Title: "TUPE: New Regulations And Recent Developments"

1 Introduction

1.1 I began preparation for this talk by looking back at my previous talk to an ILS Evening Meeting on this subject. Two alarming facts emerged.

1.2 First, that the last talk was on 12 May 1999, almost exactly 5 years ago – which means you should probably put a date in your diary for May 2009 for the next instalment.

1.3 Secondly, that the previous talk is still on the ILS web-site which meant that I couldn’t simply change the date and give the same talk.

1.4 More seriously, the five year interval is significant. It is significant because in May 1999 we were discussing the revisions to the Acquired Rights Directive of July 1998 to be implemented in EU Member States by 17 July 2001. I concluded (optimistically) "the draft regulations and consultation paper will hopefully be with us soon". I was wrong.

1.5 It was September 2001 before the Secretary of State for Trade and Industry, Patricia Hewitt, announced the publication of the government’s consultation document on the proposed revisions to TUPE, including those to implement the revised Directive. The consultation period ran to 15 December 2001. Since then, there have been a number of promises of action, usually specifying such definite timescales as "there should be something by early Spring" or "the draft will be out by late Summer". Still nothing. The latest indication is July 2004. I am making no predictions…

1.6 It is tempting (for you, I’m sure) to conclude that there is nothing more for me to say on the subject. Nonetheless, I am determined to do so – based upon the consultation document, some thoughts on possible implementation and a mention of some recent cases.

1.7 I shall concentrate on certain aspects of the legislation: the scope of its coverage; public sector transfers; disclosure of information pre-transfer; dismissals; changes in terms and conditions and anti-avoidance.

1.8 This means that I will not be attempting a comprehensive review of all recent case law on TUPE, nor shall I be covering in this talk the proposals separately put forward in respect of limited protection for pensions, nor the proposed changes to the provisions relating to transfer of insolvent businesses. These are important issues, which would merit separate discussion, but I have had to restrain myself as I am sure that people have other engagements later this evening.

2 Revised Acquired Rights Directive: Scope

2.1 In 1998 (perhaps more so than currently) the precise reach of the Directive (and consequently TUPE) was the main live issue in this area being addressed judicially by the European Court of Justice and politically by the EU institutions.

2.2 In the ECJ the pendulum had swung from Schmidt [1994] IRLR 304 which had adopted a broad interpretation in the case of a labour-intensive cleaning contract to Suzen [1997] IRLR 255 which took a much more restrictive interpretation in a case concerning the cleaning of a secondary school.

2.3 It is many years on, but the Suzen decision still annoys me. In the UK courts at the time, it would have led to a routine finding that TUPE applied. It is a decision underscored by political and judicial antipathy to the earlier decisions and it is intellectually dishonest in its treatment of those decisions. It departs from aspects of those decisions (Schmidt in particular) without acknowledging that it does so.

2.4 In my view, Suzen proceeds on a selective interpretation of the earlier decision in Rygaard [1996] IRLR 51 to state as a general proposition that a transfer requires "the need for the transfer of a body of assets enabling the activities or certain of the activities of the transferor undertaking to be carried on in a stable way". Derived from this, the ECJ then concludes that this requires there to be a transfer of "an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective".

2.5 This interpretation then finds its way in to the revised Directive in almost (but not quite) identical language in new Article 1.1(b):-

"… 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".

2.6 Continuity with case law under the unamended Directive was emphasised by Recital 4 of the amending Directive (98/50/EC) which stated:-

"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".

This assertion is repeated in Recital 8 of the consolidating Directive 2001/23/EC.

2.7 This represents, therefore, an attempt at convergence between judicial and political application of a controversial piece of social legislation. It is disingenuous to refer to it as a clarification which does not alter the scope, but the subsequent decisions of the European Court show a determination to interpret the unamended Directive in a way consistent with the wording of the revised Directive.

2.8 This was first seen in the cases of Sanchez Hidalgo [1999] IRLR 136 and Hernandez Vidal [1999] IRLR 136: two very similar cases with virtually identical judgments.

