TUPE

Jeffrey Jupp's TUPE resource

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

March 4, 2019
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Hare Wines Ltd v Kaur CA – 22 February 2019

The Court of Appeal dismissed the transferee’s appeal in this case, for essentially the same reasons as the EAT.

The issue in this case is whether an employee dismissed immediately before the transfer was automatically unfairly dismissed because the principal reason for the dismissal was the transfer (Reg 7).

The Facts

K was employed by R1, the transferor, which got into financial difficulty in late 2014.  HW agreed to purchase R1’s business.   At a meeting held just before the transfer, on 9 December 2014, K was dismissed by R1.  She was told the reason was that the business was ceasing to trade.  However, 6 or 7 other employees transferred from R1 to HW.   HW’s case was that at the meeting held on the 9 December, two days before the transfer, K had objected to transferring.

 

The ET Judgment

The ET had to resolve a factual issue.  HW said that at the meeting on the 9 December K had objected to the transfer by saying she was not happy working with HW.  K’s case was that she had a strained relationship with a manager, C, and that C did not want her to transfer and hence HW also did not want her to transfer.   The Tribunal resolved this factual dispute in favour of K.  It held but for her dismissal on the 11 December she would have transferred and therefore the reason for the dismissal was the transfer.

 

The EAT Judgment

HW appealed on the ground that the ET erred in law in determining the reason was the transfer or gave insufficient reasons for this decisions.  Essentially HW’s case is that reason for the dismissal was personal to K’s circumstances and therefore not related to the transfer The EAT (Choudhury J) dismissed the appeal (see post here )

 

The Court of Appeal Judgment

The Court of Appeal (Underhill & Bean LJJ) were not impressed by the attempt to distinguish personal reasons for a dismissal from other reasons.  It held that the whilst the problems between K and her manager, C, had been ongoing for some time, no action was taken until the transfer.  The transfer was used as the opportunity to dismiss K because the transferee anticipated ongoing difficulties after the transfer. “It therefore decided that it did not wish her contract of employment to transfer and communicated that wish to the transferor. That was why she was told that she was not wanted. The reason for the dismissal was the transfer.”

Comment

It is trite to observe that an employee cannot be put in a better position because of a transfer then they would otherwise be.  This appeared be at the heart of the transferee’s argument.  That K’s contract could have ended at any time due to the ongoing conflict with the manager, C. She could not be put in a better position just because matters came to a head at the point of transfer. However, the difficulty with that argument, as the Court of Appeal observed, is that does not engage with the reason why it came to a head at that point.  The transfer was used at the opportunity to deal with the issue. In those circumstances the transfer was at least the principal reason for the dismissal.

 

 

Link to EAT Judgment

Link to CA Judgment

 

 

 

 

 

 

October 17, 2018
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Urban Retreats Ltd v Harrods Ltd QBD – 12 October 2018

This case concerns the construction of a TUPE indemnity.

The Facts

The transferor operated a hairdressing and beauty salon in Harrods pursuant to a  licence agreement.  The licence terminated in disputed circumstances and a settlement agreement was executed which resulted in the employees of the transferee transferring to Harrods, the transferor. Under the agreement Harrods were required to make payments to the transfer and in doing so it withheld a substantial sum in respect of payments for salaries and commission owed to employees. It claimed to be entitled to do s under the terms of an indemnity in the licence agreement, which both parties agreed was unaffected by the settlement agreement.

The Indemnity

The indemnity provided that the transferor would indemnify the transferee against all employment liabilities, as defined, in connection with:

“(a) all salaries, emoluments or other sums payable … to or in respect of any member of staff … which fall due … prior to the date of termination … (b) any liability or obligation arising under or in connection with any member of staff … prior to the date of termination … (e) any other claim by a member of staff the responsibility for which passes to [the transferee] … and which has its cause … prior to the date of termination of this agreement.”

