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)).
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.
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.
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)