Recent Posts - TUPE

March 11, 2016
by Jeffrey
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Arch Initiatives v Greater Manchester West Mental Health NHS Trust EAT – 10 March 2016

Although there are a number of factually specific issues in this appeal there is one clear issue of law which is not insignificant and it is this:

In a Reg 3(1)(b) Service Provision Change (SPC) is it necessary for the whole of the service to transfer or can there by an SPC where only part of the service transfers because it has been split into different functions?

The Facts

The Council contracted out drug and alcohol services to the Trust. The Trust employed the claimants in the Drug and Alcohol Directorate. The Council decided to retender the service with effect from 1 January 2013. The service was split into 5 lots. Lot 1 was concerned with assessment, recovery planning and management. Lots 2 to 5 were concerned with delivery of different kinds of intervention. The successful applicant for Lot 1 would not be awarded any of the other Lots. Therefore the retendering exercise divided the service into two functions. Lifeline won lots 2 to 5, the delivery function. Arch won Lot 1, the management function. Arch refused to take any employees on after the transfer and the employees claimed unfair dismissal.

The ET Decision

Contrary to the submissions of Arch, the ET held that all of the claimants (save for a Mrs A) were involved in management and they were an organised grouping that transferred to Arch. Mrs A was also involved in management but she was a separate single organised grouping.

The EAT decision

Arch appealed on a number of grounds. Of particular interest is ground 2 which was that it was an error for law for the Tribunal to determine that there could be an SPC where the activities undertaken by the Trust were split into two separate functions (management and delivery). Arch made the following points:

1. Although under Reg 3(1) (old style business transfers) there can be the transfer of part of an undertaking, the SPC regime makes no such provision. This was clear from Reg 3(2A) which, having codified Metropolitan Resources, provided that the activities before and after the transfer had to be ‘fundamentally the same’. Activities in this context equated to ‘service’.

2. Although there can be more than one transferee (see Kimberley) this is only permissible if the activities which are undertaken before the transfer are replicated after the transfer, albeit they may be quantitatively different. It is not permissible where the constituent elements of the service are split along functional lines. The simple purpose of the SPC regime is that employees go with the work (see Eddie Stobart Ltd) is preserved. If the work is split in a way that means two or more parts of a former service are transferred, the SPC regime does not apply. To apply it in those circumstances would run contrary to its very purpose.

The EAT (Simler P) rejected these submissions. She held:

1. Reg 3(1)(b)(ii) identifies an SPC as a situation in which “activities” cease to be carried out by the outgoing provider and are carried out instead by another person. The word “activities” is not defined, and nor is it qualified in any way by words that could have been used to qualify it. For example, the provision could have said “the activities”, “all of the activities” or “the principal activities”. There is nothing in the Regulations that expressly requires that the relevant activities should constitute “all of the activities” carried out by the outgoing contractor.

2. There is no justification for substituting or equating the word “activities” with the word “service”. That could have been done, but it was not. The fact that the service that is subject to an SPC can comprise “activities” connotes that the relevant activates in a particular case may be a subset of the whole of the activities carried out by the transferor.

3. The restriction on the ambit of SPCs is found in Reg 3(3). Of particular relevance is the requirement that immediately before the relevant date there must be an organised grouping of employees that has as its principal purpose the carrying out of the activities concerned on behalf of the client. In other words, not only must the activities be fundamentally the same both before and after the putative transfer date, but there must be an organised grouping of employees, and that organised grouping of employees must have as its principal purpose the carrying out of the activities that cease and are carried out instead by the incoming person.

4. There is no reason why the SPC provisions should not in principle apply in a case involving a division on functional lines. The ways in which the activities of a service may be organised are infinitely variable. They may be organised geographically, in teams, in departments or by reference to particular functions or processes.

5. It is commonplace for contract awarding bodies to split a service into different components or functions when re-tendering, each of which is assigned to a different incoming contractor. Whether or not the SPC provisions in fact apply in any of these circumstances will depend on the application of the particular conditions within the SPC regime to the facts of the particular case. A split or change in activities is plainly a relevant consideration in assessing whether the activities cease in relation to the outgoing contractor and whether fundamentally the same activities are carried on by the incoming contractor for the same client, but at the end of the day in each case the question is one of fact and degree

6. Once a Tribunal has decided that there is a sufficient degree of similarity between the activities of the service in the hands of the putative transferee as compared with those in the hands of the transferor before the putative transfer, then the question will be whether before the change there existed an organised grouping of employees whose principal purpose was the carrying out of the activities for the client. That, again, will be a question of fact and degree, and there is no reason in principle to limit the number of organised groupings of employees to one in any SPC case.

Link to Judgment

Comment

As the EAT emphasises on a number of occasions in the judgment whether there is an SPC is often a question of fact and degree. It is not uncommon for a service to be redesigned so that the tendered service post transfer is different than the pre transfer service because some part of the service is no longer required or because there is some additional requirement. This often has the effect that there is no SPC. The decision in this case is not concerned with this sort of issue but with the position where the service is split and there is an organised grouping whose principal purpose is the carrying out of one of the functions (i.e. the activities) of the divided service.

