TUPE

Jeffrey Jupp's TUPE resource

May 14, 2020
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TUPE & CJRS Update – 14 May 2020

Further guidance has been issued by HM Treasury for employers to assist in identifying those employees for whom an employer is eligible to claim furlough payments.

See latest guidance here

The guidance does not changes the earlier guidance but makes the position clearer. In respect of TUPE it states:

Employee transfers under TUPE and on a change in ownership

A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28 February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.

Read more guidance on TUPE rules.

Read more guidance on business succession.”

July 9, 2020
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ISS Facility Services NV v Govaerts ECJ – 20 March 2020

G was employed by ISS from 2002. ISS is a cleaning and maintenance service provider to the local authority in Ghent, Belgium. It had a contract consisting of 3 lots. Lot 1: museums and historic buildings; Lot 2: libraries and community buildings; Lot 3: administrative buildings.  G was the project manager for all three areas of work.  Her time was therefore split between the three Lots. The contract was retendered. ISS were unsuccessful. Lots 1 and 3 were awarded to A and Lot 2 was awarded to CM. ISS told G she would transfer to A.  A refused arguing there was no transfer. The Belgian labour court held there was no transfer and ISS were liable to G.  ISS appealed and the Belgian appeal court held there was a transfer to both A and CM. The matter was referred to the ECJ to consider three issues:

  1. Was there was a transfer to both transferees in proportion to the extent the employee worked in each part of the undertaking transferred? Or
  2. Did the worker transfer to the part of the entity in which the worker was principally employed? Or
  3. Is there no transfer at all?

Judgment of the ECJ

The ECJ held that the option of there being no transfer was could not apply as that would amount to excluding the safeguarding of rights on transfer and deprive the Directive of its effectiveness.

As to the option of the worker transferring to the transferee of the part of the undertaking in which the worker was principally employed, the ECJ held this would disregard the interests of the transferee who would be required to employee the worker on a full time basis when they worked only part time in the part of the business acquired by the transferee.

This left the option of there being a transfer to both transferees. As to this the ECJ held that

  • it was for the “[national] court to determine how any distribution of the contract of employment might take place. In that regard, [it] may take into consideration the economic value of the lots to which the worker is assigned, as suggested by ISS, or the time that the worker actually devotes to each lot…”.
  • Further, “to the extent that such a possibility amounts to dividing one full-time employment contract into a number of part-time employment contracts, it must be borne in mind that, under [Art. 2(2)(a) of the Directive], the Member States may not exclude from the scope of that directive contracts of employment or employment relationships solely because of the number of working hours performed or to be performed. Consequently, such a division cannot be excluded merely because it involves the transfer to one of the transferees of a contract of employment that covers a small number of hours of work”.
  • And; “such a transfer of the rights and obligations arising from a contract of employment to each of the transferees, in proportion to the tasks performed by the worker, makes it possible, in principle, to ensure a fair balance between protection of interests of workers and protection of the interests of transferees, since the worker obtains the safeguarding of the rights arising from his or her contract of employment, while the transferees do not have imposed on them obligations that are greater than those entailed by the transfer to them of the undertaking concerned…. However, it is for the referring court to take account of the practical implications of that division of the contract of employment in the light of the objectives pursued by Directive 2001/23”.

By way of conclusion the ECJ held; “where a transfer of undertaking involves a number of transferees, [Art 3(1) of the Directive] must be interpreted as meaning that the rights and obligations arising from a contract of employment are transferred to each of the transferees, in proportion to the tasks performed by the worker concerned, provided that the division of the contract of employment as a result of the transfer is possible and neither causes a worsening of working conditions nor adversely affects the safeguarding of the rights of workers guaranteed by that directive, which it is for the referring court to determine. If such a division were impossible to carry out or would adversely affect the rights of that worker, the transferee(s) would be regarded as being responsible for any consequent termination of the employment relationship, under Article 4 of that directive, even if that termination were to be initiated by the worker”.

