Court of Justice of the European Communities (including Court of First Instance Decisions)

JUDGMENT OF THE COURT (Sixth Chamber)

6 November 2003 (1)

(Directive 77/187/EEC - Safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses - Early retirement and associated benefits)

In Case C-4/01,

REFERENCE to the Court under Article 234 EC by the Employment Tribunal, Croydon (United Kingdom) for a preliminary ruling in the proceedings pending before that court between

Serene Martin,

Rohit Daby,

Brian Willis

and

South Bank University,

on the interpretation of Article 3 of Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses (OJ 1977 L 61, p. 26),

THE COURT (Sixth Chamber),

composed of: J.-P. Puissochet (Rapporteur), President of the Chamber, R. Schintgen, C. Gulmann, F. Macken and J.N. Cunha Rodrigues, Judges,

Advocate General: S. Alber,

Registrar: L. Hewlett, Principal Administrator,

after considering the written observations submitted on behalf of:

- Ms Martin, Mr Daby and Mr Willis, by M. Tether, Barrister, instructed by P. Blundy, Solicitor,

- South Bank University, by T. Linden, Barrister, instructed by Taylor Joynson Garrett, Solicitors,

- the United Kingdom Government, by J. E. Collins, acting as Agent, and S. Moore, Barrister,

- the Commission of the European Communities, by J. Sack and N. Yerrell, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Ms Martin, Mr Daby, South Bank University and the Commission at the hearing on 15 May 2003,

after hearing the Opinion of the Advocate General at the sitting on 17 June 2003,

gives the following

Judgment

1. By order of 5 January 2001, received at the Court on 8 January 2001, the Employment Tribunal, Croydon, referred to the Court for a preliminary ruling under Article 234 EC nine questions on the interpretation of Article 3 of Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses (OJ 1977 L 61, p. 26, the directive).

2. Those questions were raised in proceedings between Ms Martin, Mr Daby and Mr Willis (the applicants) and their last employer, South Bank University (SBU), concerning the terms upon which they can take early retirement. The applicants claim to be able to benefit from the early retirement terms offered by their previous employer, which formed part of the National Health Service (NHS), on the ground that their employment entity was transferred from the NHS to SBU.

   The directive

3. According to Article 1(1) thereof, the directive concerns the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger.

4. Article 3 of the directive reads as follows:

   1. The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.

   Member States may provide that, after the date of transfer within the meaning of Article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship.

   2. Following the transfer within the meaning of Article 1(1), the transferee shall continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement.

   Member States may limit the period for observing such terms and conditions, with the provision that it shall not be less than one year.

   3. Paragraphs 1 and 2 shall not cover employees' rights to old-age, invalidity or survivors' benefits under supplementary company or inter-company pension schemes outside the statutory social security schemes in Member States.

   Member States shall adopt the measures necessary to protect the interests of employees and of persons no longer employed in the transferor's business at the time of the transfer within the meaning of Article 1(1) in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors' benefits, under supplementary schemes referred to in the first subparagraph.

5. In the judgment of 4 June 2002 in Case C-164/00 Beckmann [2002] ECR I-4893, interpreting Article 3 of the directive, the Court held as follows:

   29 Given the general objective of safeguarding the rights of employees in the event of transfers of undertakings pursued by the directive when it provides, in Article 3(1) and (2), for transfer to the transferee of the transferor's rights and obligations arising from a contract of employment, an employment relationship or collective agreement, the exception to that rule provided for by Article 3(3) must be interpreted strictly.

   30 That exception can therefore apply only to the benefits listed exhaustively in that provision and they must be construed in a narrow sense.

   31 In that connection, it is only benefits paid from the time when an employee reaches the end of his normal working life as laid down by the general structure of the pension scheme in question, and not benefits paid in [other circumstances] that can be classified as old-age benefits, even if they are calculated by reference to the rules for calculating normal pension benefits.

