TUPE: recent cases

Alice Townley Smith of Steeles (Law) LLP begins a series of articles on TUPE with a look at some recent cases. Cases relating to equal pay claims following a TUPE transfer, employer liability and objecting to a transfer are included.

Introduction

The TUPE Regulations protect the rights of employees where an undertaking or business (or part of an undertaking or business) transfers from one employer (the transferor) to another (the transferee). TUPE also covers "service provision changes". TUPE provides that contracts of employment and the employment rights of employees engaged in an undertaking or business immediately before a transfer are automatically transferred to the transferee. The transferee becomes the employer of those employees, who retain the same terms and conditions as before.

TUPE establishes three main concepts:

• Protection against dismissal in connection with a TUPE transfer.
• The automatic transfer principle: the transferee inherits all rights, liabilities and obligations in relation to the transferring employees.
• The obligation to inform and consult representatives of the affected employees.

(See Transfer of undertakings in the XpertHR employment law reference manual for more details on TUPE.)

TUPE is complex and subject to a great deal of case law activity. This article looks at several recent cases that will have a significant impact on how TUPE is construed.

Right to equal pay

Regulation 4 of TUPE provides that, following the transfer of an undertaking, the transferee becomes liable for honouring the contractual terms in place at the time of the transfer, and for any act or omission by the transferor prior to the transfer.

In Sodexo Ltd v Gutridge and others [2008] IRLR 752 EAT, claims were brought by Mrs Gutridge and other female employees, following a TUPE transfer. The employees, who had originally been employed by a NHS Trust, were transferred to a private sector contractor, Sodexo, in July 2001. Five years later they brought equal pay claims, alleging that they had been paid less than male employees who had been employed by the Trust but whose employment had not been transferred to Sodexo, and who continued to work alongside them. They claimed back pay for the previous six years. This meant that their claims covered several months during which they were employed by the Trust rather than Sodexo.

The Employment Appeal Tribunal (EAT) held that claims in relation to the period pre-transfer must be brought within six months of the transfer. This meant that the claims were out of time in relation to this period. However, it also held that the employees were entitled to bring claims against the transferee for continuing to pay unequal pay. Claims in relation to the period post-transfer could be made at any time up to six months after employment with the transferee ended. The employees' claims for the period post-transfer were, therefore, successful.

Liabilities cannot be split between two new employers

In Kimberley Group Housing Ltd v Hambley and others; Angel Services (UK) Ltd v Hambley and others [2008] IRLR 682 EAT, the employees were employed by Leena Homes to work on a Home Office contract to provide accommodation and related services for asylum seekers. Leena Homes lost the contract to two separate contractors, Kimberley Group Housing Ltd and Angel Services (UK) Ltd. Six employees lost their jobs and brought claims for unfair dismissal. The employment tribunal found that there was a service provision change within the meaning of reg. 3(1)(b) of the TUPE Regulations. The tribunal went on to find that liability for the employees' unfair dismissal claims should be apportioned between the two contractors, on a percentage basis, proportionate to the split in activities. Kimberley and Angel appealed.

The EAT overturned the tribunal decision. It concluded that there is nothing in statute or common law that provides for the division of liabilities under an employment contract, between two different employers, on a percentage basis. As a result, liability for the unfair dismissals should not be apportioned and fell on Kimberley as it was the company that had assumed responsibility for the majority of the activities that had transferred.

This is the first guidance on how tribunals should approach situations where a service that was provided by a single contractor is subsequently provided by two or more contractors. It is clear that the contractors cannot be jointly liable for any particular employee. Liability is determined by reference to which part of the operation each employee is principally assigned.

Objecting to a transfer

Regulation 4(7) of the TUPE Regulations provides that a contract will not transfer if an employee informs the transferor or the transferee that he or she objects to becoming employed by the transferee.

In New ISG Ltd v Vernon and others [2008] IRLR 115 HC, Infrastructure Service Group Ltd, a recruiting agency providing workers to the rail industry, went into administration and some of the assets were sold to New ISG Ltd. The identity of the purchaser was not divulged until the day of the transfer and the employees were not subject to the information and consultation process required under TUPE. Two working days after the transfer, the employees resigned and went to work for a competitor. New ISG sought, and was granted, an interim injunction preventing the employees using confidential information, and enforcing contractual restrictive covenants preventing them soliciting or canvassing clients, applicants and temporary workers of New ISG.

The employees argued that, by resigning, they had objected to the transfer of their employment. This meant that their employment had not transferred, therefore New ISG could not enforce the restrictive covenants, as the employees had no contract with it. They also argued that if they did have to object before the transfer of employment the fundamental right to choose their employer would be undermined. New ISG argued that, under reg. 4(7), the notification by employees had to take place before the date of the transfer. The High Court agreed with the employees and held that reg. 4(7) should be given a purposive construction where the identity of the purchaser is not known before the date of the transfer. In this case, the employees objected through their resignation letters as soon as they became aware of the purchaser's identity, with the result that they were never employed by New ISG.

Therefore an employer's failure to inform and consult employees about proposals to sell its business will not prevent the employees being able to exercise their right to object to becoming employees of the transferee, as long as they object without delay.

