Chapter 8 - Employment Law Practice relating to Transfers of Undertakings

Question 1

What are the basic rules regarding employee rights under TUPE?

Answer 1

The basic rules are:

1. the transfer of the employment contract and all rights, powers and duties and liabilities under or in connection with it transfers from transferor to transferee;
2. the transferee becomes liable for acts or omissions of the transferor in relation to the transferring employees;
3. those aspects of an occupational pension scheme that relate to old age, survivors and invalidity benefits do not transfer under TUPE 2006 (but in the UK, there are modest obligations on a transferee to provide pension provision under the Transfer of Employment (Pension Protection) Regulations 2005);
4. collective agreements and recognition of trade unions transfer to the transferee;
5. there are rules restricting when employment contracts may be varied, where the reason for the variation is the transfer;
6. special rules apply concerning dismissals in connection with a transfer.

Question 2

Does TUPE only apply to employees and not workers?

Answer 2

It has always been thought that TUPE only applies to employees and not workers.

However, in Dewhurst and Others v (1) Revisecatch Ltd t/a Ecourier and (2) City Sprint (UK) Limited [2019] an ET decision has cast doubt upon this understanding.

The issue was whether TUPE 2006 applied to so-called “limb b” workers within s230(3)(b) ERA 1996

The case itself concerned three cycle couriers who brought claims for holiday pay and failure to inform and consult under TUPE 2006.

the ET had to determine whether that definition covered “limb b” workers such that the claimants were entitled to TUPE protection.

The ET held that it did because the Acquired Rights Directive 2001/23 protected those whom national law recognises as employees. UK law uses the term “employee” in two distinct ways; both traditional employees having a contract of service and also employees who are sometimes identified as workers.

Both categories are covered by the Acquired Rights Directive. (TUPE)

Question 3

What is a transfer of an undertaking?

Answer 3

There are two categories of transfer which are subject to TUPE 2006.

1. The transfer of an economic entity which retains its identity (the traditional transfer). Reg 3(1)(a) TUPE.
2. A service provision change.

Question 4

What is an economic entity?

Answer 4

reg 3(2) defines economic entity as an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.

Question 5

What is a transfer of an undertaking?

Answer 5

This standard definition has been interpreted by the ECJ in Spijkers v Gebroeders Benedik Abattoir CV and Alfred Benedik en Zonen BV [1986] (the Spijkers case), which lays down the basic definition of a transfer of an undertaking:

1. a transfer of an undertaking involves the transfer from one person to another of an economic entity retaining its identity;
2. it is important to consider, in each case, whether some or all of the following factors are involved, namely:
   —consideration of the type of undertaking or business concerned;
   —whether assets, tangible or intangible, are transferred;
   —whether employees are taken over;
   —whether customers are transferred;
   —the degree of similarity between activities carried on before and after the transfer and the period, if any, for which those activities are suspended.

These are all factors in the overall assessment that must be made and they cannot, therefore, be considered in isolation.

Question 6

What is the service provision change definition?

Answer 6

Service provision changes (when a contract for the provision of services – such as cleaning or catering – changes hands) can come under TUPE 2006.

The supplementary definition of a transfer under reg 3(1)(b) TUPE 2006 on service provision change provides that a transfer for the purposes of TUPE 2006 takes place if:

1. service activity by employer A is stopped; and
2. that service provision is taken on by employer B; and
3. there was a group of employees whose main job it was to carry out those activities for employer A.

reg 5 TU(PE)(A)R 2014 amended reg 3 by adding the requirement that, for a service to be covered by the service provision changes definition the service must be fundamentally the same before and after the transfer.
So, if the way that the service is provided is different before and after the transfer it will not be covered by the regulations.

reg 3(1)(b) TUPE 2006 covers the following types of service provision change:

1. client to contractor (first generation outsourcing);
2. contractor to contractor (second generation outsourcing); and
3. contractor to client (insourcing).

Question 7

How is a group of employees defined for the purposes of the service provision change definition?

Answer 7

In Argyll Coastal Services Ltd v Stirling and Others [2012] the EAT outlined some useful guidance on determining whether there is an organised grouping of employees:

1. an organised grouping must be a group of employees which has been specifically organised to carry out activities for the client;
2. the principal purpose of this group does not have to be the sole purpose;
3. when considering what activities are carried out by the group it is important to consider what the client wanted from the organisation.

Question 8

What happened in Rynda (UK) Limited v Rhijinsburger is relation to the definition of a group of employees?

Answer 8

In Rynda (UK) Limited v Rhijinsburger [2015] the Court of Appeal held that a single employee could constitute an organised grouping for TUPE purposes where they have been instructed by the employer to carry out all of the activities necessary to provide the services for the client.

