TUPE

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Nicholls v London Borough of Croydon EAT – 23 August 2018

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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 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).

Fourthly, 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).

Fifthly, 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).

Sixthly, 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).

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

Eighthly, 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.

Ninthly, 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

 

 

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