   32 ... early retirement benefits and benefits intended to enhance the conditions of such retirement, paid in the event of dismissal to employees who have reached a certain age, such as the benefits at issue in the main proceedings, are [therefore] not old-age, invalidity or survivors' benefits under supplementary company or inter-company pension schemes within the meaning of Article 3(3) of the directive.

6. The Court added that:

   40 ... on a proper construction of Article 3 of the directive, the obligations applicable in the event of the dismissal of an employee, arising from a contract of employment, an employment relationship or a collective agreement binding the transferor as regards that employee, are transferred to the transferee subject to the conditions and limitations laid down by that article, regardless of the fact that those obligations derive from statutory instruments or are implemented by such instruments and regardless of the practical arrangements adopted for such implementation.

   National law

   The Transfer of Undertakings (Protection of Employment) Regulations 1981

7. The directive was transposed into national law by the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE). The relevant passages of TUPE which transpose Article 3 of the directive are set out in Beckmann, cited above, paragraph 6, to which reference is made.

   The General Whitley Council conditions of service for NHS employees

8. The Whitley Council system is a system for establishing conditions of service in the public sector through joint negotiations between employers and employees.

9. Section 45 of the General Whitley Council conditions of service (the GWC conditions of service) sets out the agreed provisions on lump sum payments for employees of the various structures of the NHS where they are dismissed by reason of redundancy or where they voluntarily take early retirement following an organisational change contributing to the avoidance of a redundancy situation. Those payments are made by the employer.

10. Section 46 of the GWC conditions of service adopts the terms of the Collective Agreement on Premature Payment of Superannuation and Compensation Benefits, concluded between the various NHS employers and recognised trades unions. For employees aged between 50 and retirement age and with at least five years' service within the NHS Superannuation scheme, section 46 provides for early retirement with immediate payment of a retirement pension and compensation in three cases: dismissal by reason of redundancy, voluntary early retirement on organisational change and early retirement in the interests of the efficiency of the service. There is also provision for enhancement of the number of years of service taken into account for such employees. It appears from the file that early retirement in the interests of the efficiency of the service is usually connected to the personal circumstances of the employee concerned and may be initiated by the employer.

11. The provisions implementing section 46 of the GWC conditions of service that are relevant to the dispute in the main proceedings are to be found in the NHS Pension Scheme Regulations 1995 and the NHS (Compensation for Premature Retirement) Regulations 1981. They provide for:

    - payment of an early retirement pension, based on actual years of pensionable service, paid from the date of redundancy to the normal age of retirement;

    - early payment of a lump sum normally payable on retirement, the amount of which is equivalent to three times the yearly rate of the early retirement pension;

    - compensation in the form of an annual allowance to make up the early retirement pension, and

    - a lump sum compensation payment equivalent to three times the annual allowance.

12. These various benefits are paid by the Secretary of State, in the case of the first two from the NHS Superannuation Scheme. However, they have to be reimbursed by the NHS administration.

13. Where these benefits reach a certain level, the lump sum redundancy payments under section 45 of the GWC conditions of service are reduced or cancelled.

    The differences between early retirement for NHS employees laid down by the GWC conditions of service and early retirement for employees in the sector of higher education

14. Early retirement benefits in the sector of higher education are not set out in a collective agreement but in regulations adopted by the Secretary of State for Education and Employment pursuant to the Superannuation Act 1972 which provide that certain benefits may be paid where a teacher aged 50 or over takes early retirement if the termination of the teacher's employment is either by reason of redundancy or in the interests of the service. At the time when the dispute giving rise to these proceedings arose, the relevant regulations were the Teachers Superannuation (Consolidation) Regulations 1988 and the Teachers (Compensation for Redundancy and Premature Retirement) Regulations 1989.