The salaries and commission payments were paid to employees in arrears. The transferee argued that this meant that as at the date of the transfer they were not due.  Harrods, the transferee, argued that the commercial purpose of the clause was for the transferor to bear the employment costs of the staff up to the date of transfer, pointing out that it had the benefit of the employees up to that point and therefore should bear the costs.

The Judgment of the High Court

The transferee’s argument was preferred.  The payments came within sub paragraphs (a), (b) and (e) of the indemnity.  As for (a), the expression “that which fall due” had to be interpreted as including where the obligation to pay had arisen even though the date for payment had not yet arrived.  Furthermore, the sums were within (b) because the employee costs were also “any liability“, even if not yet payable. There was nothing to support the transferor’s argument that “any liability” meant  “any other liability“. Finally the sums withheld would also be within (e), so that everything prior to the termination date was the transfer’s obligation through the indemnity even if not yet paid.

 

Link to Judgment:   Urban Retreats v Harrods

September 4, 2018
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Tabberer v Mears Limited EAT – 4 September 2018

This case is a rare example of changes to terms and conditions which were made after a transfer not being held to be void under Reg 4(4).

The Background
The claimants were electricians who were paid a travel allowance (‘ETTA’). This had been paid by the local authority employer since 1958 and had continued through various transfers until the claimants transferred to M on 1 April 2008. ETTA was an obsolete allowance which bore no relation to the way in which the claimants currently worked. After M ceased to pay the allowance a group of electricians challenged this in a case brought in 2010. M defended the case on the basis there was no contractual entitlement to ETTA and lost. The case was appealed to the EAT (see Salt & Others v Mears) and M lost again.

After the Salt decision, in July 2012, M wrote to each of the electricians and unilaterally decided to vary their contracts to cease the entitlement to payment of ETTA. The rationale was that it was generally recognised that the entitlement (albeit held to be contractual) was outdated and obsolete and it made no business sense to continue it. The claimants challenged the variation on the basis that reason or principal reason for it was the transfer and was void. They pointed out that the payment ceased from the date of the transfer.

The ET judgment
The ET dismissed the claims and held that M’s reason for varying the contract was both the adverse ET/EAT decisions in Salt and that it genuinely believed that the entitlement was outdated. It further held that the submission of a claim form was prerequisite for payment of ETTA which some claimants had not done.

The EAT judgment
The claimants raised the following issues on the appeal relevant to TUPE:
(1) That the decision of the ET ignored the fact that the subject matter of the Salt decision was the transfer and there was a clear and continuing link to the transfer.
(2) The interpretation of the ET rendered Reg 4(4) wholly ineffective and open to easy avoidance.
(3) The ET failed to recognise the harmonisation intent behind the decision.
(4) The decision failed to take account of the non payment of the ETTA from the date of transfer.

The EAT (HHJ Eady) restated that the question to be asked is: what is the reason? – What caused the employer to do what it did? (see Smith v Trustees of Brooklands College.) In applying this approach she went on to reject the claimants’ appeals for the following reasons:

(1) The decision in Salt provided the context for M’s decision not the reason for it.
(2) The decision was question of fact for the Tribunal.
(3) The concern about the outdated nature of the ETTA and that it made no sense, predated the transfer and had been expressed by previous employers.
(4) There was not an attempt to harmonise, simply a recognition of the unfairness that one group of employees received an outmoded allowance to which others were not entitled.

Link to EAT judgment

September 3, 2018
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HMRC Policy change in enforcement of NMW obligations on transfer

In its recent Agent Update on page 4 HMRC have announced:

Changes in how National Minimum Wage (NMW) penalties apply to employers who have staff transferred under Transfer of Undertakings (Protection of Employment) (TUPE) rules
HMRC has changed its approach to charging penalties when enforcing NMW where there has been a transfer of staff from one employer to another under TUPE Regulations 2006 provisions.
Since 2 July 2018, where TUPE applies, all NMW liabilities, including the full penalty amount are applied to the new employer.
HMRC previously charged the former employers all, or part of the penalties where they were triggered by arrears that accrued before workers were transferred under TUPE provisions. Further information on TUPE can be found on the Acas website.

