ECJ judgment means TUPE may apply on transfer of clients’ investments

In Dodič v Banka Koper and another C-194/18, the European Court of Justice (ECJ) had to decide whether the Acquired Rights Directive (ARD) applied where a stock market intermediary stopped providing services and gave its clients the option of transferring their investments to another named intermediary, in circumstances where the transfer was required by national law.  Banka Koper, a Slovenian bank, dismissed all its stockbrokers, and 91% of its clients decided to transfer to Alta Invest.  One of the stockbrokers brought an employment claim, alleging that his employment had transferred to Alta Invest under the ARD.  The case was referred to the ECJ for a preliminary ruling.

The ECJ held that the transfer of investments could give rise to a transfer of an undertaking if there was an economic entity that retained its identity post-transfer.  This would be the case if there was a transfer of clients.  The case was referred back to the Slovenian court to decide if a transfer had in fact taken place, taking into account factors such as the incentives offered to the clients to transfer and whether they had an express choice to transfer.

Where national legislation requires the transfer of clients’ accounts to another intermediary, the ARD could apply even if no assets or employees are transferred.  It is interesting to note that the Slovenian law contained an express provision requiring the transfer which the UK equivalent law does not. It would remain to be seen whether conditions agreed with or imposed by FCA in a similar situation would be viewed in the same way.  The ARD has been implemented in the UK by the Transfer of Undertakings (Protection of Employment) Regulations 2006, otherwise known as TUPE.  Where TUPE applies, it protects all employees who were engaged in the undertaking before it was transferred.  In summary, this means that employees transfer to the transferee who inherits all rights, liabilities and obligations in relation to them.  Employees are protected against dismissal in connection with a TUPE transfer and there is an obligation to inform and consult with representatives of the affected employees.  Whether or not there is a TUPE transfer will depend on the facts of the case; if, for example, clients had transferred their investments to a number of different intermediaries, it is likely that the economic entity would not have retained its identity so TUPE would not apply.