February 10, 2016
by Jeffrey
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Mustafa v Trek Highway Services EAT – 29 January 2016

This case was an appeal essentially on the facts, however, it is useful because the EAT (Simler P) has summarised and reminded us of some important principles on the following subjects:

Transfer of an economic entity (Reg 3(1)(a)).
Whether the interval between cessation of the activity and its recommencement prevents TUPE applying.
The organised grouping (Reg 3 and Reg 4).
Task of short term duration (Reg 3(3)(a)(ii)).
Retention of identity where no employees transferred (Reg 3(1)(a)).

The Facts

A was the main contractor to TFL for highway maintenance in North London. In November 2011 it sub-contracted the traffic management element of the contract to T. The region was split into North East and North West London and T serviced both. The claimants transferred from A to T and worked in North East traffic management. In 2013 TFL put the main contract out to tender. North East London went to RJ and North West went to FMC.

In early March 2013, before the putative transfer a dispute arose between A and T which resulted in A ceasing to pay T. T sent its workforce home and the employees were told to wait to be contacted. On the 20 March 2013 the dispute was resolved and by agreement T’s contract with A terminated. T informed its workers in the North East Region that they would transfer to A with effect from the 21 March. On the 26 March T went into administration. A refused to accept that Ts workers had transferred to it as did RJ.

The ET decision

The ET held that there was no relevant transfer from T to A and no subsequent transfer from A to RJ or to FMC. There was also no direct transfer from A to RJ or FMC whether by way of the transfer of an economic entity (old style transfer) or whether by way of a service provision change (SPC). The ET also held the claimants were not dismissed immediately before any transfer having been dismissed on the 20 March 2013.

The EAT decision

The claimants appealed against the ET’s findings that:

there was no relevant transfer of an economic entity that retained its identity from T to A
there was no service provision change (SPC) from T to A;
there was no relevant transfer of an economic entity that retained its identity from T to RJ;
there was no service provision change from T to RJ.

The EAT allowed the appeal. In doing so it made the following observations:

(i) On the transfer of an economic entity (Reg 3(1)(a))

At para 19: Although there is a degree of overlap, the two questions set out in Cheesman, (i.e is there an undertaking and has there been a transfer), should be dealt with separately save in cases where one or other of the answers is so obvious that it barely needs consideration.

(ii) On a time interval between the cessation of the activity and its recommencement

The ET had held that by the 21 March when the dispute between A and T had been resolved no work had been undertaken by T’s employees from the 8 March. The ET distinguished Landsorganisation Danmark v Ny Molle Kro and Wood v Caledon Social Club Ltd on the basis that in those cases the economic entity was temporarily suspended whereas in this case A carried on the service using other contractors whilst it was in dispute with T and therefore there was no temporary suspension. Further the ET held that the consequence of T ceasing to undertake the work on the 8 March was to, in effect, destroy the economic entity.

The EAT, at paras 31 to 33, held this was an error. The suspension of activities was only one factor in the overall consideration of whether the identity of the economic entity had been destroyed. The judge erroneously equated the activity being undertaken with the economic entity. The ET had made no findings to suggest that the entity did not continue in existence in the form of the dedicated staff, vehicles, equipment and importantly, the sub-contract between A and T. There are no findings to suggest that the activities could not have been resumed immediately if the dispute between T and A had been concluded with that outcome. The fact that A’s obligation to provide the traffic management service continued, and was discharged by A by alternative means until 1 April, did not mean that there was no suspension of Ts traffic management service. T had temporarily ceased to undertake the activities but that did not mean the economic entity lost its identity.

(iii) On the issue of an organised grouping (Reg 3 and Reg 4)

The ET held that there was no organised grouping by the putative transfer dated, the 21 March, because by that time they were no longer doing the work and some had left T’s employment or were planning to do so

The EAT held at paras 40 and 41 that this was an error. Applying on Inex Home Improvements Limited v Hodgkins there was nothing that required the organised grouping to be undertaking the activities immediately before the SPC. It is a question of fact and degree in each case whether identity is retained.

(iv) On the issue of a task of short term duration (Reg 3(3)(a)(ii))

The ET also held that when A took over T’s activities this was task of short term duration of albeit one of which TFL were unaware.

The EAT held at para 49 that this was an error. The ET inferred an intention on the part of TFL that A’s involvement would be of short term duration. But the question to be considered under Reg 3(3) was not whether TFL intended A’s involvement to be of short-term duration. The question was whether the task itself was intended to be of short-term duration. That question was not addressed.

(v) On the retention of identity where no employees transferred (Reg 3(1)(a))

The ET determined that it could ‘put to one side the employees’ when considering the question of retention of identity.

The EAT held, at paras 67 to 68 that this was an error. On any view, T’s employees were a critical part of the organised grouping of resources dedicated to delivering the traffic management service, even if during this interval, they were not working or performing activities required to deliver the service. The employees should accordingly have been considered, albeit in that context. To fail to do so was to ignore a materially relevant consideration. To the extent that the ET ignored the employees because none transferred there was a failure by it to address the question of why RJ did not take over the employees assigned to the North-East part of the contract: (ADI (UK) v Willer and RCO Support Services Ltd v UNISON).