2.9 The Court adopted the approach in Suzen, endorsing the view that for there to be a transfer the new employer must take over a body of assets (which may consist of workers in a labour-intensive contract) which enables that new employer to carry on the activities. The Court concluded that an undertaking (or economic 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".

2.10 A subsequent case did, however, demonstrate the ECJ’s capacity for the unexpected. In Oy Liikenne v Liskojarvi [2001] IRLR 171 the ECJ confounded all expectations by concluding that the transfer of seven bus routes from one contractor to another was not a transfer despite 33 out of 45 drivers securing jobs with the new company, but with different vehicles. The ECJ regarded this as an activity requiring substantial plant and equipment and therefore not based essentially on manpower. It ruled against a transfer because there was no transfer of the key assets – buses. This completely overlooks the transfer of the most valuable asset: the exclusive right to operate buses on those routes.

2.11 Fortunately, this is not the ECJ’s last word on the scope of the Directive and two more recent decisions suggest a more enlightened approach. In Temco Service Industries SA v Imzilyen [2002] IRLR 214 the court held that the Directive may apply to a situation where there is change in undertaking carrying out a cleaning contract, even though the contract does not involve any transfer of assets between the two undertakings, but part of the staff were taken on by the new employer provided they are an essential part, in terms of numbers and skills, of the staff assigned to the contract.

2.12 Abler v Sodexho [2004] IRLR 168 is the other side of the same coin. In a catering contract, the fact that a contractor did not take over an essential part of the staff did not preclude a transfer in a sector such as catering where the activity is based essentially on equipment.

2.13 In these cases, the court emphasises a multi-factorial approach and that the degree of importance to be attached to each criterion for determining the existence of a transfer will vary according to the activity. A key feature of the Abler case was the obligation to prepare meals in the hospital kitchen and to take over the use of the premises and equipment, even though those assets were provided by the contracting authority and not owned by the outgoing or incoming contractor.

3 Implementation in the UK: case law

3.1 The Court of Appeal in our jurisdiction has recently taken a broad view of the scope of TUPE. This is manifested in four decisions.

3.2 In ECM (Vehicle Delivery) Services v Cox [1999] IRLR 559 the appeal court found that there was a transfer where work was to be carried out from a different site, with different arrangements for delivery and administration and where the new contractor refused to offer employment to any of the 24 employees.

3.3 In ADI (UK) Limited v Firm Security Group Limited [2001] IRLR 542 the court took a similar view of the contracting out of security services at a shopping centre where the staff were not taken on and very little in the way of assets transferred.

3.4 In RCO Support Services v UNISON [2002] IRLR 401 there were changes in the arrangements between hospitals with new contractors winning contracts for catering and cleaning. There was no transfer of significant assets and none of the employees were taken on by the new contractors. The appeal court concluded that the operation effectively continued in different hands and that TUPE applied. Permission was granted to appeal to the House of Lords.

3.5 On a different point, in Fairhurst Ward Abbott Limited v Botes Building Limited [2004] IRLR 304, the court upheld the view that an operation which became a discrete part of the business at the point of transfer was capable of being a part of am undertaking which transferred under TUPE. This arose when a building maintenance contract for the whole of a local authority was divided into two areas for the purpose of a re-tender.

3.6 The Court of Appeal decisions attempt to place Suzen in context by emphasising the importance of earlier ECJ decisions and the need to make a factual appraisal of all the facts characterising the transaction. The court has stated that it regards the importance of Suzen as overstated, but as representing a change of emphasis, reinforced by Oy Liikenne, and setting limits on the application of the Directive. The Employment Appeal Tribunal has emphasised that the ECJ decision in Schmidt has not been overruled or disapproved (Dudley Bower Building Services Limited v Lowe [2003] IRLR 260). The appeal court has rejected the view that there could never be a transfer in a labour-intensive case without a transfer of staff or assets: this one factor should not be regarded as determinative of the issue. A similar outcome was achieved in a more asset-reliant transfer in P&O Trans European Ltd v Initial Transport Services Limited [2003] IRLR 128 where the Employment Appeal Tribunal rejected the argument that there could only be a transfer in asset-reliant industries when there had been the transfer of significant assets: that one issue was not determinative. In adopting this approach the UK courts are taking a similar multi-factorial approach to that exhibited by the European Court in recent cases such as Temco and Abler.