15. Where a teacher takes early retirement in the circumstances provided for by those regulations, he or she is entitled to an early retirement pension based on the actual number of years of service in the pension scheme and a lump sum on early retirement. In addition, the employing university has a discretion to pay an annual allowance and lump sum compensation, which is calculated by crediting the teacher with notional additional years of service. Whether to pay such benefits, and if so how much it should pay, are entirely a matter for the university, although the regulations impose limits on the amounts which can be paid. The university is required to meet the costs.

16. There are two differences between the early retirement scheme applicable to NHS employees and that applicable to teachers in higher education. Whereas NHS employers are under an obligation to pay an annual allowance and lump sum compensation when an employee takes early retirement, employers in the higher education sector have a discretion whether or not to pay such additional benefits. Further, whereas NHS employers are obliged to credit the employee with a prescribed number of additional years' service for the purpose of calculating those benefits, employers in the higher education sector have a discretion to determine how many years' service should be credited to the employee.

17. Until 1997, the cost of paying teachers the early retirement pension and early retirement lump sum was borne wholly by their pension scheme, the Teachers' Superannuation Scheme. Since then, the universities have also been required to contribute to the cost of these benefits. The pension paid by the Teachers' Superannuation Scheme was actuarially reduced and the employer was required to pay compensation to the employee to make up the difference.

    The facts in the main proceedings and the questions referred for a preliminary ruling

18. Prior to 1 November 1994, the applicants were employed as nursing lecturers at the Redwood College of Health Studies (Redwood College), which formed part of the NHS. Their employment contract stated: Your employment is governed by the conditions of the General and Nurses and Midwives Whitley Council.

19. Following the attachment of nursing education to the Ministry of Education and Employment, Redwood College became part of SBU.

20. Shortly before that, SBU informed the staff at Redwood College that they would be offered a new employment contract. They were not obliged to accept SBU's conditions of service. SBU did state however that, in any event, the employees would not be able to continue their membership of the NHS retirement scheme and that they would have three options: (1) to leave the NHS pension scheme as it was and to join a new pension scheme; (2) to transfer pension rights from the NHS scheme to one of SBU's retirement schemes, and (3) to leave the NHS pension scheme as it was and not to join a new pension scheme.

21. By a letter of the same period to the applicants' union, SBU stated:

    In the event of permanent ill-health retirement, both the Teachers' Scheme and [the] Local Government Scheme provide for individuals to receive the maximum enhancement to which they are entitled. Such enhancement is not discretionary, but is mandatory.

    In the event of early retirement for any other reason, enhancement is discretionary.

    However, as stated, in the event that any employee transferring from Redwood has a contractual entitlement to such provision and this is legally enforceable, then, again, as in all such matters, the University would honour its legal obligations.

22. The applicants did not accept the terms and conditions of employment offered by SBU and accordingly remained on the terms specified in their contracts of employment as at the time of transfer. However, they joined the Teachers' Superannuation Scheme. They also applied to transfer their existing NHS pension rights into that scheme. However, only Mr Daby and Mr Willis were in fact able to transfer those rights. Ms Martin could not do so because she was over 60 at the time of the transfer of Redwood College.

23. From time to time, SBU offered its employees aged over 50 the opportunity to take early retirement so as to best adapt its personnel to its needs.

24. In October 1996, the Ministry of Education and Employment announced the change to the terms of finance for early retirement set out at paragraph 16 of the present judgment and SBU informed all university staff aged over 50 that it was unlikely to be able to offer early retirement after 31 March 1997. In January 1997, SBU again wrote to those members of staff offering them one last chance of early retirement before the new financial arrangements entered into force.

25. Ms Martin and Mr Daby accepted that offer, having previously refused. The Employment Tribunal finds that they took early retirement in the interests of the efficiency of the service within the meaning of section 46 of the GWC conditions of service. Mr Willis remained in SBU's employment. It is in those circumstances that the dispute in the main proceedings arose, in which the applicants claim to be entitled to the NHS terms of early retirement instead of SBU's terms.

