The Court of Cassation rules on business branch transfers

The Court of Cassation, in ruling no. 29919 of 25 October 2021, clarified that a business branch transfer under Art. 2112 of the Italian Civil Code, is when a transferred branch is functionally independent, i.e. at the time of transfer, it (i) can provide for a production purpose with its own functional and organisational means and (ii) maintain the same transferor company service or function independently and without significant additions by the transferee.

Facts of the case

Reforming the first instance ruling, the Court of Appeal, declared that the sale contract of a business branch between the original employer and the transferee company did not affect an employee. The court declared that an employment relationship existed between the employee and the transferor company. It ordered the transferor to re-establish the relationship and assign the employee equivalent duties to the classification assigned before the transfer.

According to the local court, the services which were part of the business transfer required continuous interaction with the transferor company employees, essential organisational integration and close functional interdependence of the transferred branch with the organisation in the transferor company. According to the Court, this prevents the transfer object being an independent organisation capable of pursuing the pre-established financial purpose self-sufficiently.

The transferee Company appealed to the Court of Cassation, claiming violation and misapplication of Art. 2112 of the Italian Civil Code, on the grounds that the ruling did not comply with the principles laid down in Directive 2001/23/EC as set out by the Court of Justice. The company argued that for the business branch transfer to be classifiable under Art. 2112 of the Italian Civil Code, it must maintain an inter-functional dependence between the assets and personnel transferred and continue the activities previously carried out by the transferor. In addition, the transferred group’s managers have the power to organise the work within the group independently.

The decision

The Court of Cassation, in rejecting the appeal, pointed out that the court of appeal decided consistently with the case law of the Supreme Court and the principles of Directive 2001/23/EC set out by the European Court of Justice. The Court, referring to previous case law, pointed out that a business branch is when a complex of assets is transferred and “objectively” presented as an entity with organisational and financial autonomy to carry out an activity to produce goods or services.

The Supreme Court stated that, based on the text amended by Art. 32 of Legislative Decree no. 276/2003, for the purposes of a business branch transfer under art. 2112 of the Italian Civil Code, the “transferred branch functional autonomy” is a “fundamental element” of the transfer. According to the Court, “the new provision has entrusted the transferor and transferee with the task of identifying the division which makes up the transfer object. This does not mean that the contracting parties can qualify the transferred business branch which makes the application of the special rules depend on private autonomy. Instead, the contents and means subject to the transfer agreement must be defined after a possible fragmentation of a previously unified production process. These contents and means will create a unit with organisational and functional autonomy which is objectively appreciable.”

The Court of Cassation specified that the transfer object under art. 2112 of the Italian Civil Code, can be an organised group of employees specifically and permanently assigned to a common task. It is the court’s responsibility to verify when the group of workers has “a common pool of knowledge, experience and technical skills, which enable the same service to be provided.” This avoids “transfer operations that result in a staff elimination, as the transferred branch must have a tangible commercial potential that is independent of the transferor from which it is separated and offer a specific service, for which it is organised, to undefined potential customers.”