It was incumbent on the ET to examine RJ’s reasons for not taking on employees undoubtedly assigned to the North-East region, to determine whether those reasons reflected an intention to avoid a transfer or an erroneous view that TUPE did not apply. There was strong evidence in the ET’s findings of a motive from the outset for RJ to avoid the application of TUPE. RJ’s somewhat opportunistic stance in relation to the commercial dispute should have been examined in light of all the circumstances and the history of its approach.

Further the ET had erroneously regarded as a relevant consideration, the fact that RJ did not itself employ specialist traffic management operatives. That was irrelevant. The fact that a transferee chooses to integrate an economic entity into its own operations after a transfer, so that the entity does not retain an autonomous organizational structure, does not prevent the Acquired Rights Directive (or TUPE) applying. (See Klarenberg v Ferrotron Technologies GmbH and Ferreira da Silva e Brito v Estado Portugues). What matters is whether a functional link between the elements of production transferred is preserved; and that functional link allows the transferee to use them, even if they are integrated in a new and different organisational structure after the transfer, to pursue an identical or analogous economic activity. The question to be addressed was not whether RJ would choose to organise the delivery of that service in precisely the same way as it had previously been organised, but whether RJ would pursue identical or analogous activities using elements of production that transferred or should be deemed to have transferred.

Comment

In addition to the points mentioned above, significantly, Simler P, supported the purposive construction of Reg 3(3) as applied in Inex a point which I consider is not free from doubt (see my comments on this point here)

Link to judgment

January 22, 2016
by Jeffrey
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Mist v Derby Community Health Services NHS Trust EAT – 22 January 2016

Although a number of issues relating to TUPE were considered in this case the most significant issue, and one which will have wider application, is that the EAT held that it was not necessary for a Claimant to comply with the Early Conciliation Procedure when applying to amend an existing claim to join a Respondent. In this case the claim was issued against the transferor and a subsequent application was made to join the transferee.

Facts

C was employed as a pulmonary rehabilitation instructor for R1; she spent 80% of her time delivering service A, and the rest on service B. In January 2014 R1 lost the tendering process for delivering service A to R2. R2 was to take over the service from 1 April 2014.. C resigned on 10 April 2014 with immediate effect, there being a lack of clarity about the application of TUPE. She brought a claim against R1 for (amongst other things) constructive dismissal relating to Reg 13 TUPE, as well as a claim for failure to inform and consult under TUPE. C received R1’s Response on 26 August 2014 and applied to join R2 as a party on 1 September 2014. C was given permission to add R2 on 4 September 2014 at a preliminary hearing. R2 applied to set aside this order and another PH was held in December 2016 to determine this issue. (For the first time in the appeal R2 took points on the EC procedure including that; although C had obtained ACAS certificates for both respondents, she had not properly identified them, and; the name on the ET1 was different than the name of R1 in in the EC notification.)

The ET decision

The ET held, amongst other things, that:

A transfer had taken place but it could not determine the date of that transfer and liabilities transferred to R2;
Liability for breach of the TUPE consultation requirements transferred entirely to R2; and
C had brought the claim against R2 out of time and it should be struck out.

C appealed the decision striking out her claim against R2.

R2 resisted the appeal and cross-appealed on a number of points including:

That the ET had no jurisdiction to consider the proposed amendment because C had not complied with the mandatory requirements of EC procedure for either Respondent (in incorrectly identifying the parties by their addresses only);
That the ET had erred in finding that R2 was solely liable for any breach of the Reg 13 consultation requirements under Reg 15, but that rather these were joint and several with R1 (C accepted this was correct at the ET had erred in this respect); and
That the ET had erred in finding that a relevant transfer had occurred under Regulation 4 of TUPE without establishing an actual date for that transfer (and that this went to establishing relative hardship).

The EAT decision

The appeal

The EAT (HHJ Eady QC) allowed the appeal and held that the decision to set aside the order joining R2/striking out the claim against R2 was perverse.

The cross-appeal

The EAT rejected the first ground of cross-appeal relating to EC procedure. It held:

As ACAS had accepted the EC notification, any error in the name of R1 irrelevant as acceptance by ACAS was conclusive as to C’s compliance with the notification requirements.
As the original claim against R1 had been accepted by the ET it was now too late to appeal the fact that the name on the EC certificate and the name on the ET1 were, in a very minor way, different. Also R2 could not go behind the ETs acceptance of the claim.
The error in the name of R2 in the EC notification did not matter because C was not required to comply with EC procedure with regard to R2 since it only applied to ‘prospective’ claimants, and by this stage C had already presented her claim form.

The EAT allowed the other two grounds of cross appeal:

It found, as was accepted by C, that the ET had been wrong to conclude that the liability under Regulation 15 of TUPE lay solely with R2, and that this was a relevant consideration when assessing the relative hardship to the parties in assessing whether to allow an amendment to join R2 out of time.
The ET had erred in making finding that C’s employment had transferred in circumstances where it had not determined whether C was employed immediately before the transfer or would have been so employed had she not been dismissed without having determined the date of transfer first, particularly as this also went to the question of relative hardship (i.e. if there had been no transfer.

Link to EAT judgment

December 22, 2015
by Jeffrey
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TUPE: REVIEW OF 2015

There have been a number of significant developments and refinements in TUPE case law in 2015.