3.7 This is an enlightened and welcome approach. It is to be hoped that the House of Lords takes a similar view when considering the RCO case in June.

3.8 The Court of Appeal has also been astute to limit the capacity of employers to avoid the application of TUPE by the manner in which the transfer is organised, notably in the ECM, ADI and RCO cases by refusing to offer continued employment to the pre-transfer workforce. The appeal court took the view that it was entitled to consider the circumstances of the decision not to take on the workforce and that the employer’s willingness to take on the workforce had it not been for TUPE considerations was a factor supporting the application of TUPE.

4 Implementation in the UK: likely regulations

4.1 This leads us to the issue of what does the UK government intend to do in order to implement the revised Directive and, indeed, does it need to do anything at all?

4.2 The government is in default of the requirement to implement the Directive by July 2001. The government’s view, expressed by Ian McCartney MP, the minister at the time, was that "the new definition of a transfer of undertaking …is a very broad one and includes any transfers that have any substance" and that it contains "for the first time an explicit statement that it applies to contracting-out in principle". The government now appears to consider that it is not essential to amend TUPE in order to comply with the amended Directive. Certainly there has been no legal challenge based upon the failure to implement. The more pertinent question is the extent to which the government still intends to use the revised Directive as an opportunity to clarify the operation of TUPE and pursue UK-specific social objectives in relation to contracting-out.

4.3 The government’s thinking as at September 2001 is described in "Government Proposals for Reform – Detailed Background Paper" (URN01/1158).

4.4 The starting point is that the definition of scope in the revised TUPE regulations will copy the revised definition in the amended Directive. Given the opacity of that definition, this is hardly a victory for clarity. However, it is an understandable approach, given that a past attempt to put a UK gloss on the wording of the Acquired Rights Directive was mired in controversy and ended in tears – namely the Conservatives’ restriction to undertakings "in the nature of a commercial venture".

4.5 The government rightly fears that the approach of simply copying out the Directive may not be enough.

4.6 The proposal is to legislate specifically to apply the provisions of TUPE to "service provision changes". This term is intended to encompass contracts to perform service activities where those activities are contracted out for the first time; or the contract ends and is awarded to a different contractor; or the contract ends and the service is brought back in house.

4.7 We do not yet have the details of how the regulations would be phrased, but the approach envisaged would appear to be along the following lines.

4.8 The powers in section 38 of the Employment Relations Act 1999 would be used to extend the provisions of TUPE specifically to this situation. This avoids any argument as to whether the application of TUPE protection in this way is within the scope of the Directive and thus within the scope of the government’s power to implement under the European Communities Act. This also has the important effect that when interpreting these provisions, the UK courts will not be bound by any restrictive interpretations by the European Court on the application of the Directive to contracting out. Put another way, the UK provisions may (and should) be interpreted more broadly than the Directive, but obviously may not be interpreted more narrowly than the coverage of the Directive itself.

4.9 Service provision changes would be those situations described above where, before the change, the activity is carried out by an organised grouping of the transferor’s employees the principal purpose of which is to perform the service activities in question and, following the change, the manner in which the activity is carried out will remain essentially the same.

4.10 The intention is that this would apply to "ongoing arrangements" and that therefore the regulations would exclude single contracts in contemplation of a specific task in a "one-off" arrangement – the situation in the Rygaard case. The regulations would also aim to ensure that TUPE did not apply to contracts primarily for the supply of goods (as opposed to services).