Link to Judgment

Comment

On any view this is remarkable departure from the orthodox understanding of TUPE. In order for TUPE to apply the employee must be assigned to the organised grouping resources subject to the relevant transfer (Reg 4(1)). Although this is not expressly specified in the Directive it was the test developed in Botzen and others v Rotterdamsche Droogdok Maatschappij BV which held: “An employment relationship is essentially characterized by the link existing between the employee and part of the undertaking or business to which he is assigned to carry out his duties. In order to decide whether the rights and obligations under an employment relationship are transferred under [the  Directive] … it is… sufficient to establish to which part of the undertaking or business the employee was assigned”. It is difficult to see how the test for assignment can be met with an employee in the position of G in this case. Is the ECJ to be taken to have overruled Botzen?  Furthermore, the practical suggestion that the employment contract be split raises a number of practical issues. Is it legally possible to split the contract in this way?  Is the employee to be contracted part time by both transferees? Whilst, it can be argued that Service Provision Changes under Reg 3(1)(b) are a purely domestic creation and therefore this decision has no application to SPCs, this is not the case for Reg 3(1)(a) transfers.

May 22, 2020
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TUPE & CJRS Further update 22 May 2020

A new Treasury Direction (No. 2) has been issued. This makes a small but significant change to the eligibility to include employees in a CJRS claim if they are transferred after 28 February 2020.

A new employer (i.e. the transferee) can now make a CJRS claim if the employee’s employment transferred after 28 February 2020. This is whether or not an RTI PAYE submission was made before 19 March 2020 (i.e. whether or not the new employer put the transferred worker through its payroll before the 19 March 2020).

The requirements to be a “relevant employee” are in §9.4 of the new Treasury Direction and are (in summary):

(a) on 28 February 2020 the employee was employed by the transferor.

(b) After 28 February 2020 the business transferred to the transferee and the employee remained employed.

(c) The transferor had a qualifying PAYE scheme at the time of the transfer.

(d) Any of the following applies: (i) The change of employer is one that for the purposes of PAYE is not treated as a cessation of employment (i.e no P45 is issued); (ii) the transfer did not operate to terminate the employee’s contract of employment (iii) the transfer did not break the continuity of employment.

Link to Treasury Direction (No.2)

May 15, 2020
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Ferguson & Others v Astrea Asset Management Ltd EAT – 15 May 2020

The most interesting issue in this case is concerned with what happens when senior employees of the transferor substantially improve the terms and conditions of their employment just before the transfer so as to seek to fix the transferee with these enhanced terms.

Are such changes void under Reg 4(4) or for some other reason.

The Background

L Ltd is a property asset a management company managing  a substantial property portfolio in Mayfair, London on behalf of BSE.  The claimants were the directors and senior employees of L Ltd.  K was the CEO, F was head of Asset Management. Other claimants held senior positions. In September 2016 BSE gave the required 12 months’ notice to terminate L’s management agreement.  AAM was to take over management of BSE’s portfolio from the end of September 2017.  In July 2017 the claimants decided to ‘update’ Ls’ staff contracts. These updated contracts gave:

  • new rights to guaranteed bonuses of 50% of salary;
  • New entitlements to termination payments of a months’ salary for each year worked;
  • in some cases, enhanced notice periods.

These updated contracts were supplied to AAM after the employee liability information was supplied in August 2017. In an email sent to other directors of L Ltd, K said that if any of them did not transfer to AAM then they would revert to their previous terms, and all agreed to this.  When the changes came to light around the time of the transfer all the claimants were dismissed for gross misconduct by AAM. They brought claims for unfair dismissal, notice pay, and unauthorised deduction from wages and reserved the right to bring further claims in the civil courts.

The Employment Tribunal Decision

There were various findings in relation to unfair dismissal and failure to consult but the significant feature of this case concerns the contractual change implemented shortly before the transfer.

The ET held that two of the claimants had not transferred to AAM and in respect of F and K, who had transferred, the terms of the new contracts were void under Reg. 4(4) because they were varied by reason of the transfer.

The Employment Appeal Tribunal Decision

The claimants appealed on the contract issue on  the following grounds that Reg 4(4) only applies to changes adverse to the employee (having particular regard to Power v Regent Security Services Limited [2008] ICR 442). Further insofar as AAM sought to rely on the EU ‘abuse principle’, (on which there were unclear findings by the ET), this had no application on the facts.