More on enforcement of the national minimum wage including penalties can be found on the GOV.UK website.

 

Link to Agent Update

August 31, 2018
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Nicholls v London Borough of Croydon EAT – 23 August 2018

The Issue

This case principally concerns Reg 3(5) and what amounts to “an administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities”.

The Background

This case concerns transfers that arose out of the reorganisation of public health provision in 2013, whereby certain public health functions that had been undertaken by the NHS were transferred to local authorities.  Under provisions of the Health and Social Care Act 2012 the Secretary of State was empowered to put in place transfer schemes intended to govern the transfer of employees from the NHS to local authorities.  It was considered that TUPE did not apply because of Reg 3(5) which provides that administrative reorganisations of public administrations or transfer of administrative functions is not a relevant transfer.

The transfer scheme introduced in relation to the transfer in this case did not replicate TUPE. First the provision which  dealt with unfair dismissal (i.e. the equivalent of Reg 7(1)) was limited in time and covered dismissals up to 31 March 2015. The Claimants were dismissed after this date and therefore could not rely on the transfer scheme. They therefore had to bring their cases under TUPE.  Furthermore, there was no equivalent to Reg 4(4) which renders variation to Ts and Cs void if the sole or principal reason for the variation is the transfer.

The Council resisted the claims on the basis that there was not a ‘relevant transfer’ for two reasons: First there was no transfer of an economic entity’ and second this was a transfer to which Reg 3(5) applied.   Furthermore, even if there was a relevant transfer, Reg 4(1) only applied to employment contracts that would otherwise be terminated because of the transfer, and that because of the staff transfer scheme there was no risk of the claimants’ employment being terminated because of the transfer.

There were therefore two preliminary issues:

(1)  whether there was ‘a relevant transfer’, and;

(2) if there was a relevant transfer whether the Claimants’ contracts of employment transferred.

The ET answered no to both of these questions.

The EAT Judgment

In a comprehensive judgment which will be required reading on the issue of transfers of public administrative functions, Lavender J, extensively reviewed the case law and held, in relation to the first issue (i.e. the economic entity/Reg 3(5)) issue):

First, the purpose of Reg 3(5) is to identify something that would not be a transfer in any event. I.e. something that was not an economic entity. (§20(5)).

Secondly, it is relevant to look at EU competition law which uses the same definitions as TUPE/the Directive (§20(3)). The aim of EU competition law in relation to state actors is to ensure that when the state is engaging as an economic operator it should not have the economic advantage of not having to apply the same rules as non-state actors. If the state acts as an economic operator then the Acquired Rights Directive and EU competition law will apply but not otherwise (§43) and (§46).  These apply where the activities constitute an economic entity but do not apply where the activities fall within the less clearly defined category of ‘exercising public functions’ (§45).

Thirdly, it is necessary to consider the activities that are being undertaken by the state entity being transferred in the particular case; and then to determine whether those activities belong to the category of: (a) “exercising public powers”; or (b) carrying on an economic activity by offering goods and services on the market. (§26) and (§45).

Fourthly, the purchasing or commissioning of goods or services cannot in itself constitute an  economic activity; but a body which supplies goods or services in a market is carrying on an economic activity, both in supplying those goods or services and in purchasing goods or services for the purpose of that supply (§42).

Fifthly, when considering the economic entity it is relevant to consider: (1) whether the activity consists of the provision of goods and services (as opposed, for example, to the mere acquisition of goods or services); and (2) whether there is a market for the relevant goods or services. (§48). There will be an economic activity even if goods or services are provided free of charge or without a view to making a profit provided the activity is in principle capable of being undertaken by a private undertaking with a view to profit (§49) and (§50).  An entity undertaking such functions will be an undertaking even if: It is a public law entity; it is publicly funded; it acts in the public interest, and; it is pursuing statutory functions (§51).

Sixthly, the central concept underpinning Reg 3(5) is that the entity is exercising public functions which are not an economic activity (§52).