4.11 The government also wishes to exclude the provision of professional business services. The intention here is to ensure that such events as a change of legal advisers would not amount to a TUPE transfer. Whilst that may be an outcome many here would welcome, my concern would be that an attempt to exclude such services based upon a general definition may run into difficulties of interpretation (see R v CAC ex parte BBC and BECTU on definition of "professional"), may wrongly exclude services purely on the basis of the skill involved, and may provide a loophole for employers to exploit.

4.12 The aim of the proposals is very welcome. The policy intent is that TUPE will apply "more comprehensively" to labour-intensive service contracts such as cleaning, catering, refuse collection etc. This had been the approach of the Court of Appeal in Dines v Initial and Pall Mall [1994] IRLR 336 and has been an approach that the UK courts have shown more sympathy towards than the ECJ. The UK would be "insulated" (as the government puts it) from the effects of future European case law on the Directive in this area.

4.13 It is also an approach which would provide for much greater certainty in UK contracting and would be welcomed by most unions, public sector bodies and private contractors. The government seeks to achieve a "level playing field" for contractors bidding for contracts so that tendering decisions are taken on merit rather than on competing views on the application of TUPE and preventing competition based upon cuts in jobs or pay. It is a necessary measure if the government intends to introduce a requirement to disclose workforce information to potential bidders pre-transfer.

4.14 There will need to be careful drafting to minimise the risk of employer avoidance. I have already mentioned the "one-off contracts", contracts for supply of goods and contracts for supply of professional services. All of these could be loopholes for employers to exploit if not tightly drawn, for example to exclude only a single contract made only in contemplation or performance of a specific task or where the principal purpose was the supply of goods.

4.15 There is also the possible requirement for activities to be carried out in essentially the same manner. The government has expressed on a number of occasions its concern to allow for "innovative bids". However, allowing employers to escape TUPE by carrying out the same activity in a different manner is a recipe for avoidance. If essentially the same activity is being carried out, then the new provisions should apply. A change in the manner of carrying out the work should not prevent there being a TUPE transfer. It may of course mean that there are economic, technical or organisational reasons entailing changes in the workforce and consequently a potentially fair reason for dismissal. Both conceptually and as a matter of policy, that is the proper means of dealing with the issue.

5 The public sector

5.1 There are two main issues here: the application of TUPE to transfers within the public sector; and the extent to which the government intervenes to address the issue of the "two-tier workforce".

5.2 On transfers within public administration, Article 1.1(c) of the revised Directive again incorporates elements of the case law of the ECJ.

5.3 First, it provides that "the Directive shall apply to public and private undertakings engaged in economic activities whether or not they are operating for gain". This codifies such decisions as Dr Sophie Redmond Stichting v Bartol [1992] 366 and Commission v UK [1994] IRLR 392.

5.4 It goes on to state "an administrative reorganisation of public administrative authorities, or the transfer of administrative functions between public administrative authorities, is not a transfer within the meaning of this Directive". This reflects the decision in Henke [1996] IRLR 701.

5.5 The Henke restriction has been given a narrow interpretation. In Sanchez Hidalgo the ECJ said "the fact that the service or contract in question has been contracted out or awarded by a public body cannot exclude application of [ARD] 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". The Employment Appeal Tribunal took a similar view in the unreported case of Dundee City Council v Arshad (S) EAT 1204/98.

5.6 In Collino v Telecom Italia [2000] IRLR 788 the court concluded that the fact that the service transferred was a telecommunications service managed by a public body could not exclude the Directive when the service was transferred to a private company. Similarly in Mayeur v APIM [2000] IRLR 783 where the activities of a non-profit making association promoting opportunities offered by a French city were taken over by the local authority. The Directive applied regardless of the legal status of the entity or the manner in which it is funded. A similar view was taken of the re-tendering of bus services in the notorious Oy Liikenne case, where the ECJ also concluded that the EU Public Procurement Directives do not exempt public authorities and service providers from compliance with the Directive. And the EFTA court, covered by the Directive, concluded in an Icelandic case that the conversion of a state entity into a limited liability company was covered by the Directive: Viggodsdottir v Islandpostur HF [2002] IRLR 425.