The EAT (HHJ Shanks) held 

That Reg 4(4) applies to any change and not just those adverse to employees. This interpretation is: (i) Consistent with the Directive which is to safeguard employee’s rights; (ii) Not contrary to English of EU case law, (Regent was distinguished on the basis that the contractual variation occurred after the transfer and Reg 4(4) was not in force at that time and reg 12 of the 1981 TUPE regs was not the same wording, and nothing said by the Court of Appeal suggest that advantageous changes cannot be deemed to be void); (iii) Avoids difficult questions about whether a change is or is not advantageous; (iv) Does not prevent the employee enjoys other protections within TUPE; (v) Consistent with purpose of TUPE and; (vi) the literal wording of Reg 4(4).

Turning to the EU abuse principle, this is the principle in EU law that EU law cannot be relied on for abusive or fraudulent ends. It was not disputed that this principle could apply to TUPE claims but the claimants’ case was that it did not apply on the facts. 

There are essentially two requirements for the abuse principle to apply. First there must be objective circumstances which show that, despite formal observance of EU rules, the purpose of the rules had not been achieved, and; secondly, a subjective element consisting of an intent to obtain an advantage from the EU rules by artificially creating the conditions necessary for their application.

The EAT held that both of these requirements applied.  The contractual changes did not in fact safeguard the employees rights but enhanced them therefore the purpose of TUPE had not been achieved rather some other purpose had (namely to enhance terms and conditions). Further, there was ample material to satisfy the second condition that there was an intent to obtain an advantage.

Link to EAT Judgment 

Link to ET judgment

April 15, 2020
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TUPE CJRS Latest Guidance & Treasury Direction to HMRC – 15 April 2020

The latest Guidance on the CJRS provides:

A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.

Also under sections 71 and 76 of the Coronavirus Act 2020 the Chancellor of the Exchequer has issued a Direction to HMRC on the operation of the Coronavirus Job Retention Scheme.

For the purposes of TUPE, summarised below are the most important points which are set out in §§9 to 11 of the Direction.  

To understand these points the reference to a “qualifying PAYE scheme” is a PAYE scheme registered on HMRC’s real time information system for PAYE on 19 March 2020.

The Direction deals with two scenarios. 

First, (see §§ 9.1 to 9.3), is where the new employer (transferee) has no qualifying PAYE Scheme solely because its PAYE scheme was registered on the HMRC real time information for PAYE after 19 March 2020.

If:    (i) an employee was on the payroll of the transferor on 19 March; (ii) the transferor has a qualifying PAYE scheme, and; (iii) there is a transfer after that date then the employee will qualify if:

  • Reg 102 of the PAYE regulations applies – i.e. the transfer is not treated as a cessation of employment.
  • TUPE applies so that the employment does not terminate on transfer .
  • The transfer does noes not operate to break the continuity of employment.

Second, (see §10), is where the new employer (transferee) already had a qualifying PAYE Scheme before 19 March 2019

If the transferee employer does not qualify to make a claim under §§9.1 to 9.3 of the Directions solely because it already had a qualifying PAYE Scheme then the entitlement to claim under the CJRS is determined as if the transferee employer had made earnings payments to the employee in the 2019-20 tax year shown on the real time return on or before 19 March 2020.

Comment

Previously the position under the Guidance v3 was that the CJRS applied to employees who transferred after 28 February 2020. Now under the Treasury Direction and Guidance v4 the Scheme applies to transfers after 19 March 2020. If an employee transferred on or before the 19 March 2020 then they will be on the transferee’s payroll on that date (assuming real time data had been provided) and therefore be a relevant employee for the purposes of the CJRS.

Link to Treasury Direction

Link to Guidance

April 9, 2020
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TUPE and the Coronavirus Job Retention Scheme – Updated 9 April 2020

The CJRS Guidance has now been updated to make it clear that any employee who transferred after 28 February 2020 is covered by the Scheme. The guidance now provides:

Employee transfers under TUPE and on a change in ownership

A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28th February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.”