Meaning of ‘client’

One significant development concerned the issue of who is a client under Reg 3(1)(b). It was generally understood that there could only be one client in a service provision change (SPC). HHJ Eady QC in Ottimo Property Services v Duncan held that was not the case and provided that; the clients remained the same before and after a transfer, they retained the same identity, and, crucially, had a commonality of interest, there could be more than one client. This has potentially significant implications widening the scope of contractual arrangements which may fall within the SPC provisions.

Meaning of ‘contractor’

In Jinks v Havering LB the EAT held that it was not necessary for the contractor to be in a direct contractual relationship with the client for there to be an SPC. The issue was determined by asking on whose behalf was the service being carried out? In some cases this may mean that the services was being carried out on behalf of the client even though there was no direct contractual relationship between the contractor and client.

Disciplinary Action and TUPE

Two cases explored the interaction of TUPE and disciplinary proceedings. In Salmon v Castlebeck Care Ltd the employee was dismissed before the transfer but a successful appeal was held after the transfer. Langstaff P held that as the effect of a successful appeal is to retrospectively revive the contract of employment it follows that the employee was employed as at the date of transfer and therefore transferred to the transferee.

In Jakowlew v Nestor Primecare Services, the employee was suspended some months before the service was due to transfer to another contractor. The client did not want the suspended employee to transfer to the new contractor and about 10 days before the transfer raised this with her employer, the transferor. The transferor resisted this. Three days before the transfer the employee was disciplined and her suspension lifted. An issue arose as to whether she had transferred to the incoming contractor. It was held that she had transferred because as at the date of the transfer her employer, the transferor, had not accepted the client’s demand to remove her from the contract and also because the disciplinary proceedings had concluded.

Sickness absence and TUPE

In BT Managed Services Ltd v Edwards the EAT gave guidance on how to determine whether an employee who is on sickness absence at the date of transfer is assigned to the part of the business that transferred. It held that the issue is not always resolved by asking the question, which entity would the employee be required to work in if he returned to work? Where an employee is unlikely to return to work in the foreseeable future that question is not necessarily relevant. Rather, it is necessary to consider how the organised grouping is identified and enquire whether there is a link between that and the employee. If the grouping is defined by reference to a particular economic activity, the absence of any participation in that activity will almost, by definition, exclude a person on long term sickness absence who is unlikely to return to work.

No transfer where the employer remains the same before and after transfer

Hyde Housing Assoc Ltd v Layton held that there can be no transfer whether the employer is both the transferor and the transferee. In that case the employer was the transferor and also part of consortium making up the transferee.

There is a transfer where the major shareholder takes over an ailing business

In Ferreira da Silva v Estado Portugues an airline charter business went into insolvency. Its major shareholder took on some of the flight schedules using some of the aircraft and paying charges under leasing contracts. It also took over some office equipment and former employees of the charterer. The ECJ, unsurprisingly, held there was a transfer.

Should a purposive construction be applied to the SPC provisions?

In Inex Home Improvements Ltd v Hodgkins the EAT applied a purposive construction to Reg 3(1)(b). This is unlikely to be the final word on this point because it appears to be in conflict with the views of the Court of Appeal expressed in Hunter v McCarrick.

TUPE and the Burden of Proof

In Marshall v Game Retail Ltd the EAT consider the burden of proof in TUPE cases. A dismissal because of the transfer is automatically unfair. The same approach to the burden of proof as applies in other automatic unfair dismissal cases applies (as set out Kuzel). The claimant has to adduce some evidence to support his case that he was dismissed because of the transfer. If he does so the Respondent then as to prove that the reason or principal reason for the dismissal was a different reason. If the respondent does not do so then it is open to the tribunal to find that the reason was that advanced by the Claimant.

And finally…

There was one Court of Appeal case principally concerned with TUPE this year, Rynda (UK) Ltd v Rhijnsburger . In this case guidance was given on how to approach the issues in SPCs. For reasons expressed in my post on this case, the earlier guidance of the EAT in Enterprise Management is probably more useful.

Thank you to the surprisingly large number of readers of this blog – and best wishes for Christmas and the New Year.

November 27, 2015
by Jeffrey
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ICTS UK Limited v Mahdi EAT – 26 November 2015

By Reg 3(3), a pre-condition of a Service Provision Change under Reg 3(1)(b) is that the client ‘intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration‘. This case is concerned with how that ‘intention’ is proved. In particular whether events after the date of transfer are relevant to determine this issue.

The Facts

ICTS provided security at a university campus. The campus was closed in 2012 but ICTS continued to provide security for the vacant site. AUCMS purchased the site in July 2013 with the intention of redeveloping it. Between July 2013 and November 2013 ICTS provided security at the request of AUCMS. With effect from 11 November 2013 AUCMS appointed another company, First Call, to provide security.

ICTS asserted that the employees engaged in the security of the site should transfer to First Call. First Call refused and said that they should not. First Call’s argument was essentially that: (i) whereas ICTS had been contracted to provide security for a university campus First Call were contracted to provide security for a construction site. (ii) That First Call’s contract was to provide security for 3 months and thereafter until completion of the refurbishment.