5.7 The government inclines to a similarly restrictive view of the exclusion that "excludes from the legislation only a relatively limited range of situations involving the transfer of entities pursuing non-economic objectives within the public sector" (see Government Proposals for Reform, paragraph 19). However, there does seem to be a lack of joined-up government on this issue as the consultation on implementing the Information and Consultation Directive refers to the Henke decision as excluding from the definition of undertakings "the great majority of civil servants and many local authority employees" (Consultation: High Performance Workplaces: Informing and consulting employees, paragraph 2.35). Happily, the government has apparently been persuaded of the error of this statement.

5.8 The policy on public sector transfers is set out in "Staff Transfers in the Public Sector" (Cabinet Office, January 2000). The policy is based upon the principles that (paragraph 5):-

• Contracting out exercises with the private sector and voluntary organisations and transfers between different parts of the public sector, will be conducted on the basis that staff will transfer and TUPE will apply, unless there are genuinely exceptional reasons not to do so;
• This includes second and subsequent round contracts that result in a new contractor and where a function is brought back into a public sector organisation where, in both cases, when the contract was first awarded staff transferred from the public sector;
• In circumstances where TUPE does not apply in strict legal terms to certain types of transfer between different parts of the public sector, the principles of TUPE should be followed (where possible using legislation to effect the transfer) and the staff involved should be treated no less favourably than had the Regulations applied…

5.9 This final principle has been followed by specific regulations to provide for the application of TUPE in relation to the transfer of Rent Officer functions (The Transfer of Undertakings (Protection of Employment) (Rent Officer Service) Regulations 1999 (SI 1999/2511) and in primary legislation such as the transfer of magistrates’ court staff to the unified courts administration under the Courts Act.

5.10 The other policy developments in relation to public sector transfers focus on the issue of the "two-tier workforce". This phrase encapsulates the situation where staff transfer on a set of public sector terms and conditions, which they retain by virtue of TUPE, but new staff are recruited on worse terms and conditions. This is a situation possible in the UK because of the lack of enforceable collective agreements applying to the whole workforce common to other parts of the EU.

5.11 The government has addressed this issue in a sector-specific way.

5.12 In the National Health Service, the government announced that in all future Private Finance Initiative hospital deals staff will remain employed by the NHS rather than the private contractors. There are pilot schemes in place.

5.13 In local government, the issue is addressed by a government circular: "Local Government Act 1999: Part 1 – Best Value and Performance Improvement" of 13 March 2003 (ODPM Circular 03/2003). The Code forms part of the service specification and conditions for all contracts. In addition to implementing the Cabinet Office guidance on the application of TUPE to local government transfers, it provides that staff who are recruited post-transfer will be offered "employment on fair and reasonable terms and conditions which are, overall, no less favourable than those of transferred employees" (Annex D, paragraph 7). This is to be assessed not on a term-by-term equal pay style basis, but as an overall package (excluding pensions which are separately protected).

5.14 Enforcement of the Code is through the local authority enforcing the terms of the service provision contract which incorporate the Code. The Local Government Association (representing local authority employers), the TUC and the CBI have agreed a disputes procedure for the Alternative Disputes Resolution provided for in the Code.

6 Notification of employee liability information

6.1 Consistent with the policy of a "level playing field" for contracting out, the Cabinet Office Statement and the Local Government Code both emphasis the need for consultation with workforce representatives as part of the tendering process and also the disclosure of relevant information to workers’ representatives and to those bidding for the contract.

6.2 Article 3.2 of the revised Directive allows Member States to legislate to require notification of workforce information prior to a transfer. This was a provision inserted at the request of the UK government. Not surprisingly, the government has indicated that it intends to include this provision in the revised TUPE regulations.

6.3 The requirement is additional to the existing obligation to inform and consult workers’ representatives on the matters covered by Regulation 10 of TUPE.