Seventhly, when considering this issue the court is to ask (see §55):

(1) whether the activity is necessarily carried out by public entities or is an essential function of the state;

(2) whether the activity is a core state activity;

(3) whether the activity has always been carried out by public entities;

(4) whether the activity involves the exercise of “prerogatives outside the general law” or “privileges of official power”;

(5) whether the activity involves the exercise of rights and powers of coercion;

(6) whether the activity is “a public service to which any idea of commercial exploitation with a view to profit is alien” or one which “cannot conceivably be carried out within a competitive system”;

(7) whether the activity has “an exclusively social function”;

(8) whether the activity is typically that of a public authority;

(9) whether the activity is carried out in the public interest  or a service provided for the benefit of the whole community  or intended to safeguard the general interests of the state or other public, and;

(10) whether the activity involves providing services in competition with those offered by operators pursuing a profit motive.

But none of these are a definitive statement of the necessary and sufficient conditions for finding that an activity involves the exercise of public authority.

Eighthly, it is necessary to have regard to the function under consideration and not the entirety of the state entity’s activities (§62) and (§63)

On the second issue the EAT was much briefer and held that it would be inconsistent with the Directive, and with the UK’s obligation to give effect to the Directive, if the words “which would otherwise be terminated by the transfer” in Reg 4(1) meant that the claimants could not rely on Reg 4(4) because of the transfer scheme.  These words did not appear in the Directive and  should not be read as preventing Reg 4(1) from applying in the present case.

Link to ET judgment

Link to EAT judgment

 

 

August 12, 2018
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Colino Sigüenza v Ayuntamiento de Valladolid ECJ – 08 August 2018

In this case the closure of an undertaking for a period of 5 months did not have the effect of preventing a transfer under the Acquired Rights Directive.

The Facts

CS was music teacher employed by a music school. The School was initially operated by a local authority but from 1997, after its operation was put out to tender, until 31 March 2013, it was operated by ME.  ME managed the premises, the facilities and instruments and took on the staff.  It operated the School on behalf of the local authority and was paid by them. There was a commercial dispute in 2013 which led to the local authority ceasing to pay ME in February 2013. As a consequence, on the 27 March 2013 ME dismissed all of the staff and closed the School with effect from the 31 March 2013. It returned the premises, instruments and facilities to the local authority. In August 2013 another contractor, In Pulso Musical, took over the school and commenced the operation of the School in September 2013 and continued to operate the School for the academic years 2013/14 to 2015/16.

CS claimed there was transfer of his employment from ME to In Pulso Musical.  The Spanish High Court referred to the CJEU the question of whether there was a transfer where the activity ceased with effect from the 1 April 2013, two months before the end of the academic year 2012/13, and recommenced in in September 2013 at the start of the the new academic year 2013/14.

 

The CJEU Judgment

The CJEU held that there was a transfer. In doing so it restated the well-known principles for determining whether there is a transfer of an undertaking, in particular:

  • There is transfer when there is a change in the legal or natural person carrying out the undertaking; whether or not the ownership of tangible assets transfer.
  • The decisive criterion is whether the entity retains its identity as indicated by the fact that inter alia the operation is actually continued or resumed.
  • To determine whether that condition is met, it is necessary to consider all the facts characterising the transaction concerned, including the type of undertaking or business concerned, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. An overall assessment of all of the circumstances must be considered.
  • The degree of importance attached to each criterion will vary depending on the activity.
  • Where the activity is based essentially on manpower, the identity of an economic entity cannot be retained if the majority of its employees are not taken on by the alleged transferee.
  • However, in a sector where the activity is based essentially on equipment, the failure of the new contractor to take over the staff which its predecessor employed to perform the same activity is not sufficient to preclude the existence of a transfer of an entity which retains its identity

 

Applying those principles to this case the CJEU observed:

  • The local authority made available to the new contractor all the material resources which it had assigned to the former contractor.
  • As the activity was not an activity based essentially on manpower, the fact that they did not transfer was not determinative.
  • The fact that the ownership of assets did not transfer from one contractor to another was also not determinative.
  • Although the closure of the School for a temporary period was a factor to be taken into account, this was not determinative in a case where three months of the closure was during school holidays and the incoming contractor commenced the activity at the start of the new academic year.
  • Whether there was a transfer was matter for the national court to decide but it was not precluded by the 5 months cessation of activities in this case.