In its judgment, the Court of Appeal summarised the approach to be taken in determining the issue of an organised grouping of employees for the purpose of service provision changes as follows:

1. identify the service the company was providing to the client;
2. list the activities performed in order to provide that service;
3. identify the employees who performed those activities;
4. consider whether the company organised those employees into a grouping for the principal purpose of carrying out those activities.

Question 9

What is the effect of transfer on contracts of employment?

Answer 9

reg 4 provides that a transfer does not terminate the contracts of employment of the employees working in the grouping which is to be transferred. Instead, their contracts are treated as if they had been entered into by the new employer.

reg 4(2) transfers the transferor’s rights, powers, duties and liabilities under or in connection with the contract.

Question 10

What obligations and liabilities transfer under reg 4?

Answer 10

The kind of obligations and liabilities that transfer under reg 4 are:

1. all contractual liabilities in relation to employees arising under or in connection with the employment relationship. This includes the duty to keep pay records pursuant to s9 National Minimum Wage Act 1998 according to the Court of Appeal in Mears Homecare Limited v Bradburn and Others [2019];
2. statutory employment claims triggered during the transferor’s employment, for example, for discrimination or breach of contract;
3. contractual severance or redundancy schemes;
4. contractual bonus, commission and incentive schemes;
5. liability for personal injury.

As this could be quite harsh on employers, the Court of Appeal in Bernadone v Pall Mall Services Group [2003] held that the new employer could take advantage of the old employer’s compulsory employer’s liability insurance. TUPE 2006 has made special provision to assist transferees taking a transfer from a transferor who is exempt from the Employer’s Liability (Compulsory Insurance) Act 1969 and who therefore does not hold such cover.

Question 11

Can an employer vary employment terms before or after a TUPE transfer?

Answer 11

The ability of an employer to vary employment terms before or after a TUPE 2006 transfer has always been heavily circumscribed, even where the employee consents to such a change.

Under EU law, an employee may not waive rights granted to them under the Acquired Rights Directive (Foreningen af Arbejdsledere I Danmark v Daddy’s Dance Hall A/S.

reg 4(4) TUPE 2006 - Variations to a contract of employment will therefore be void if the sole or principal reason for the variation is the transfer.

Question 12

When can an employer vary employment terms?

Answer 12

Under reg 4(5), reg 4(4) does not prevent variations of contract after transfer, if either:

(a) the sole or principal reason for the variation is an economic, technical, or organisational reason entailing changes in the workforce, provided that the employer and employee agree that variation; or
(b) the terms of that contract permit the employer to make such a variation.

Question 13

What is an economic, technical, or organisational (ETO) reason?

Answer 13

An ETO reason is not defined in the regulations but, according to the guidance on the Department of Business, Innovation and Skills website, it is likely to include a reason relating to:

1. the profitability (an “economic” reason),
2. equipment or processes (a “technical” reason) or
3. management structure (an “organisational” reason) of the transferee’s business.

The words “entailing changes in the workforce” impose important limitations on the ETO justification for contractual change. It is only when the employer sets out to change the structure of their workforce, by reducing numbers or changing the functions that individuals perform, that the reason will entail an ETO change in the workforce.

Question 14

Can the new employer change a collective agreement?

Answer 14

reg 4(5B) TUPE 2006 sets out that it will be acceptable to vary a collective agreement as long as the variation takes effect on a date more than one year from the date of the transfer and that following the variation, the rights and obligations in the employee’s contract, when considered together, are no less favourable to the employee than that which applied immediately before the variation.

Question 15

When can the employee treat a contract as being terminated?

Answer 15

Employers need to be aware of reg 4 TUPE 2006.

Under reg 4(9), the employee may treat the contract as being terminated by the employer if the transfer involves any substantial change in working conditions to the employee’s material detriment.

This provision means that if the transfer involves a change of working conditions which is to the material detriment of the employee, that individual can effectively treat themselves as having been dismissed by the employer. The advantage for the employee is that it establishes a dismissal (perhaps for the purpose of an unfair dismissal claim) much more easily than the usual constructive dismissal argument referred to in Chapter 7.

An employee who is concerned about changes to working conditions in the context of a TUPE transfer and wants to leave has two choices:

1. the employee will either fall within reg 4(9) and receive no damages for wrongful dismissal (although they are still dismissed for the purpose of a potential unfair dismissal claim); or
2. they may argue that the employer is in repudiatory breach of a fundamental term of the contract and use the common law to argue constructive dismissal.

Question 16

What if an employee is dismissed because of a transfer?