Links:

The Scheme Guidance for Employers

The Scheme Guidance for Employees

HMRC PAYE Manual

March 30, 2020
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TUPE and the Coronavirus Job Retention Scheme – Updated 7 April 2020

Updated see post of 9 April 2020

The guidance for the Coronavirus Job Retention Scheme (‘the Scheme’) provides that in order to be a qualifying employee within the Scheme, “Furloughed employees must have been on [the employer’s] PAYE payroll on 28 February 2020…”.  If a transfer takes effect after that date, for example on 1 March 2020, are the employees qualifying employees for the purposes of the Scheme, after all they were not on the transferee’s payroll on 28 February 2020?

Under TUPE employment does not cease on transfer (see for example Mears Homecare Limited v Bradburn in the context of National Minimum Wage production obligations). In the context of PAYE this is reflected in regulation 102 of the Income Tax (Pay As You Earn) Regulations 2003 which provides that if the employee remains in the same business but the employer changes then the change will not be treated as a cessation of employment so that no P45 is issued. However, this does not mean that the employee is on the transferee’s payroll at a date earlier than the transfer.

Every employer has a HMRC Employer Reference number which is used for administering income tax and national insurance contributions on the payroll.  This is referred to in the Guidance as the ‘ePAYE’ reference. The ePAYE reference is required to make a claim under the Scheme.

On a business transfer there are two possibilities with regard to the payroll. Either there is a ’merger’ or there is a ’succession’. A merger is where two or more PAYE schemes are brought together for the same legal entity. However, just because a business merges does not mean that the payroll merges. A succession  is when the ownership of the business changes from one legal entity to another and the new owner takes responsibility for the pay records. In both cases there will be a new Employer Reference (ePAYE) number allocated by HMRC.  In any case, just as if a new employee is recruited, the transferred employees will not be on the transferee’s payroll before the date they are employed.

Finally, it is important to note that the issue of whether an employee is or is not covered by the Scheme is primarily an issue between the employer and HMRC and will, ultimately, in cases of dispute, be a matter that is resolved in a tax tribunal and not an employment tribunal. As matters stand, an employer would have good grounds for not offering those employees who transfer after 28 February 2020 an opportunity to be furloughed but it would be sensible for the employer to seek guidance from the HMRC prior to doing so.

It is likely that the position in relation to transferred employees under Coronavirus Job Retention Scheme is simply an oversight by the Government and if there is revised guidance this may well change.

First Update 06 April 2020

The Revised Scheme Guidance now provides:

If you made employees redundant or they stopped working for you after 28 February

If you made employees redundant, or they stopped working for you on or after 28 February 2020, you can re-employ them, put them on furlough and claim for their wages through the scheme.

What transferred employees can therefore do is ask the old employer (the transferor) to take them back and immediately furlough them.  It is of note that the Guidance does not refer to employment having ceased (which of course it does not under TUPE) it only refers to the employee having been made redundant by or ‘stopped working’ for the employer (eg. transferor) after 28 February 2020.

Second Update 07 April 2020

Following exchanges between employment lawyers on social media, it became apparent that HM Treasury have confirmed to a conservative member of parliament, David Johnston MP, by email of 6 April 2020 that the the Scheme will apply to those transferred after 28 February 2020. The email exchange is set out below.

Links:

The Scheme Guidance for Employers

The Scheme Guidance for Employees

HMRC PAYE Manual

July 4, 2019
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Mears Homecare Limited v Bradburn EAT – 2 May 2019

The issue in this case is whether a transferor is required to answer a production notice served by a former employee under s. 10 of National Minimum Wage Act 1998 (NMWA). Central to this issue is whether the transferor is an ’employer’ within the meaning of s. 54(4) of the NMWA which provides: ” (4) In this Act “employer”, in relation to an employee or a worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed.”

The Background

On 1 February 2017, the Claimants’ served 10 production notices under s.10, NMWA by which they requested wage information from M for the preceding 12 months. That period covered nine months during which the Claimants were employed by M and three months during which they were employed by the respective transferees.