26. In order to resolve the dispute, the Employment Tribunal held it to be necessary to refer the following questions for a preliminary ruling:

    1. Do rights which are contingent upon either dismissal or premature retirement by agreement with the employer fall within the definition of rights and obligations within the meaning of Article 3(1) of the directive?

2. Is the employees' entitlement to the payment of early superannuation benefits and lump sum compensation on redundancy/in the interests of the efficiency of the service/on organisational change, a right to an old-age, invalidity or survivors' benefit within the meaning of Article 3(3) of the directive?

3. If and to the extent that the answer to Question 2 is no, is there an obligation on the transferor arising from the contract of employment, the employment relationship or the collective agreement within the meaning of Article 3(1) and/or 3(2) which transfers by reason of the transfer of the undertaking and renders the transferee liable to pay the benefits to the employee upon dismissal?

4. If the answers to Questions 2 and 3 are no and yes respectively, may the employee, nonetheless, agree to forego his/her entitlement to early payment of pension and retirement lump sum and/or the annual allowance and lump sum compensation in circumstances where the transferee's pension scheme does not entitle him or her to the same benefits and the same circumstances or at all, and he/she

(i) becomes a member of the transferee's pension scheme, makes contributions to it and/or has contributions made to it on his/her behalf by the transferee employer;

(ii) becomes a member of the transferee's pension scheme, makes contributions to it and has contributions made to it on his/her behalf by the transferee employer and successfully applies to transfer his/her accrued benefits from the transferor's pension scheme into the transferee's pension scheme?

5. If so, what are the criteria by which the national court should decide whether, in such circumstances, the employee has agreed?

6. Are Articles 3(1) and/or 3(2) of the directive to be interpreted as precluding the transferee from offering transferred employees the option of taking early retirement on the basis of early retirement benefits that are less beneficial than those to which they are entitled as a consequence of the effect of the directive?

7. Is the answer to the foregoing question affected if, when offering transferred employees the option of taking early retirement on terms less beneficial than those to which they are entitled under the directive, the transferee states that no early retirement benefits will be available in future?

8. Where the parties have agreed that the employee will take premature retirement on the terms offered by the employer, what criteria should the national court apply in determining whether the transfer of the undertaking is the reason for that agreement in accordance with the principle enunciated by the Court in Case 324/86 Foreningen af Arbejdsledere [Tellerup] v Daddy's Dance Hall?

9. If the effect of Article 3 of the directive is to preclude the transferee from offering transferred employees the option of taking early retirement on the basis of early retirement benefits that are less beneficial than those to which they are entitled under the effect of the directive, what are the consequences for employees who accept early retirement on the basis offered to them by the employer?

The first question

27. By its first question, the Employment Tribunal asks essentially whether rights contingent upon dismissal or the grant of early retirement by agreement with the employer fall within the concept of rights and obligations within the meaning of Article 3(1) of the directive.

28. The applicants and the United Kingdom Government submit that the fact that employee rights are contingent upon the happening of a particular event which may not have occurred at the time of the transfer of undertaking does not exclude those rights from the scope of Article 3(1) of the directive. Without challenging that assessment, SBU points out that the lack of obligation on the employer to grant early retirement affects the assessment of cases such as those of the applicants.

29. It is clear from the wording of Article 3 of the directive that, except in the cases mentioned in paragraph 3 thereof, all the transferor's rights and obligations arising from the contract of employment or employment relationship with an employee fall within the scope of Article 3(1) and are therefore transferred to the transferee, regardless of whether or not their implementation is contingent upon the happening of a particular event, which may depend on the will of the employer. Thus, if, following the transfer, the transferee, like the transferor before him, has the power whether or not to adopt certain decisions in respect of the employee, for example concerning dismissal or the grant of early retirement, once he adopts such a decision, he remains bound, like the transferor before him, by the rights and obligations laid down as the consequence of such a decision by the contract of employment or employment relationship with the transferor as long as the relevant terms thereof have not been lawfully varied.