6.4 The proposal is that the transferor is required to give the transferee written notification of all the rights and obligations relating to employees that are to be transferred. Bear in mind that this will include not just terms and conditions, but also outstanding claims for matters such as discrimination (DJM International Limited v Nicholls [1996] 76) and personal injury claims (Bernadone v Pall Mall [2000] IRLR 487). The information must be provided in good time. The transferor would also be required to notify the transferee of any changes pre-transfer.

6.5 The government has had some difficulty with the method of enforcement. The consultation paper came down against civil claims by the transferee for damages for inaccurate or missing information which causes financial loss. This would seem the obvious approach and is consistent with the warranties common in commercial transactions for the sale of a business. The suggested alternative is splitting liability for any claims by employees being split between the old and new employer. This would be undesirable. It would cause expense and uncertainty and may mean that employees lose out (through no fault of their own) if one of the employers is insolvent. At the very least, there would need to be joint and several liability so that workers recover in full, leaving it for the two employers to argue amongst themselves about the ultimate bill.

6.6 The other anomaly is the government’s reluctance to require that the information be provided to workers’ representatives at the same time that it is provided to the potential new employer. This would seem both obvious and essential. The workers would be able to point out any errors or omissions prior to the transfer and there can be no valid objections on grounds of confidentiality bearing in mind that the information relates to the workers’ own terms and conditions and is being provided to commercial competitors bidding for the contract.

7 Dismissals

7.1 The proposal in the consultation document is to "improve" the drafting of the Regulations to "make clear" that economic, technical or organisational reasons for dismissal ("ETO reasons") are a subset of reasons connected with the transfer. What does this mean?

7.2 The issue arises because a dismissal is automatically unfair where the transfer or a reason connected with it is "the reason or principal reason" yet is potentially fair when an ETO reason is "the reason or principal reason". The conceptual difficulty of having two competing principal reasons led some to conclude that the two reasons were mutually exclusive: in other words if the transfer was the principal reason there could not be an ETO reason which trumped it – it was either one or the other.

7.3 The case law seems to support the government’s view that it is permissible first to consider if the transfer is the reason and, if so, then to consider whether there is an ETO reason which effectively supersedes it and renders the decision potentially fair – Whitehouse v Blatchford & Sons [1999] IRLR 492. If this is correct (and I have my doubts) then the government’s legislative approach is correct. However, my concern would be that an explicit amendment may have the effect of making Tribunals more willing to find dismissals fair for ETO reasons.

8 Changes in terms and conditions

8.1 There is also a proposal to change the provisions on changes in terms and conditions on the occasion of a transfer. The government proposes "to improve the operation of the Regulations by making clear that they do not preclude transfer-related changes to terms and conditions that are made for an ETO reason – that is an "economic, technical or organisational reason entailing changes in the workforce". This is controversial.

8.2 There is considerable confusion and dissension on the extent to which there can be agreed changes to terms and conditions on the occasion of a transfer. Conceptually the position is clear, but in terms of the practical implications there is a conspicuous lack of clarity.

8.3 The European Court has said that the new employer should be in the same position as the old employer when making changes to contract: Rask v ISS Kantineservice [1993] IRLR 133. In English law, this would permit changes agreed between the employer and the workers or (where collective bargaining applies) their union. However, the Directive outlaws changes where the reason for the change is the transfer itself: Daddy’s Dance Hall [1988] IRLR 315; more recently reaffirmed in Collino [2000] IRLR 788. This is the case even where negotiated changes are more favourable Credit Suisse First Boston v Padiachy [1988] IRLR 504.

8.4 The difficulty is establishing whether the transfer is reason for the change in terms and conditions. There are often cases where it is clear that if there had been no transfer, there would have been no change, but the UK courts have shown a reluctance to interfere with agreements made between the parties.

8.5 The House of Lords considered the issue in 1988 in the joined cases of Wilson & others v St Helens Borough Council and British Fuels Limited v Meade and Baxendale [1988] IRLR 706. Conveniently, they found in each case that there had been a valid dismissal which ended the previous contract and that consequently the new agreed terms were valid, the workers could not insist on their previous terms and conditions, their only remedy (if at all) was unfair dismissal.