M failed to respond to the production notices within the period of 14 days required by s.10(9) of the NMWA. The Claimants then brought complaints before the ET under s.11 of NMWA for a declaration and award in respect of such failure.

ET Judgment

The held that M was the employer within s. 54(4) of the NMWA because it was the “person by whom the employee or worker is (or, where the employment has ceased, was) employed.” There was no longer any contract of employment between M and the Claimants and therefore that employment had ceased. Furthermore, this was supported by the following; M had a continuing obligation to retain records under s. 9 of the NMWA and remained liable to criminal prosecution if it did not do so. There were sound policy reasons why the obligation to produce records rests with the person obliged to make and retain those records during the pay reference periods in question. There were also anomalies which would flow if the liability to answer the production notice transferred. A transferee could become liable even though it it did not have the records to produce; there was no joint liability provisions under TUPE to share the liability between the transferor and transferee.

 

EAT Judgment

M appealed on essentially two grounds:

(i) The ET erred because where there has been a relevant transfer the effect of Reg 4(1) of TUPE is that the employment does not cease.

(ii) The ET erred in failing to consider whether the obligation to keep and preserve minimum wage records is itself an obligation that transfers where there is a relevant transfer. The further obligation to produce records, which is parasitic on the obligation to maintain records, must therefore necessarily also transfer.

The EAT, Mr Justice Choudhury (President), held:

In respect of Ground 1 (paras 44 and 45):  The ET incorrectly focused on the identity of the employer rather than the key question, which is whether the employment under a contract of employment had ceased. The Claimants  did not cease to be employed at any stage. All that happened was that as a result of Reg 4(2) of TUPE, and the resultant statutory novation of the contract, a new employer seamlessly stepped into the shoes of the old. As such, the only part of the definition which applied was that relating to the current employer as at the date that the production notices were served. That employer was the transferee.

In respect of Ground 2 (paras 46 to 50). The obligation to maintain records under the NMWA transfers to the transferee by application of reg. 4(2) which provides that the effect of a relevant transfer is that “all of the transferor’s rights, powers, duties and liabilities under or in connection with any such contract shall be transferred” and “any act or omission before the transfer is completed shall be deemed to have been an act or omission of the transferee.” Furthermore, the requirement to maintain records under the NMWA was not unique. Employers had obligations to keep records in other circumstances. In addition there are other circumstances when transferees may be handicapped by not having access to records.

Link to EAT Judgment

Link to ET Judgment

 

May 13, 2019
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Dodič v Banka Koper ECJ – 8 May 2019

In this case the ECJ were asked to consider whether there was a transfer under Art 1(1) of the Directive  in a Slovenian case in which domestic banking legislation mandated the transfer of client accounts to an authorised broker on the closure of brokerage.

The Facts

D was employed by a brokerage, BK. In December 2011 BK decided to cease to provide investment services and its stock exchange intermediary service. Slovenian banking law required that on ceasing to provide such services the brokerage company was required to make arrangements for the transfer of financial instruments and other assets managed for the clients and client accounts relating to debt securities and other services to another authorised brokerage. It was also required to transfer all documentation and its liabilities in relation to management and storage of relevant documents to the authorised brokerage.  I.e. it could not simply shut up shop without arranging for the clients to be serviced by another brokerage.

In June 2012 BK entered a transfer agreement with AI in accordance with Slovenian law. However, it was also agreed that BK would itself work for AI as a dependent stock exchange intermediary.  BK informed clients in July 2012 that it was ceasing to provide stock exchange intermediary services and asked for their consent to transfer to AI and informed the clients that if they failed respond they would be deemed to have consented. 91% of BK’s clients transferred to AI. BK was subsequently deauthorised by the stock exchange and authorised to provide serves as a dependent stock exchange intermediary only. BK terminated the employment contracts of all employees in its investment served including that of D in October 2012. D subsequently brought a claim in which he argued that he should have transferred to AI.

BK and AI resisted D’s claim on the basis that BK had no choice but to enable the transfer of those clients who consented as that was required by domestic legislation. Furthermore, the transfer did not apply to employees, premises or equipment and client could elect not transfer to AI but move their account to another brokerage.

