Stephen Cavalier, Thompsons

PREVIOUS SPEAKERS:
Stephen Cavalier, Thompsons

Title: Selling workers down the river? The Amended Acquired Rights Directive

May 12 1999

SUMMARY

1 Introduction

Application of the Acquired Rights Directive, TUPE - the Transfer of Undertakings (Protection of Employment) Regulations 1981, to contracting out of public services.
The Conservative government had limited the application of TUPE to undertakings "in the nature of a commercial venture".

but see:

Dr Sophie Redmond Stichting v Bartol [1992] IRLR 366
Trade Union Reform and Employment Rights Act 1993
Commission v UK [1994] IRLR 392
"grave and manifest" breach of European law
Francovich v Italy [1992] IRLR 84

Preventing local authorities from constructing tendering exercises on the basis that TUPE would apply - see R v Oswestry Council ex parte Secretary of State for Environment.
Proposal from the European Commission in 1994 for a revised definition of the scope of the Directive:-

"the transfer of an activity which is accompanied by the transfer of an economic entity which retains its identity shall be deemed to be a transfer within the meaning of the Directive. The transfer of only an activity of an undertaking, business or part of a business, whether or not it was previously carried out directly, does not in itself constitute a transfer.."

Response to the European Court decision in Schmidt [1994] IRLR 304 see UK cases of Dines v Initial and Pall Mall [1994] IRLR 336 and a series of EAT decisions, notably Isles of Scilly Council v Brintel Helicopters Limited [1995] IRLR 6,
The Commission's proposal attracted considerable hostility. Commission persuaded to drop the amendment. Commissioner Flynn conceded to the Parliament (13 February 1996) that "far from increasing certainty we might end actually end up adding to the uncertainty".

2 Suzen and beyond

Decisions on scope of the Directive:-

Rygaard [1996] IRLR 51
Merckx [1996] IRLR 467
Henke [1996] IRLR 701

Critical decision:

Suzen [1997] IRLR 255 in March 1997

Opinion of Advocate-General La Pergola:-
(at paragraph 7):-

"To transfer the facilities (of whatever kind) required by an undertaking to another body is a decision made in competitive circumstances which ensures a choice between competing rivals. I fail to see how there can be any justification for the transferee of the service being required to keep on such staff of the organisation as provided services of that kind in the past, if it has been excluded or, in any event, whose tender, submitted on that occasion, has been unsuccessful."

The Court quotes from Rygaard the statement that "the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract."
This conclusion in Rygaard relates purely to the transfer of the completion of "one specific works contract. Only in those circumstances is there a need for "the transfer of a body of assets enabling the activities or certain activities of the transferor undertaking to be carried on in a stable way"; see Tuck v BSG [1996] IRLR 134.
Suzen: "The term entity thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues an economic objective" (paragraph 13).

3 The Amended Acquired Rights Directive

The UK government held the Presidency of the European Union during the first six months of 1998. DTI issued a public consultation document on the Acquired Rights Directive and the TUPE Regulations.
UK government achieved an amendment to the Directive in June 1998.
The amended Directive makes a number of important changes to provisions on types of employee, insolvency, consultation and remedies and significant changes to Article 1.1 on the scope of the Directive.
New Article 1.1(b) of the Directive reads:-

"...there is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary".

Recital 4:-

"whereas considerations of legal security and transparency require that the concept of transfer be clarified in the light of the case law of the Court of Justice, whereas such clarification does not alter the scope of Directive 77/187/EEC as interpreted by the Court of Justice".

4 Cases after Suzen

10 December 1998 saw decisions in two sets of joined cases, each set involving contracting out.

Sanchez Hidalgo (case 173/96) and Ziemann (case 247/96); and
Hernandez Vidal v Gomez Perez (case 127/96), Santner (case 229/96) and Gomez Montana (case 74/97)

The Court in Suzen had said:-

"Since in certain labour-intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question, but also takes over a major part, in numbers and skills, of the employees specially assigned by his predecessor to that task"

(paragraph 21).