ET Judgment

The ET held that the activities of ICTS and First Call were substantially the same before and after the 11 November 2013 and therefore subject to the question of AUCMS’s intention there would be a transfer. In determining the issue of intention the ET held that it could not look at events after the transfer to determine the position before the transfer. The EJ inferred that, as the site was going to be refurbished or that security would be required only until building contractors commenced work, it was AUCMS’s intention that the task would of a short term duration. As at the date of the hearing in September 2014 there was unchallenged evidence that no planning permission had been obtained and no building work had commenced.

EAT Judgment

ICTS appealed, inter alia, on the ground that the ET should have considered evidence of what occurred after the transfer,

On this ground EAT (HHJ Shanks) held that evidence of subsequent events can be taken into account. He stated that did not read HHJ Eady QC as saying anything different when she said in Horizon v Ndeze at [52] “…I consider that the Employment Judge erred in taking into account an irrelevant fact, i.e. what was happening at the time of the Employment Tribunal hearing. That was not the question. The relevant question was: what was the client’s intention at the date of the purported service provision change?”

HHJ Shanks put the matter in this way at [13]:

“In deciding such a question of fact it is almost invariably necessary for an Employment Tribunal (like any other Tribunal) to draw an inference from all the relevant surrounding circumstances presented to it. Such circumstances can obviously include contemporaneous expressions of intent and actions by the relevant party or its agents; but they can also include what the party says or does not say after the relevant event, in particular in response to the forensic process; and in my judgment there is no reason why they cannot also include subsequent events (or non-events), provided of course that those events are capable of casting light on the intention of the relevant party at the relevant date, and that the fact-finder bears in mind that the ultimate issue to be decided is intention and not outcome. As Judge Richardson observes in his sift reasons, juries asked to make findings about a party’s intentions in criminal trials are directed along these lines all the time.”

Link to judgment

Comment

Although at first blush it might appear that this case and Ndeze are something different on the important issue of intention under Reg 3(3). However, it is possible to read them consistently. HHJ Eadie QC in Ndeze was identifying, correctly, that what is happening at the date of the tribunal is irrelevant in the sense that just because a task has continued until the date of the Tribunal tells you nothing about the client’s intention at the date of transfer. However, what HHJ Shanks is essentially saying is that evidence after the date of transfer of what was has discussed or documented or recorded or done or not done may well cast light on the client’s true intention at the date of transfer.

November 16, 2015
by Jeffrey
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Hyde Housing Association Ltd and Others v Layton EAT – 11 September 2015

The central issue in this case is whether there is a Reg 3(1)(a) transfer if an employee moves from an employment contract with a single employer to one with multiple employers, including the original employer.

Background Facts

C had been employed by Martlet Homes Ltd (‘Martlet’) from January 2005 as a multi-skilled decorator. On 1 January 2008, Martlet joined the Hyde Group and became a subsidiary of Hyde Housing Association Ltd (‘HHA’), itself part of the Hyde Group. Martlet began trading as ‘Hyde Martlet’, through the operation division of Martlet Build. The Hyde Group was responsible for centralised HR, including payroll; from August 2008 C was paid by HHA.

As part of a restructuring process which would take effect from 1 August 2013, in July 2013 the Hyde Group offered C a new role, in which he would be employed directly by the Hyde Group (meaning he would be jointly and severally employed by all members of the Hyde Group at any time, including Martlet). C subsequently brought an unfair dismissal claim.

ET Decision

The ET held that a relevant transfer had taken place on 1 August 2013, since:

There was an economic entity within the meaning of Reg 3(2), which retained its identity after this date;
Having multiple transferees did not preclude a transfer under Reg 3(1)(a); and
It did not matter that the transferor was also one of the transferees.

Hyde appealed the decision that there had been a relevant transfer for the purposes of Reg 3(1)(a).

EAT Decision

The EAT (HHJ Eady QC) held:

The ET was correct to decide that a transfer to which TUPE applied could include one in which there were multiple transferees, ‘provided such a transfer does not result in such fragmentation of the entity as to mean it loses its identity’.
However, a TUPE transfer does not exist where one of the employers is both transferor and transferee, and the original employer remains liable for C’s employment.

The EAT therefore allowed the appeal and substituted the ET’s decision for a finding that no relevant transfer had taken place.

Comment

In allowing the appeal, the EAT considered the construction of Reg 3(1)(a) in light of the 1977 Acquired Rights Directive, Arts 1 and 2 the 2001 Directive and the 1981 TUPE regulations. It concluded intention of the legislation was that the transferor and transferee to be separate entities.

HHJ Eady QC also noted the ARD’s protection had deliberately not been extended to cases where ‘the employee’s legal position vis-à-vis the employer was unchanged’. This policy decision was in her view the most significant principle in reaching the decision. As Martlet still retained legal liability for C’s employment (albeit jointly and severally) there could be no valid transfer.

Link to judgment

October 1, 2015
by Jeffrey
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Inex Home Improvements Limited v Hodgkins EAT – 28 September 2015

It has long been the case that under a traditional Reg 3(1)(a) transfer a temporary cessation of work did not prevent employees assigned to the organised grouping from transferring. (see P Bork International Bork international A/S v Foreningen AF Arbedjdsledere I Danmark and Fairhurst Ward Abbots Ltd v Botes Building Limited ). This case extends that principle to Reg 3(1)(b) service provision changes (‘SPC’).