Answer 16

Under reg 7(1) TUPE 2006 where, either before or after the transfer, an employee of the transferor or transferee is dismissed, the employee is automatically unfairly dismissed if the sole or principal reason for the dismissal is the transfer.

Where there is an ETO reason entailing changes in the workforce, reg 7(1) ceases to apply and the dismissal is not automatically unfair (reg 7(2)). reg 7(3)(b) provides that such dismissals may be regarded as having been by reason of redundancy where the appropriate test in s98(2)(c) ERA 1996 is satisfied.

First Scottish Searching Services Ltd v McDine and Another [2011]

Question 17

What information does the transferor have to notify the transferee?

Answer 17

Under reg 11, the transferor has to notify the transferee of any employee liability information relating to employees assigned to the organised grouping of resources or employees who are the subject of a relevant transfer. Employee liability information means:

(1) the identity and age of the employee;
(2) those particulars of employment that an employer is obliged to give an employee pursuant to s1 ERA 1996;

(3) information relating to any of the following:
(a) disciplinary procedures taken against any employee;

(b) grievance procedures taken by any employee within the previous two years in circumstances where the ACAS Code of Practice applies;
(4) details of any court or tribunal case, claim or action:
(a) brought by an employee against the transferor, within the previous two years;
(b) that the transferor has reasonable grounds to believe that the employee may bring against the transferee, arising out of the employee’s employment with the transferor; and
(5) details of any collective agreement which will have effect after the transfer pursuant to reg 5.

information has to be in writing or made available to the transferee in a readily accessible form. It must be supplied in relation to any assigned employee transferring under TUPE 2006 and any person who might have transferred had they not been automatically unfairly dismissed under reg 7. Following notification of the employee liability information, the transferor must notify the transferee in writing of any change in the employee liability information.

Notification under the regulations has to be given not less than 28 days before the relevant transfer or if special circumstances make this not reasonably practicable, as soon as is reasonably practicable thereafter.

Question 18

What remedies are available for failure to notify employee liability information?

Answer 18

If there is a breach of reg 11 TUPE 2006, the transferee can make a complaint to an ET stating that the transferor has failed to comply. Such a complaint must be brought before the end of the period of three months beginning with the date of the relevant transfer, or within such further period as the tribunal considers reasonable in the case where it is satisfied that it was not reasonably practicable for the complaint to be presented before the end of that period of three months (reg 12(2)).

If the tribunal finds the complaint well founded, it will make a declaration to that effect and may make an award of compensation to be paid by the transferor to the transferee (reg 12(3)).

Question 19

Is there a duty to inform and consult employee representatives?

Answer 19

The duty to inform and consult employee representatives is outlined in reg 13 TUPE 2006. reg 14 deals with the requirements for the election of employee representatives. reg 15 contains provisions regarding the liability of the transferor and transferee for failure to inform or consult under reg 13. The obligations are as follows.

In order to comply, the employer must inform recognised trade union representatives or elected employee representatives of:

1. the fact that the relevant transfer is to take place, when (approximately) it is to take place, and the reasons for the transfer;
2. the legal, economic and social implications of the transfer for the affected employees;
3. the measures that the employer envisages that it will take in relation to affected employees, or whether it envisages that no measures will be taken;
4. the measures that the employer envisages that the transferee will take in relation to affected employees transferring under TUPE 2006, or whether they think that no measures will be taken.

Question 20

What happens when there is not a trade union?

Answer 20

reg 13(A) TUPE 2006 allows an employer operating a micro-business (fewer than 10 employees) to consult directly with employees if there are no representatives in place.

There is a special circumstances defence where, if it is not reasonably practicable for an employer to perform the duty to inform or consult, it may take such steps towards performing that duty as are reasonably practicable in the circumstances. This is likely to be interpreted narrowly so as to discourage employers from avoiding the need for information and consultation.

Under reg 14 TUPE 2006, the onus is on the employer to make such arrangements as are reasonably practicable to ensure the election of representatives. The employer’s other duties are to:

1. determine the number of representatives to be elected;
2. ensure that there are enough representatives to represent the interests of all the affected employees;
3. make sure that the term of office of the representatives is of sufficient length to enable information to be given and consultations completed;
4. ensure that no affected employee is unreasonably excluded from standing for election;
5. ensure that the election is, as far as is reasonably practicable, held by a secret ballot and that the votes are actually counted.

Compensation for breach of the information and consultation obligations is a maximum of 13 weeks’ pay, enforceable by the appropriate employee representative in the case of a failure relating to them, or by affected employees in relation to a failure affecting them (e.g. a failure relating to the election of employee representatives).