Comment

The underlying facts would have fulfilled a service provision change under TUPE. This does not exist in Spanish law nor under the Directive and that is why the CJEU looked at the matter from first principles. The central issue in the case (cessation of the operation of the undertaking or service for a period of time) is of importance to any kind of transfer

Link to CJEU judgment

February 22, 2018
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London Care Ltd v Henry EAT – 21 February 2018

This case is an illustration of the importance of identifying the pre-transfer ‘activities’ in a service provision change under Reg. 3(1)(b).

 The Facts

The case concerned the provision of adult care packages.  S provided residential services for the Council up to 2012. After 2012 it did so under a framework agreement with other providers but remained the major provider.

As at July 2016 S provided 168 care packages to service users. It divided up the geographical area covered by the contract with the Council into 4 districts. East 1, East 2, West and Central so that service users would tend to have the same carers visiting their home.  By the date of the transfer each care package lasted on average 9 months.  S terminated the contract in July 2016.

The Council proposed that 4 transferees would undertake the work that S had undertaken; PC, LC, KE and CW. The Council decided to allocate care packages to each of the providers based on post code (i.e. it did not follow the district allocation of S). In some cases all a carers’ work went to one of the new providers. In other cases that work was split between more than one of the new providers. S decided that if one provider had more than 50% of the work of a carer it would allocate the carer to that new provider.

The ET Judgment

The parties could not agree what the activity was.

The employees said the provision of adult homecare to individual service users, or clients, pursuant to spot contracts (i.e. standalone separate contracts for each service user), in accordance with individual service delivery agreements known as Care Plans.

S said the activity was the provision of a package of care to a number of service users within the Borough.

CW said the activity was the provision of the Adult Social Care Services but that the identity of the client on whose behalf of whom the services were carried out was not clear.

LC said that the determination of the identity of the clients for the purposes of Reg. 3(1)(b)(ii) must precede a determination of whether the conditions of Reg. 3(1)(b) and Reg 3(3A)(1) are met. It suggested three possibilities of the Council as client, the individual service user as a client, and both the Council and individual service users as client in combination. The activities was in general terms the provision of adult home care to individual service users.

The EJ held that the client was the Council. The relevant activity was the provision of adult homecare to individual service users in accordance with the care plans to a number of service users.

The effect was that the employees transferred to new providers as transferees.

The EAT Judgment

Two transferees appealed. Their case was that this was a fragmentation case and no employees should have transferred.  They also appealed on the basis the judge erred on the issue of organised grouping.

The EAT (Supperstone J) allowing the appeal held:

  • That the EJ had not reached a clear conclusion as to what the activity was. She had rejected the argument that each care plan was an individual contract but beyond that it was not clear whether she held that the activity consisted of the entire contract with the Council, or a subset of it.
  • Fragmentation was an issue that should have been considered at the point the EJ considered whether the activities carried on by the subsequent contractor after the relevant date were fundamentally or essentially the same as those carried on by the original contractor. Here this issue was considered when considering whether there was an organised grouping. That was an error.
  • In rejecting the case for fragmentation, the EJ had held that the re-allocation of service users was based on postcodes. However, there was no evidence that one contractor took on the majority of the work; and in relation to a number of employees it was difficult to establish where the employment should transfer given that various service users went to different contractors. Whilst S’s work generally was organised on a regional basis, post-termination the Council-funded work was divided on the basis of both capacity and postcode.
  • The EJ erred on the issue of organised grouping. She had made no finding as to whether such a grouping existed, whether it was deliberately formed and if so that was deliberate or conscious.

Link to judgment