The Facts

Inex were sub-contractors to Thomas Vale. In November the work being undertaken on a particular sub- contract ceased. It was expected that the work would recommence in January 2013. There was a temporary lay-off of the Inex employees in November and December pursuant to the guidance under the Construction Industry Joint Council CIJC Working Rule Agreement. During the temporary cessation of work Inex and Thomas Vale fell out with the result that the next tranche of the contract was given by Thomas Vale to a new sub-contractor, Localrun. Localrun commenced the contract but did not take on the Inex employees.

The ET Judgment

The EAT held that here was an SPC but when Localrun took on the contract, in early January 2013, there was no organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client as required by Reg 3(3)(i). This was because once they were laid off on the temporary cessation of the activity the employees were no longer part of an organised grouping.

The EAT Judgment

The EAT HHJ Serota QC held:

(i) A temporary absence from work or a temporary cessation of work did not deprive employees who had been engaged in the relevant activities of their status as an organised grouping

(ii) Whether they remained an organised grouping was a question of fact dependent on the purpose of the lay of and its length and surrounding circumstances.

(iii) The principles applied by the ECJ to old style transfers under the Directive should be adopted.

(iv) A purposive construction should be given to TUPE which was to provide protection for employees of the original contractor.

Comment

An interesting feature of this case is the EAT’s willingness to apply a purposive approach to Reg 3(1)(b). There is a clear divide in the EAT on this issue. Slade J in Gormanley v Hillingdon LBC, in accordance with the approach of the ECJ in Botzen, applied a purposive construction to the meaning of ‘assigned’. By contrast in Hunter v McCarrick, Eddie Stobart v Moreman and Horizon Securities v Ndeze the EAT was clear that in SPC cases a purposive approach is impermissible.

The approach in Gormanley is easy to understand because the concept of assignment is common to both Reg 3(1)(a) and Reg 3(1)(b) transfers and arguably does not conflict with the earlier authorities. The approach in this case is more difficult because the purposive approach has been applied when determining whether the conditions in Reg 3(3), which relate, only to SPCs are satisfied. On the face of it this decision appears to conflict with the view of the Court of Appeal in Hunter v McCarrick held:

There may be issues where a purposive interpretation is appropriate with respect to service transfer provisions and where the courts should approach matters as they would similar issues relating to transfers of undertakings. For example, it may be necessary not to be too pedantic with respect to the question whether the activities carried on before and after the transfer are sufficiently similar to amount to the same service; or to take a broad approach to the question whether an employee is employed in the service transferred: … But … there is no room for a purposive construction with respect to the scope of regulation 3(1)(b) itself. So far as that is concerned, there is in my view no conflict between a straightforward construction and a purposive one: the natural construction gives effect to the draftsman’s purpose. There are no underlying EU provisions against which the statute has to be measured. The concept of a change of service provision is not complex and there is no reason to think that the language does not accurately define the range of situations which the draftsman intended to fall within the scope of this purely domestic protection.

True it is that this case is concerned with Reg 3(3) rather than Reg 3(1)(b) which was specifically mentioned by the Court of Appeal, however, Reg 3(3) is concerned purely with SPCs and is one of the conditions necessary for Reg 3(1)(b) to apply. It does not appear from the EAT judgment that Hunter was cited to it.

Link to EAT Judgment

September 13, 2015
by Jeffrey
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Ferreira da Silva v Estado Português ECJ – 9 September 2015

In this case three questions were referred to the ECJ by the Lisbon High Court. The second and third questions concerned the circumstances in which a national court is required to make a reference to the ECJ, the first however concerns the Acquired Rights Directive (‘the Directive’) and it is this with which this post is concerned.

The Issue

Does the concept of the ‘transfer of a business’ within Art 1(1) of the Directive encompass the situation where an undertaking is wound up by its major shareholder and the major shareholder then takes over significant functions of the business.

The Facts

The facts go back to 1993. In February 1993, AIA, a non scheduled airline charter business in the air transport sector, was wound up. The employees were dismissed pursuant to a collective redundancy. From the 1 May 1993, TAP, the main shareholder AIA, began to operate some of the flights that AIA had contracted to operate. It also operated a number of charter flights. In doing so TAP used four aeroplanes which AIA had used, TAP also assumed responsibility for payment of charges under leasing contracts related to those aircraft. TAP took over office equipment which belonged to AIA in Lisbon and Faro as well as other moveable property. It also took on some former AIA employees.

The redundant employees brought proceedings in the Lisbon Employment Tribunal claiming there was a transfer and seeking reinstatement. In 2007 they succeeded. The Lisbon ET determined that there was the transfer of part of business that had retained its identity and its activities had continued.

TAP successfully appealed to the Lisbon Court of Appeal and the employees then appealed to the Supreme Court of Portugal. The Supreme Court of Portugal held that there was no transfer. It held that the fact that a commercial activity is ‘merely continued’ is not sufficient to support the conclusion that there has been a transfer of a business, since the identity of the business must also be retained. As TAP did not use an entity with the same identity as that belonging to AIA, no transfer could have occurred, this was because the entities concerned were not identical in structure and organisation. Further no customers had transferred because on the facts AIA’s business was linked to one specific asset, namely, a licence which was no transferable.