The Decision of the Slovenian Court

The Solvenian court held there was no transfer within the meaning of Art 1(1) as the transfer agreement entered into by BK and AI did not entail a change of employer within Art 1(1). It considered as decisive the fact that BK did not transfer its clients to AI. The fact that almost all of its clients chose to move to AI was not a sufficient ground for concluding that there was a ‘transfer of an undertaking’ within the meaning of Directive 2001/23. Moreover, BK continued to carry out financial intermediary activities, including for AI, confirmed there was no transfer.

The Supreme Court of Slovenia referred three questions to the ECJ for a preliminary ruling which the ECJ summarised as follows:

The referring court asks, in essence, whether [Art 1(1)] must be interpreted as meaning that the transfer, to [AI], of the financial instruments and other assets of the clients of [BK], following the cessation of [BK’s] activity and under an agreement the conclusion of which is required by national legislation, constitutes a transfer of an undertaking or of part of an undertaking, even though (i) [BK’s] clients remain free not to entrust the management of their stock market securities to [AI] and, (ii) [Bk] continues to operate as a dependent stock-exchange intermediary and, in performing that role, cooperates with [AI].

 

The Judgment of the ECJ

The ECJ re-emphasised, by reference to the established case law:  (i) the multi-factoral approach to determining whether or not there was a transfer and in a case such as this where the economic activity is based primarily on intangible assets, the transfer of those assets is of undoubted importance; (ii) that the decisive criterion was whether the entity retained its identity and; (iii) the concept of a legal transfer must be given a sufficiently flexible interpretation to provide for the protection of workers in the event of a change of employer.

On the specific facts it held that:

  • BK’s Office for Investment Services was an economic entity, as it had human and logistical resources enabling the exercise of an economic activity consisting in the provision of brokerage services and the performance of investment activities for instructing parties.
  • The fact that BK continued to operate as a dependent stock-exchange intermediary and, in performing that role, cooperated with instructing parties, including AI, was, in principle, irrelevant to the classification of the transaction as a ‘transfer of a part of an undertaking’.
  • Here the intangible assets, the financial instruments and other assets of the instructing parties, the clients, the keeping of their accounts, the other financial and ancillary services, as well as the maintenance of records, namely the documentation relating to the investment services provided to clients and the investment activities carried out for them, contributed to the identity of the economic entity. The transfer of those items was necessarily subject to the express or tacit agreement of the clients as, in a context such as that here, an undertaking that ceases its activity could not require its clients to entrust the management of their securities to the undertaking of its own choosing.
  • As BK’s clients were not bound by the transfer agreement entered into with AI, and could freely decide to transfer their securities to the latter, this cannot, in itself, preclude there being a transfer.
  • For the transaction to be a transfer it must be established that there was a transfer of clients. To that end, it was necessary to carry out an overall assessment of the facts, taking into account, in particular, the incentives offered to BK’s clients to entrust the management of their securities to AI. Whether the clients had an express choice or not as regards the transfer of their accounts to AI, or whether there was a default transfer of the records relating to their accounts was a relevant matter to be taken into account. Another factor to be taken into consideration was the provision of financial incentives such as covering transfer fees in the case of transfer to AI.
  • The fact that 91% of clients transferred was not, on its own, sufficient to establish a transfer as this only followed the transfer agreement.

The ECJ concluded by summarising the position as follows:

The transfer, to a transferee, of financial instruments and other assets of the clients of a transferor, following the cessation of the transferor’s activity, under a contract the conclusion of which is required by national legislation, even though the transferor’s clients remain free not to entrust the management of their stock market securities to the transferee, may constitute a transfer of an undertaking or of part of an undertaking if it is established that there was a transfer of clients, that being a matter for the national court to determine. In that context, the number of clients actually transferred, even if very high, is not, in itself, decisive as regards classification as a ‘transfer’, and the fact that the transferor cooperates with the transferee as a dependent stock-exchange intermediary, is, in principle, irrelevant.

