Dismissal due to company closure: under what circumstances does a company qualify as an independent enterprise?

In principle, in the event of a reorganization or collective dismissal due to economic circumstances, the employee who is incapacitated for work is protected by the prohibition on termination. There is an exception to this in the event of a complete cessation of business operations. In that case, the employer may also terminate the employment contract with the sick employee, after obtaining permission from the UWV. In all other cases, including partial cessation of business operations, the prohibition on termination due to incapacity for work does apply.

It is not always clear whether there is a general cessation of business operations or only the cessation of a business unit. In that context, it is relevant whether the business operation qualify as a so-called “independent enterprise”. This question was also in dispute in a recent ruling by the North Holland District Court. In this case, the Court ruled, in brief, that there was no question of an independent enterprise and that – in line with this – the employment contract with an employee who could not work due to sickness, could not be terminated. The prohibition on termination due to incapacity for work made that is was not allowed to do so. Below, we will discuss the relevant aspects of this ruling.

Case

The employee had been employed by Mediamarkt Zaandam since 2010. Media Markt Saturn Holding B.V. (hereinafter: the Holding) holds 100% of the shares in Mediamarkt Zaandam, as well as in the other Dutch Mediamarkt branches. In 2019, the employee becomes sick. In June 2021, the reintegration process at another company (in the second track) was initiated. In the meantime, the number of visitors to Mediamarkt Zaandam keep falling, making the shop no longer profitable. It is therefore decided to close the shop.

In April 2021, the employees are informed that Mediamarkt Zaandam will close its doors on 1 May 2021. At the end of June 2021, permission to terminate the employment contract for the unfit employee is requested from the UWV (Employee Insurance Agency) due to business economic circumstances. This permission is refused by the UWV, because there is general cessation of business operations and the prohibition on termination due to incapacity for work is therefore applicable. According to the UWV, the Mediamarkt Zaandam qualifies as a part of Media Markt Saturn Holding B.V. and this company continues to exist. Mediamarkt Zaandam does not agree with the UWV’s decision and applied to the North Holland Court.

Ruling of the Court

The Court assessed whether Mediamarkt Zaandam should be regarded as an independent enterprise. The Court considered that a company qualifies as an independent enterprise in case of a set of organized resources with its own identity, intended for the performance of an economic activity, whether or not that activity is primarily economic, in which it can act in a relatively free and independent manner.

This definition must be taken into account when answering the question whether Mediamarkt Zaandam must be regarded as an independent part of the Holding. The Court ruled that it has not been sufficiently established that Mediamarkt Zaandam is an independent enterprise. On the contrary, the arguments put forward by Mediamarkt Zaandam in the proceedings have established that there is a certain degree of interdependence. It has become clear that the Works Council of the Holding was asked for its advice regarding the decision to close Mediamarkt Zaandam, that the Holding was the lessee of the premises of Mediamarkt Zaandam, that the salary administration and bookkeeping for Mediamarkt Zaandam were done by the Holding and that also the agreement with the Health & Safety Service in the framework of the reintegration of (among others) the employee concerned was concluded with the Holding. This shows that the Holding and Mediamarkt Zaandam were strongly intertwined. In the opinion of the Court, the above means that it cannot be said that there is an independent enterprise. Therefore, the prohibition on termination due to incapacity for work applies in full and the UWV has rightfully refused to give its consent to the termination of the employment contract.

Independent enterprise during reorganization

It is not only relevant to determine whether or not there is an independent enterprise or an independent business unit when it comes to termination of the employment contract with a sick employee. This question will also play a role in the question of which employees must be nominated for dismissal in the event of a reorganization or other economic dismissal. After all, if it does not concern an independent enterprise, it will have to be considered which employee is eligible for dismissal across the entire staff of the organization. In case of an enterprise with multiple locations, this may mean that staff working at other locations must also be considered. This means that all temporary agency workers and employees with fixed-term contracts must first be made redundant, regardless of the location where they are employed. Then, the principle of “reflection” will have to be applied to the employees of the different locations, with the employees in the different age categories with the shortest service period being the first to be considered for dismissal – regardless of whether they work at the location where the reorganization is to take place.

Conclusion

In the event of a reorganization or (partial) cessation of operations, special attention must always be paid to the question of whether or not the company qualifies as an independent enterprise. This is not only relevant for the position of the sick employee. This qualification can also play an important role for the question with which employees the employment contract can be terminated. It is advisable to map this out in advance. Do you have any questions about the classification of employees or the position of an employee who is unable to work in the event of economic dismissal? Feel free to contact one of our lawyers of the Labor Law team.