not use the work.”

The Court of Cassation overturned the part of the Court of Appeal’s ruling, which ordered the two companies to jointly pay compensation for the damages arising from the demotion suffered while the employee worked for the transferee company.