The Supreme Court of Portugal refused to make a reference to the ECJ saying EU law on this issue was reasonably clear and free from doubt (acte clair). The second and third questions considered by the ECJ relate to this refusal to make a reference. (In short, the employees brought a further claim in Portugal against the state on the basis that Supreme Court had plainly misapplied EU law and Art (1) of the Directive – this resulted in the eventual reference to the ECJ by the Lisbon High Court.)

The ECJ Decision

Unsurprisingly the ECJ (Second Chamber) held that the Supreme Court of Portugal had not properly applied Art 1(1) of the Directive and there was a transfer. However, it gave a useful reminder of the principles relating to the issue of retention of identity in business transfers under the Directive (and hence under Reg 3(1)(a) of TUPE). It held:

Restatement of Principles

(i) Art 1(1) applies wherever, in the context of contractual relations, there is a change in the natural or legal person responsible for carrying on the business who incurs the obligations of an employer towards employees of the undertaking (see Merckx and Neuhuys, C‑171/94 and C‑172/94, paragraph 28; Hernández Vidal and Others, C‑127/96, C‑229/96 and C‑74/97, paragraph 23; and Amatori and Others, C‑458/12, paragraph 29 ).

(ii) The purpose of the Directive is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of that directive is, therefore, the fact that the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (see judgments in Spijkers, C-24/85, paragraphs 11 and 12; Güney-Görres and Demir, C‑232/04 and C‑233/04, paragraph 31 and the case-law cited; and Amatori and Others, C‑458/12, paragraph 30 and the case-law cited).

(iii) In order to determine whether the identity of the business is retained, it is necessary to consider all the facts characterising the transaction concerned, including in particular 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. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see Spijkers, 24/85, paragraph 13; Redmond Stichting, C‑29/91, paragraph 24; Süzen, C‑13/95, paragraph 14; and Abler and Others, C‑340/01, paragraph 33).

(iv) The degree of importance to be attached to each criterion will necessarily vary according to the activity carried on and the production or operating methods employed in the undertaking, business or part of a business (see judgments in Süzen, C‑13/95, paragraph 18; Hernández Vidal and Others, C‑127/96, C‑229/96 and C‑74/97, paragraph 31; Hidalgo and Others, C‑173/96 and C‑247/96, paragraph 31; and, to that effect, UGT-FSP, C‑151/09, paragraph 28).

(v) What is relevant for the purpose of finding that the identity of the transferred entity has been preserved is not the retention of the specific organisation imposed by the undertaking on the various elements of production which are transferred, but rather the retention of the functional link of interdependence and complementarity between those elements. (paragraphs 46 and 47 of Klarenberg (C‑466/07).

(vi) The retention of a functional link of that kind between the various elements transferred allows the transferee to use them — even if they are integrated, after the transfer, in a new and different organisational structure — to pursue an identical or analogous economic activity (see Klarenberg, C‑466/07, paragraph 48).

The decision on the facts

The ECJ held that in a case such as this concerning the air transport sector, the fact that tangible assets are transferred must be regarded as a key factor for the purpose of determining whether there is a ‘transfer of a business’ within the meaning of Art 1(1) (see, to that effect, judgment in Liikenne, C‑172/99, paragraph 39). Here TAP replaced AIA in the aircraft leasing contracts and actually used the aircraft concerned, which demonstrated that it took over assets that were essential for pursuing the activity previously carried on by AIA. In addition, a certain amount of other equipment was taken over.

Other factors also demonstrated that that there as the ‘transfer of a business’ within the meaning of Art 1(1). For example: (i) TAP replaced AIA in the ongoing charter flight contracts with tour operators, which indicated that AIA’s customers were taken over by TAP; (ii) TAP developed charter flight business on routes previously served by AIA, which reflected the fact that TAP was pursuing activities previously carried on by AIA; (iii) employees who had been seconded to AIA were brought back into TAP for the purpose of carrying out identical tasks to those performed within AIA, which indicated that TAP took over some of the staff who worked for AIA, and; (iv) TAP, from 1 May 1993, began operating some of the charter flight business that had been carried on by AIA until its winding up in February 1993, hence there was virtually no suspension of the activities transferred.

The ECJ further held that in those circumstances, the fact that the entity whose assets and a part of whose staff were taken over was integrated into TAP’s structure, without that entity retaining an autonomous organisational structure, is irrelevant for the purposes of applying Art 1(1) as a link was preserved between, on the one hand, the assets and staff transferred to TAP and, on the other, the pursuit of activities previously carried on by the company that had been wound up. Against that background, it was immaterial that the assets concerned were used for operating scheduled flights as well as charter flights, given that the flights in issue were, in any event, air transport operations and that TAP honoured AIA’s contractual obligations with regard to those charter flights.

ECJ Judgment

Link to AG’s opinion

September 10, 2015
by Jeffrey
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BT Managed Services Ltd v Edwards EAT – 2 September 2015

The issue in this case is whether an employee on long term sickness absence is assigned to the organised grouping of employees who transferred under a Reg 3(1)(b) Service Provision Change transfer.