30. The answer to the first question must therefore be that rights contingent upon dismissal or the grant of early retirement by agreement with the employer fall within the rights and obligations referred to in Article 3(1) of the directive.

    The second and third questions

31. By its second question, the Employment Tribunal asks whether early retirement benefits and benefits intended to enhance the conditions of such retirement, such as those claimed in the main proceedings, are old-age, invalidity or survivors' benefits under supplementary company or inter-company pension schemes excluded from the scope of Article 3(1) of the directive by virtue of Article 3(3) thereof.

32. By its third question the Employment Tribunal asks essentially whether, to the extent that benefits such as those in issue in the main proceedings are not covered by the exception laid down by Article 3(3) of the directive, obligations arising upon early retirement granted in circumstances such as those in the main proceedings, arising from a contract of employment, an employment relationship or a collective agreement binding the transferor as regards that employee, are transferred to the transferee subject to the conditions and limitations of Article 3 of the directive, even if those obligations derive from statutory instruments or are implemented by such instruments, pursuant to practical arrangements such as those adopted for the benefits claimed in the main proceedings.

33. Those questions are similar to those referred to the Court in Beckmann, cited above, which concerned the same benefits as those claimed by the applicants in the present case, but in respect of dismissal by reason of redundancy and not in the context of early retirement agreed between the employer and the employee.

34. In the light of the grounds of the judgment in Beckmann set out at paragraph 5 of the present judgment, there is no reason to treat benefits applied for upon dismissal by reason of redundancy any differently from those applied for upon early retirement agreed between the employer and the employee which does not correspond to the departure of an employee at the end of his or her normal working life as laid down by the general structure of the pension scheme of which he or she is a member.

35. The answer to the second and third questions must therefore be that early retirement benefits and benefits intended to enhance the conditions of such retirement, paid in the event of early retirement arising by agreement between the employer and the employee to employees who have reached a certain age, such as the benefits at issue in the main proceedings, are not old-age, invalidity or survivors' benefits under supplementary company or inter-company pension schemes within the meaning of Article 3(3) of the directive and that Article 3 of the directive is to be interpreted as meaning that obligations arising upon the grant of such early retirement, arising from a contract of employment, an employment relationship or a collective agreement binding the transferor as regards the employees concerned, are transferred to the transferee subject to the conditions and limitations laid down by that article, regardless of the fact that those obligations derive from statutory instruments or are implemented by such instruments and regardless of the practical arrangements adopted for such implementation.

    The fourth question

36. The Employment Tribunal asks essentially whether an employee may agree to forego rights such as those laid down by section 46 of the GWC conditions of service, even though the terms of early retirement offered by the transferee do not provide the same benefits and that employee became a member of the transferee's retirement scheme upon the transfer of the undertaking. That question is asked both in respect of the situation where that employee has obtained the transfer of pension rights acquired under the transferor's pension scheme and where he or she has not.

37. The applicants, the United Kingdom Government and the Commission submit that the fact that the employees concerned joined the retirement scheme for the education sector was a direct consequence of the transfer of Redwood College from the NHS to SBU since those employees could not remain members of the NHS retirement scheme. Similarly, the fact that SBU offered terms of early retirement less advantageous than those arising under section 46 of the GWC conditions of service and that the employees concerned were able to accept them could only be the result of that transfer. Consequently, any agreement by the employees concerned to terms less favourable than those to which they were entitled but for the transfer cannot be valid.

38. SBU submits by contrast that the transfer of Redwood College to its responsibility is not at all the cause of any subsequent acceptance by that entity's employees of early retirement on terms less favourable than those which the NHS was able to offer them where it was in a position so to do. Since it was not connected with the transfer of undertaking, such acceptance cannot be contrary to Article 3 of the directive.