In Capita Health Solutions Ltd v McLean and another [2008] IRLR 595 EAT, the BBC announced that it would be transferring its occupational health department to Capita. Mrs McLean was an occupational health nurse who had been employed by the BBC since 1988. Following the announcement on 16 February 2006 that a transfer was to take place on 1 April 2006, Mrs McLean raised a grievance in which she set out her concerns in relation to the proposed transfer. She considered that there would be a significant change to her role and that, should she decide to take early retirement, the pension conditions available to her would not be as favourable as before. Her grievance was rejected and on 31 March she resigned. She stated that due to her professional commitments she would work a "period of secondment" with Capita, and would leave on 12 May. This period of secondment was, in fact, her notice period. She continued to work in the occupational health unit, which had transferred to Capita, during the six-week notice period. During this period her salary, pension contributions, accrued holiday and long-service payment were paid to her by the BBC. She subsequently complained to an employment tribunal that she had been unfairly dismissed. Capita disputed liability for the claim.

The EAT held that Mrs McLean's employment had transferred to Capita. Therefore Capita, not the BBC, was liable for her claim. The EAT stated that, while employees are entitled to object to being transferred to the employment of another employer, whether or not an objection has occurred is a question of fact, to be decided objectively in all the circumstances. Under TUPE an objection will prevent a transfer occurring and will automatically end the contract of employment. On this basis Mrs McLean had not successfully objected as her contract of employment had not ended automatically, and she had worked for Capita for six weeks.

New employer outside the UK and EU

In Holis Metal Industries Ltd v GMB and another [2008] IRLR 187 EAT, the question arose as to whether or not TUPE applies where a business is transferred overseas. Newell Ltd had a factory in the UK. Holis Metal Industries Ltd, a company based in Israel, was interested in buying part of the business, but it was clear that, if it did, the operation of the business would be transferred to Israel. Before the transfer Newell informed its employees that, unless they wanted to move to Israel, they would be made redundant following the transfer. Neither Holis nor Newell complied with the consultation requirements under TUPE or the collective redundancy consultation provisions. None of the relevant employees moved to Israel and they were dismissed by Holis after the transfer. Redundancy payments were paid by Newell. The GMB lodged claims against both Holis and Newell in the tribunal for breach of duty to consult under TUPE and the collective redundancy consultation provisions. Holis tried to have the claim struck out on the basis that the UK TUPE legislation does not have extra-territorial effect.

The EAT held that TUPE applies to transfers of undertakings situated immediately before the transfer in the UK, and a purposeful approach requires that employees should be protected even where the transfer is across borders outside the EU.

Changing terms following a TUPE transfer

Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S [1988] IRLR 315 ECJ and a number of subsequent cases established that a variation in contract that operates to the detriment of an employee cannot be enforced if the change is the result of a relevant transfer - even where the employee agrees to the variation. Regent Security Services Ltd v Power [2008] IRLR 66 CA concerned whether or not a transferee could rely on this principle to prevent an agreed variation that was beneficial to the employee from taking effect.

Mr Power, who was employed as a property manager, had a contractual retirement age of 60. In July 2005, he was transferred to Regent Security Services Ltd. At around the time of the transfer, Mr Power accepted Regent's proposal that his contract be varied to stipulate a contractual retirement age of 65. However, on 1 September 2005, Regent notified Mr Power that it intended to retire him on his 60th birthday. Mr Power brought a claim for unfair dismissal. The employment tribunal held that the variation was void as it had been made by reason of a relevant transfer within the meaning of TUPE.

Mr Power successfully appealed to the EAT. The EAT held that European law is aimed at protecting employees and there is no justification under the legislation or case law for preventing employees from enforcing new terms that they regard as beneficial. The Court of Appeal upheld the EAT decision.

This case was decided under the TUPE Regulations 1981, which were replaced by the TUPE Regulations 2006. The 1981 Regulations made no specific mention of changing terms and conditions for reasons relating to the transfer. However, the 2006 Regulations specify that "any purported variation of the contract shall be void if the sole or principal reason for the variation is the transfer itself or a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce" (reg. 4(4)). Whether or not variations to contracts that are beneficial to employees will apply to transfers under the 2006 Regulations, remains to be seen.

New rights cannot be created

In Jackson v Computershare Investor Services plc [2008] IRLR 70 CA, Mrs Jackson was employed as finance manager by Ci (UK) Ltd from January 1999. In June 2004 her employment was transferred to Computershare Investor Services. At the time of the transfer Mrs Jackson had no terms relating to enhanced redundancy or severance payments. Computershare had a dual system for enhanced redundancy payments that provided better redundancy benefits to those who had joined the company before 2002 than it provided to more recent joiners. In 2005 the scheme was incorporated into Mrs Jackson's contract. When she was made redundant in December 2005 she was treated as having six years' service for the purpose of calculating her redundancy pay entitlement. However, the post-2002 joiner terms were applied to her. Mrs Jackson argued that she should have been treated as having joined Computershare in 1999.

The question for the EAT was whether Mrs Jackson should be treated as joining Computershare in 1999, and therefore able to take advantage of the pre-2002 joiner terms, or in 2004 (when the transfer took place), meaning the post-2002 joiner terms applied. The EAT held that TUPE could not be relied upon to create rights that did not exist prior to the transfer and the Court of Appeal agreed.

This case demonstrates that TUPE cannot be used by employees to improve the terms and conditions of employment that are in place at the date of the transfer.

Next week's topic of the week article will be a case study on TUPE and will be published on 13 October.

Alice Townley Smith is a solicitor in the employment team at Steeles (Law) LLP (lonemp@steeleslaw.co.uk).

Further information on Steeles Law can be accessed at www.steeleslaw.co.uk.