8.6 This conclusion meant that the House of Lords did not need to reach a concluded view on the question of whether an agreed change (without any dismissal) is effective to change contractual terms. Had they been required to decide the issue, they would have referred it to the ECJ. Instead, they offered some tentative (and not entirely helpful) conclusions. They said that an agreed variation is invalid where the reason for the change is the transfer itself and no other reason. This applies whether the variation takes place before, at the time of, or after the transfer. However, where the reason for the change was something more than merely the transfer, an agreed change will be effective. It was suggested that where the change is for an economic, technical or organisational reason, the transfer should not be regarded as the reason and the variation should therefore be valid.

8.7 It is this approach which has been adopted by the government in its proposals. I believe it is wrong for two reasons.

8.8 First, the comments by the House of Lords do not form part of its substantive decision and do not therefore represent a statement of the law.

8.9 Secondly, there is no support from the Directive or the ECJ decisions for this approach. The concept of ETO reasons relates only to dismissals and has no place in this arena.

8.10 My concern is that this amendment will make Tribunals more likely to endorse the validity of agreed changes (even those made at the point of transfer) and consequently make workers more vulnerable to such changes being introduced (often backed by threats of dismissal). If this is the case, then employers and the government may need to brace themselves for challenges on the basis that the revised Regulations do not comply with the Directive as interpreted by the ECJ.

8.11 There is, of course, one further point for employers to consider. Even under the government’s proposals, the ETO saving only applies where it entails changes in the workforce. It may not, therefore, ride to the rescue of employers seeking wholesale changes in the terms of the existing workforce.

9 Anti-avoidance

9.1 Some employers go to great lengths in an effort to avoid the impact of TUPE. The facts in the ECM and ADI cases are examples. So is the device of a share transfer to avoid a change of employer: Brookes v Borough Care Services [1988] IRLR 636.

9.2 Workers are vulnerable to the fact that the organisation of the terms of any transfer is in the hands of the transferring and receiving party, not the hands of the workers. This may damage the workers’ interests either by complicity (an agreed solution which avoids a transfer) or conflict (where the outgoing employer insists there is a transfer and so refuses to pay redundancy, yet the new employer says there is no transfer and refuses to take on the workforce). An example of this latter situation is Betts v Brintel Helicopters Limited [1997] IRLR 361 which ruled out an injunction to prevent dismissals in those circumstances – the remedy is to claim unfair dismissal, which is of no immediate benefit to workers who are left without a job or a redundancy payment while the case is pursued.

9.3 It is, therefore, disappointing that the government is not intending to introduce an "anti-avoidance" or (as the consultation document describes it) "pre-determination" procedure.

9.4 The government has understandable concerns about a procedure that would permit the potential transferor and transferee jointly to apply to a court to have a ruling that a particular transaction is (or more likely is not) a transfer. This would prejudice workers without giving them the opportunity to be heard.

9.5 However, this is not the only way to address the issue. Workers should be able to access a legal remedy prior to the date of transfer which prevents employers from carrying out dismissals in order to avoid either the automatic employment consequences of TUPE or the application of TUPE to a particular set of facts.

9.6 The government appears to neglect the option of giving workers threatened with dismissal the right to apply for an urgent determination on whether there is a TUPE transfer and whether the dismissal is likely to be automatically unfair. If successful, the appropriate remedy would be interim relief (as with trade union dismissals) where the worker would remain in employment (or be paid full contractual entitlement) until final determination of the case.

10 Conclusion

10.1 The continued delay in producing draft regulations to implement the revised Directive is a cause for concern. The government’s policy aims as expressed when pushing through the revisions and when consulting on implementation have shown a positive attitude to TUPE and a welcome acknowledgement of its social value. The continued delay suggests a worrying degree of hesitation in following through the logic of that position.

Stephen Cavalier
Thompsons

May 2004

Back to the top