39. As the Court has already held, the purpose of the directive is to ensure that the rights resulting from a contract of employment or employment relationship of employees affected by the transfer of an undertaking are safeguarded. Since this protection is a matter of public policy, and therefore independent of the will of the parties to the contract of employment, the rules of the directive must be considered to be mandatory, so that it is not possible to derogate from them in a manner unfavourable to employees (Daddy's Dance Hall, cited above, paragraph 14).

40. It follows that employees are not entitled to waive the rights conferred on them by the directive and that those rights cannot be restricted even with their consent (Daddy's Dance Hall, paragraph 15).

41. However, the directive is intended to achieve only partial harmonisation, essentially by extending the protection guaranteed to workers independently by the laws of the individual Member States to cover the case where an undertaking is transferred. It is not intended to establish a uniform level of protection throughout the Community on the basis of common criteria. Thus the directive can be relied on only to ensure that the employee is protected in his relations with the transferee to the same extent as he was in his relations with the transferor under the legal rules of the Member State concerned (Daddy's Dance Hall, paragraph 16).

42. Consequently, in so far as national law allows the employment relationship to be altered in a manner unfavourable to employees in situations other than the transfer of an undertaking, such an alternative is not precluded merely because the undertaking has been transferred in the meantime and the agreement has therefore been made with the new employer. Since by virtue of Article 3(1) of the directive the transferee is subrogated to the transferor's rights and obligations under the employment relationship, that relationship may be altered with regard to the transferee to the same extent as it could have been with regard to the transferor, provided that the transfer of the undertaking itself may never constitute the reason for that amendment (Daddy's Dance Hall, paragraph 17).

43. For those reasons, an employee cannot waive the rights conferred on him by the mandatory provisions of the directive. Nevertheless, the directive does not preclude an agreement with the new employer to alter the employment relationship, in so far as such an alteration is permitted by the applicable national law in situations other than the transfer of an undertaking (Daddy's Dance Hall, paragraph 18).

44. In circumstances such as those in the main proceedings, the alteration of the employment relationship is nevertheless connected to the transfer. It is clear from the file that SBU wished merely to bring the terms upon which it offered early retirement to employees of Redwood College into line with those offered until that time to its other employees and, in such circumstances, an alteration of the employment relationship must be regarded as connected to the transfer. That the situation in the main proceedings is of that type is confirmed by the fact that, immediately after the transfer, SBU offered the employees from Redwood College a contract of employment on its terms, which the applicants nevertheless refused. It should, however, be stated that the mere fact that the applicants had joined the higher education retirement scheme has no bearing on this analysis: that factor concerns their retirement rights per se, which are the subject of the derogations under Article 3(3) of the directive, and not the terms of early retirement.

45. Since the transfer of undertaking is indeed the reason for the unfavourable alteration of the terms of early retirement offered to the employees of that entity, any consent given by some of those employees to such an alteration is invalid in principle.

46. Before giving judgment in such a case, it is nevertheless necessary for the court hearing the case to assess the effect of a particular circumstance. As pointed out at paragraph 8 et seq. of the present judgment, section 46 of the GWC conditions of service is the product of a collective agreement. Article 3(2) of the directive requires the transferee merely to observe the terms and conditions of employment agreed in any collective agreement on the same terms applicable to the transferor under that agreement until the date of termination or expiry of the collective agreement or the entry into force or application of a new collective agreement, and even, if the Member State concerned so provides, for a shorter period provided that it is not less than one year.

47. Consequently, in the dispute in the main proceedings, if, at the time the employees of Redwood College accept early retirement on terms other than those laid down by section 46 of the GWC conditions of service, the collective agreement giving rise to that provision has, as a matter of national law, ceased to apply to them, they lose the right laid down by that section.

48. Therefore, the answer to the Employment Tribunal's fourth question must be that Article 3 of the directive precludes the transferee from offering the employees of a transferred entity terms less favourable than those offered to them by the transferor in respect of early retirement, and those employees from accepting those terms, where those terms are merely brought into line with the terms offered to the transferee's other employees at the time of the transfer, unless the more favourable terms previously offered by the transferor arose from a collective agreement which is no longer legally binding on the employees of the entity transferred, having regard to the conditions set out in Article 3(2).

