This case addresses the issue of whether the undertaking or part of an undertaking must exist as an economic entity before the transfer or whether it is sufficient that it becomes an economic entity on transfer.
Southwark LB engaged B as building contractors in its area from April 1996 to April 1999. In April 1999 it put the works out to tender and in doing so partitioned the area into Area 1 and Area 2. F won the tender for Area 2. There was no transfer of assets by B to F. The activity of F in Area 2 continued to be the same as the activity previously carried out by B under the contract prior to April 1999. F refused to take the employees of B on, contending that there was no relevant transfer of an undertaking and that TUPE did not apply. B contended that TUPE did apply to Area 2 and therefore refused to accept that any of the claimant employees continued to work for it after 8 April 1999. The ET held there was a transfer of part of an undertaking.
Court of Appeal
F contended that the subject matter of the relevant transfer must be, in the hands of the transferor, an identifiable, pre-existing “stable economic entity”. An economic entity is a concept distinct from (a) the activity actually carried out by the undertaking and (b) the undertaking, which may comprise more than one identifiable economic entity. It is necessary to identify the “economic entity” in the hands of the transferor, which is capable of being transferred, before it can be determined whether that entity has
retained its identity in the hands of the transferee and has been transferred. If the undertaking, or part of the undertaking, does not amount to a stable, identifiable “economic entity,” then there is nothing capable of being transferred within the meaning of the Directive or TUPE.
Mummery LJ disagreed. He held that the Directive and TUPE are capable of applying to the transfer of “part of an undertaking,” as well as to the transfer of an entire undertaking. A part of an undertaking is simply something less than the whole of an undertaking. Neither the legislation nor the case law expressly requires that the particular part transferred should itself, before the date of the transfer, exist as a discrete and identifiable stable economic entity.It was sufficient if a part of the larger stable economic entity became identified for the first time as a separate economic entity on the occasion of the transfer separating a part from the whole.
Mummery LJ also made the point that if it is possible to identify part of an undertaking as a discrete economic entity before the transfer takes place, the claimant will find it easier to satisfy both the “transfer” test that the part transferred retains its identity in the hands of the transferee, and the requirement that he was employed, immediately before the transfer, in the part transferred. But he did not agree that, in the absence of a part which is identifiable as a discrete economic entity before the transfer takes place, there can be no transfer of a part or that it will be impossible for the claimant to establish that there was a transfer of the part of the undertaking in which he was employed