Link to judgment

 

April 24, 2019
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Graysons Restaurants Limited v Jones EAT – 28 November 2017; CA – 17 April 2019

This case raises two short questions in the TUPE insolvency context.  The second is relevant to TUPE generally.

First, is whether a claim for equal pay arrears is a claim for “arrears of pay”, and in circumstances where the claim has not yet been determined, whether it gives rise to a “debt” to which the employee is entitled on the “appropriate date” (here the employers insolvency).

If so, the second question is whether the whole of the arrears of pay accrued prior to the appropriate date is effectively extinguished or whether only that liability excluded under the statutory scheme in Part XII of the ERA is extinguished leaving the transferee to pay the balance.

The Facts

In 2007 equal pay claims were brought against Liverpool City Council by a group of women, the Claimants, who were employed as cooks and kitchen assistants at various schools throughout Liverpool (those claims had not been determined at this stage). Their employment transferred twice in 2007 and in 2009. The second employer become insolvent before being bought G. The Claimants’ contract of employment transferred to G. The Secretary of State would be liable to pay certain sums to employees out of the National Insurance Fund as their former employer had became insolvent.

The question was whether any of the sums, that may become due if the equal pay claims were successful, were payable by the Secretary of State (up to the 8 week limit) and whether or not the transferee would then be liable for the balance.

The ET Judgment

The ET referred to the Acquired Rights Directive and the Insolvency Directive and observed that their paramount concern is to safeguard and protect the rights of the employees either where there is a transfer or an insolvency of the employer.

The ET held:

  1. That equal pay arrears are not a debt payable at the time of transfer (or on the appropriate date) where the equal pay claims have not been determined and quantified. The debt will only be due if the equal pay claims succeed and not before.
  2. If wrong in relation to the above, any liability in excess of the eight week sum guaranteed by the statutory scheme in Part XII of the ERA, transfers to the transferee and is not extinguished.

The EAT Judgment

The EAT (Mrs Justice Simler) held:

  1. The list found in s.184(1) ERA is exhaustive. However, equal pay arrears can be ‘arrears of pay’ within the meaning of s.184(1) ERA, and therefore a debt within s.182 ERA.
  2. The ET erred in concluding that arrears of pay arising from an equal pay claim that is undetermined cannot be a claim for ‘arrears of pay’ within s.184(1) ERA. The sums relate to work performed prior to the insolvency and though not yet quantified, the Claimant’s will be in a position to identify the precise shortfall at some stage.
  3. There is a presumption that equality clauses operated in the Claimants’ contracts since their work has been rated as equivalent to their comparators. If that presumption is not rebutted by the genuine material factor defences the Claimants had a legal entitlement to be paid in accordance with the equality clauses for work they performed before the appropriate date, provided they were not time-barred. To the extent that they were not so paid, they were entitled to arrears of pay. They are in no different position to suppliers of goods who were unpaid on the appropriate date, or employees who did not receive pay due under implied or disputed oral agreements for work done before the appropriate date.
  4. The wider point relied on by G failed. Only liabilities for up to eight weeks of arrears of equal pay do not transfer to the transferee, pursuant to Reg 8(5),  if they constitute sums payable under Part XII ERA by the Secretary of State because the necessary conditions in s.182 and 184 ERA are established.  To the extent that the liabilities exceed the statutory limits in Part XII ERA, liability transfers to the transferee and are unaffected by Reg 8(2)-(6)

 

The Court of Appeal Judgment

Graysons settled the claims brought by the claimants and the appeal therefore only concerned the sums payable by the Secretary of State.

The Court of Appeal upheld the EAT judgment for the reasons given by Simler J.  An interesting observation was made in relation to the argument that the claim brought by the claimants was a damages claim and not a debt claim. Bean LJ held “This seems to me rather far-fetched. It is not suggested that the present claims are for anything other than arrears of pay. The rules of pleading in ETs are not so technical as to require a claimant to be put to her election as between a claim for arrears of pay or a claim for damages. The vast majority of claims of this kind are for arrears of pay“.

 

Link to EAT Judgment

Link to Court of Appeal Judgment