    The fifth to eighth questions

49. In view of the answer to the fourth question, it is unnecessary to reply to the fifth to eighth questions.

    The ninth question

50. By its ninth question, the Employment Tribunal asks, in a situation where Article 3 of the directive precludes the transferee from offering employees of the entity transferred an early retirement less favourable than that to which they were entitled under their employment relationship with the transferor, what are the consequences for those employees who have nevertheless accepted early retirement on the less favourable basis.

51. As stated in paragraph 39 of the present judgment, in such a situation a rule of public policy has been infringed. In circumstances such as those in the case in the main proceedings, it must be found that the rule was infringed on the employer's initiative, since it was he who offered the early retirement terms and he could always refuse to grant that retirement, whilst the employees wishing to take early retirement had no choice other than to accept those terms.

52. Accordingly, it was for the transferee to make good the consequences of its actions by ensuring that its former employees were accorded early retirement on the terms to which they were entitled.

53. That solution is not undermined by the fact that the employer was entitled not to grant early retirement at all to the employees concerned. It is for the employer, when deciding whether or not to grant early retirement, to have regard both to its economic interests and to the scope of its legal and contractual obligations. Having taken the decision to grant early retirement, the employer must carry out that decision in accordance with the requirements of the law.

54. The answer to the ninth question must therefore be that where, in breach of the public policy obligations imposed by Article 3 of the directive, the transferee offered employees of the entity transferred early retirement less favourable than that to which they were entitled under their employment relationship with the transferor and those employees accepted such early retirement, it is for the transferee to ensure that those employees are accorded early retirement on the terms to which they were entitled under their employment relationship with the transferor.

    Costs

55. The costs incurred by the United Kingdom Government and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main action, a step in the proceedings pending before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT (Sixth Chamber),

in answer to the questions referred to it by the Employment Tribunal, Croydon (United Kingdom), by order of 5 January 2001, hereby rules:

1. Rights contingent upon dismissal or the grant of early retirement by agreement with the employer fall within the rights and obligations referred to in Article 3(1) of Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses.

2. Early retirement benefits and benefits intended to enhance the conditions of such retirement, paid in the event of early retirement arising by agreement between the employer and the employee to employees who have reached a certain age, such as the benefits at issue in the main proceedings, are not old-age, invalidity or survivors' benefits under supplementary company or inter-company pension schemes within the meaning of Article 3(3) of Directive 77/187.

Article 3 of that directive is to be interpreted as meaning that obligations arising upon the grant of such early retirement, arising from a contract of employment, an employment relationship or a collective agreement binding the transferor as regards the employees concerned, are transferred to the transferee subject to the conditions and limitations laid down by that article, regardless of the fact that those obligations derive from statutory instruments or are implemented by such instruments and regardless of the practical arrangements adopted for such implementation.

3. Article 3 of Directive 77/187 precludes the transferee from offering the employees of a transferred entity terms less favourable than those offered to them by the transferor in respect of early retirement, and those employees from accepting those terms, where those terms are merely brought into line with the terms offered to the transferee's other employees at the time of the transfer, unless the more favourable terms previously offered by the transferor arose from a collective agreement which is no longer legally binding on the employees of the entity transferred, having regard to the conditions set out in Article 3(2).

4. Where, in breach of the public policy obligations imposed by Article 3 of Directive 77/187, the transferee offered employees of the entity transferred early retirement less favourable than that to which they were entitled under their employment relationship with the transferor and those employees accepted such early retirement, it is for the transferee to ensure that those employees are accorded early retirement on the terms to which they were entitled under their employment relationship with the transferor.

PuissochetSchintgen Gulmann MackenCunha Rodrigues

Delivered in open court in Luxembourg on 6 November 2003.

R. Grass V. Skouris

Registrar President

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1: Language of the case: English.