The rationale for this approach was that, in those circumstances "the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis". A similar approach is evident in Sanchez Hidalgo and in Hernandez Vidal (the references which follow are to Sanchez Hidalgo, but there are identical passages in Hernandez Vidal).
The Court recognised that whilst such an undertaking "must be sufficiently structured and autonomous", it will not necessarily have significant assets and, in certain circumstances "these assets are often reduced to their most basic and the activity is essentially based on manpower" (paragraph 26).
After a re-statement of the test in Spijkers [1986] ECR 1119, the Court says:-

"the mere fact that the service provided by the old and new undertaking providing a contracted out service or the old and new contract holder is similar does not justify the conclusion that there has been a transfer of an undertaking between the successor undertakings."

And then, adopting the approach in Suzen, the Court continues:-

" Such an entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which work is organised, its operating methods or indeed, where appropriate, the operational resources available to it".

This leads the Court to a conclusion which is essentially an adoption of Suzen and its application to the particular circumstances.
The Directive only applies where "the operation is accompanied by the transfer of an economic entity between the two undertakings. The term 'economic entity' refers to an organised grouping of persons and assets enabling an economic activity which pursues a specific objective to be exercised"

Labour-intensive, has there been a transfer of "a major part in terms of numbers and skills" of the relevant workforce?

The relationship between existing case law and the amended Directive. We have case law defining an entity as:-

"an organised grouping of persons and assets enabling an economic activity which performs a specific objective to be exercised"

running in parallel with a Directive which will say an entity means:-

"an organised grouping of resources which has the objective of pursuing an economic activity".

5 Decisions of the UK courts

In labour-intensive contracts, the circularity of the emphasis on the transfer of "a major part, in terms of numbers and skills" of the workforce.

Incoming employer deliberately refuses to take on staff in the hope of avoiding TUPE. ECM (Vehicle Delivery Service) Ltd v Cox [1998] IRLR 416.

The EAT observed "if the taking on or not of the workforce controls the application or otherwise of the Regulations, then the question at issue is circular. The issue as to whether employees should have been taken on cannot be determined by asking whether they were taken on".

Adopting a purposive approach, the EAT concludes that there was a transfer, placing emphasis on its assessment that "the employees concerned were 'conditioned' to the contract, in the sense that their continued employment was contingent on its continued existence; this was confirmed by the large number of employees who were made redundant".

Binns and others v Aintree Hospitals NHS Trust and RCO (ET, Liverpool 2/11/98 - unreported)
Benn & others v Imperial Service Group & others (ET, Newcastle, 7/12/98 - unreported) , but see

North East Lincolnshire Council v Beck (21 January 1999, EAT, unreported)

6 Other changes to the scope of the Directive

Article 1.1(b); the Directive applies to the transfer of economic entities whether or not the activity is central or ancillary". Confirms the European Court's decision in Rask [1993] IRLR 133

Article 1.1(c) the Directive applies to "public and private undertakings engaged in economic activities whether or not they are operating for gain".

Article 1.1(c) says the Directive does not apply to:-

"an administrative reorganisation of public administrative authorities, or the transfer of functions between public administrative authorities".

Henke [1996] 701, see

Evans v East Riding of Yorkshire Council 18/2/97, ET, unreported)

Sanchez Hidalgo, where it is stated (paragraph 24) "the fact that the service or contract in question has been contracted out or awarded by a public body cannot exclude application of [the Directive] if neither the activity of providing a home-help service to persons in need nor the activity of providing surveillance involves the exercise of public authority".

7 Implementation in the UK: the new TUPE

Letter to the Municipal Journal in June 1998, Ian McCartney MP wrote:-

"the new definition of a transfer of an undertaking...is a very broad one and includes any transfers that have any substance"
He went on to state that the Directive contains "for the first time an explicit statement that it applies to contracting-out in principle".

Draft Regulations: promised in the "Spring", followed by a further period of consultation.

New Article 3.2. This imposes for the first time an obligation on the transferor employer to notify to the incoming transferee employer "all the rights and obligations [concerning staff] that will be transferred...so far as those rights and obligations are known or ought to have been known to the transferor at the time of the transfer".

Stephen Cavalier
Thompsons
May 1999

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