Judgment in the case concerning Kærkommen’s bankruptcy

Norrbom Vinding successfully conducts a landmark case concerning municipalities’ repatriation of home care services.

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The Danish Transfer of Undertakings Act applies to the transfer of an economic entity which retains its identity after the transfer. In this case, the question before the Danish Western High Court was whether or not the Act applied in a situation where two municipalities’ repatriated home care services after a private-sector service provider went bankrupt.

A number of Danish municipalities had outsourced a part of their homecare services to a private-sector provider, Kærkommen, that went bankrupt in March 2015. To repatriate these services, some of the municipalities had to hire new employees on a fixed-term basis. The municipalities made a number of new hires, including former Kærkommen employees, who were integrated into the municipalities’ operating organisation. In this connection, the municipalities did not take over any operating equipment – such as cars, bikes, IT equipment, etc. – from Kærkommen.

Subsequently, a dispute as to whether the Danish Employees Guarantee Fund (LG) or the municipalities were liable to pay the former Kærkommen employees’ salary arose.

LG claimed that a business transfer had occurred when the municipalities took over the former Kærkommen employees, having as a consequence that the municipalities were liable to pay outstanding salary for all former Kærkommen employees. Since LG and the municipalities were unable to agree whether a business transfer had occurred, the Danish Union of Public Employees (FOA) issued proceedings.

Not a considerable part of the workforce
During the proceedings in the High Court the two municipalities claimed that the Transfer of Undertakings Act did not apply since the municipalities had not taken over an economic entity which had retained its identity. To support their claims, the municipalities said that as part of their obligation to provide services they had only taken over a limited number of former Kærkommen employees – and only for a fixed term – after the bankruptcy order had been issued. In addition, no assets, neither tangible nor intangible, had transferred from Kærkommen to the municipalities.

The High Court took into account that in cases concerning home care services, which are essentially based on labour, where no significant tangible or intangible assets have transferred the situation may constitute a business transfer if the transferee has continued the economic activity and taken over ”a considerable part of the workforce which, based on numbers and skills, carried on the activity in question at the former employer”.

The High Court further stated that the question of whether such conditions are met must be decided on a case-by-case basis and the decisive factor is whether the transferred employees make it possible to continue the activity in a stable way.

Since the two municipalities had hired less than 50% of the workforce and no managers or similar employees from Kærkommen, the High Court ruled that no business transfer had taken place. In this context, the High Court noted that there was no basis for agreeing with LG that in this assessment the number of hours that the transferred employees had been hired to perform or had performed at their previous employer should be taken into account.

Accordingly, the High Court ruled in favour of the municipalities.

Norrbom Vinding bemærker

  • that the ruling illustrates that, according to the circumstances, the Danish Transfer of Undertakings Act may apply to cases concerning municipalities’ repatriation of care services if the normal conditions in this regard are met; and
  • that in this assessment there is no basis for attaching importance to the transferred employees’ connection to the previous employer, including how many hours the employees were hired to perform or actually performed at the previous employer.

The content of the above is not, and should not be a substitute for legal advice.

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