The Facts

The employee, who was employed by BTMS on a domestic network outsource (DNO) contract, was permanently unfit for work with a long term illness. He last worked in 2008. The reason he remained employed was because of a contractual entitlement to ill health benefit payments under a phi policy. This had initially been an insured liability but at the date of the proceedings the period of insurance had been exhausted and the payments were made directly by BTMS (it is unclear from the report whether this was on contractual or ex gratia payment basis). The employee was employed in a part of the business which transferred to Ericsson. The Tribunal found there was no prospect of his returning to work. BTMS sought to argue that he should have transferred to Ericsson.

The ET Judgment

The ET focussed on whether the employees was ‘assigned’ to the organised grouping that transferred. It held that the Claimant had ceased as a matter of fact to be assigned in 2010 and therefore was not assigned as at the date of the transfer on the 1 June 2013. Although his post had not been backfilled and the costs of his employment were accounted for under the DNO contract, he had only remained as part of the DNO team for administrative purposes concerned with the administering of the phi policy.

The EAT Judgment

BTMS appealed on the basis that it was not a requirement that in order be assigned the employee had to contribute to the economic activities of the grouping that was transferred. It was argued that the proper approach was to ask what part of the undertaking would the employee be required to work if he was not absent which, in this case, was the part which transferred. It was also argued that if the employee was not assigned to the DNO contract the ET was required to ask what other part of the organisation he was assigned to.

The EAT dismissed the appeal. It held:

(1) That the question of which entity an employee would be required to work in if he returned to work is not a universal criterion applicable in all cases to determine assignment. This criterion is useful in cases where the employee is likely to be able to return to work in the foreseeable future but not in cases where he is not.

(2) There is a clear link between the identification of the organised grouping and the question of who is assigned to that grouping. If the grouping is defined by reference to a particular economic activity, the absence of any participation in that activity will almost, by definition, exclude persons in the position of the Claimant.

Link to judgment

August 12, 2015
by Jeffrey
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Services for Education (S4E) Limited v White EAT – 11 August 2015

This case concerns the meaning of the expression, ‘the time of the transfer’ within s. 218 of the Employment Rights Act 1996 which provides:

(1) Subject to the provisions of this section, this Chapter relates only to employment by the one employer.

(2) If a trade or business, or an undertaking (whether or not established by or under an Act), is transferred from one person to another—

(a) the period of employment of an employee in the trade or business or undertaking at the time of the transfer counts as a period of employment with the transferee, and

(b) the transfer does not break the continuity of the period of employment.

The Facts

C was a sessional music teacher employed by the Council on a series of contracts corresponding to the academic year. His last contract expired on 31 July 2013. There was an expectation of a fresh contract in September 2013 but not a guarantee. The music services provided by the Council transferred to S4E on 1 September 2013. The transfer process had been extremely protracted and extended for well over a year before finally concluding with the agreement on the 1 September. C commenced working for S4E in September 2013 after the transfer. In due course C brought claims of unfair dismissal and for unpaid holiday pay. S4E’s case was he had insufficient continuity of service.

S4E’s case was that as C’s contract terminated on the 31 July 2013 he was not employed immediately before the transfer and Reg 4 of TUPE did not apply. C’s case was that he was only absent from work because of a temporary cessation of work and his continuity was preserved throughout August 2013 up to the transfer by section 212(3)(b) of the ERA. S4E’s case on this point was that section 218 only applied to employment by one employer and could not apply here because he was not employed by the Council at the time of the transfer.

ET Judgment

The ET held that C been dismissed by the Council on the 31 July 2013. Had he not been dismissed he would have been employed between the 31 July 2013 and the transfer date. His absence from work was due to a temporary cessation of work within the meaning of section 212(3)(b) of the ERA and that he was employed at the time of the transfer under section 218(2).

The EAT Judgment

The EAT (Slade J) held that in deciding whether section 218(2) applied there is a composite question: This is whether the employee has a “period of employment with the employer at the time of the transfer”. This in turn is answered by considering the provisions in Chapter 1 of Part XIV of the ERA which deal with continuity of service.

The EAT held that section 212(3)(b) could not fill the gap between the end of C’s employment on the 31 July 2013 and the transfer. This was not permitted by the wording of section 218(1) which clearly provided that it only applied to employment by one employer. The ET erred in this respect but it was an immaterial error because the latest date that C was employed by the Council was a ‘date during the time of the transfer’ within section 218(2). In reaching this decision the EAT applied Clarke & Tokeley Ltd v Oakes [1999] ICR 276 which held that the expression ‘at the time of the transfer’ did not refer to a specific point in time but rather it referred to the transfer process which may last some time.

The date of the transfer for the purposes of TUPE is not necessarily the same as the time of the transfer for the purposes of s 218. In this case the transfer process predated C’s dismissal by the Council on the 31 July 2013 and therefore he was employed at the time of the transfer.

Link to Judgment

Comment

The distinction between the requirement under TUPE to establish that a transfer occurred on particular date (Celtec v Astley) and the time of the transfer under section 218 of the ERA is best understood by considering that the former is concerned with fixing a date when all rights and liabilities under the employment contract are deemed to transfer, whereas the latter is concerned only with establishing continuity of service.