TUPE was 40 on the 1st February 2022!
Before its introduction, a business owner could sell the assets of a business to a new owner and then make the employees redundant. The new owner could re-employ those employees they wished to recruit, often on less favourable terms and conditions of employment.
Those days are long gone, and over the years TUPE has gradually evolved to get us where we are today. While it was introduced in 1982 with great reluctance and because the UK was obliged to adopt the EU law behind it (the Acquired Rights Directive (ARD)) we thought that in celebration of TUPE's achievements we'd pick out a few important cases that have expanded and changed its scope over the years!
Determining whether TUPE applies – retention of identity
Deciding whether or not TUPE applies is not always a straightforward task. The question is whether there is a stable and identifiable economic entity which does the same thing after the transfer as before the transfer, i.e. retains its identity.
The seminal case of Spijkers v Gebroeders Benedik Abbatoir set out the "multi-factorial test" which has been considered ever since when it comes to determining whether something is a business transfer. The ECJ stated that, in considering whether a transfer has taken place account must be taken of the type of business or undertaking; the transfer of tangible assets; the value of intangible assets; whether the majority of the staff are taken over by the new employer; the transfer of customers; the degree of similarity of activities before and after the transfer; and the duration of any interruption in those activities.
The gradual development of service provision changes
After TUPE had been in force for a few years, an increasingly problematic area became when it would apply to service provision changes.
In Suzen v Zehhacker Gebaudereinigung GmbH Krankenhaus-Service the ECJ held that the mere loss of a service contract to a competitor did not, on its own, count as a transfer covered by the ARD. It indicated that a transfer will not usually fall within TUPE unless there is a transfer of tangible assets. However, where a business is particularly labour-intensive there may well be few intangible assets. In such cases the ECJ indicated that the transfer might not fall within TUPE unless the majority of employees were employed by the new owner.
This seemed to pave the way for a new contractor to avoid the operation of TUPE by refusing to take on the existing employees. However, in ECM (Vehicle Delivery Services) Ltd v Cox and others the Court of Appeal held that the transferee's reason for not taking on the employees is a relevant circumstance in deciding whether there has been a TUPE transfer. It held that if the employment tribunal finds that the transferee did not take on the employees in an attempt to avoid TUPE applying, it can make a finding that TUPE does apply.
The case law of the time managed to inject a considerable amount of confusion and the Labour government, which introduced the 2006 version of the Regulations decided to respond to the difficulties created by ECJ case law by including a second definition of "relevant transfer" which effectively brings most service provision changes within scope. As the law is UK, not European, it has always been interpreted less widely and whether TUPE applies to a service provision change remains a knotty issue, which isn't always clear, and on which there are a wide range of conflicting employment tribunal decisions. However, although repeal of the extended definition of a TUPE transfer was proposed by the coalition government in 2013, it was eventually dropped after consultation responses were received in favour of keeping it.
Heading off changes to contractual terms
Although the ARD preserves the employees' contractual terms on a transfer, there is no express provision prohibiting changes to terms. However, this was finessed by the ECJ in Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall where it held that this means that a variation to the contract is ineffective if the transfer itself is the reason for the variation, even if the employee agrees to the change and the less favourable terms are offset by other benefits so that the contract as a whole is no less favourable.
ETO reasons
ETO (economic, technical or organisational) reasons come into play when looking at dismissals or changes to terms and conditions. A dismissal will be automatically unfair where the sole or principal reason for the dismissal is the transfer unless it is for an ETO reason. Similarly it will be possible to make changes to terms and conditions where the sole or principal reason for the variation is an ETO reason, provided that the employer and employee agree to the variation.
Back in the mid-80s the case of Delabole Slate Co Ltd v Berriman made it clear that there will only be an ETO reason if there is a change to the workforce, and this must involve a change in the numbers, or possible functions, of the employees.
Objection to the transfer
An employee may object to being transferred to the transferee. In this situation the employee's contract will automatically terminate on the transfer. This termination will not amount to a dismissal.
However, following the decision in University of Oxford v Humphreys, a transferor needs to be aware an employee can resign and claim constructive dismissal against the transferor on the grounds that they anticipate a fundamental breach by the transferee.
What about pensions?
Although employees have the right to the automatic transfer of their terms and conditions, there is an exception; benefits under pensions relating to old age, invalidity or survivors' benefits.
In the case of Beckmann and Martin and others v South Bank University the ECJ held that early retirement benefits, and benefits intended to enhance the conditions of such retirement paid in the event of dismissal to employees who have reached a certain age, are not old age, invalidity or survivors' benefits within the meaning of the ARD. Early retirement benefits will extend to any early retirement benefits, including the right to retire early voluntarily.
TUPE continues to evolve…
Fragmentation is one of the more recent areas of development in TUPE. Where a service is transferred from a single contractor to more than one contractor, the first question to consider is whether a service provision change has occurred at all. If it has, then the next question is to identify which service provider (if any) has inherited the outgoing service provider's employees.
In Kimberley Group Housing Ltd v Hambley the EAT held that the link between each employee and the activities performed by the new service providers should be looked it. In this instance, the contractor that took on the greater part of the activities (71%) inherited liability for all of the employees.
2020 saw an interesting, and controversial, decision from the European Court of Justice (ECJ), ISS Facility Services NV v Govaerts, in which it was held that, where a contract is fragmented, it is possible for an employee to transfer to more than one transferee on a pro rata basis. This threw the decision in Hambley into doubt, and in 2021 the decision in Govaerts was followed by the EAT in McTear Contracts Ltd v Bennett and ors.
The EAT's decision in McTear confirms that it's possible for an employee who works across more than one part of a business to have their contract divided up between more than one transferee taking the proportions of time they spend, and the value they add to the different parts of the business, into account. This is subject to the need to identify the activities that are transferring and the existence of an organised grouping in respect of each transfer.
Something worth celebrating?
Since the advent of TUPE the sale of businesses and outsourcing and re-tendering of services has become an area where employees' rights are protected and they can enjoy a stability which was not previously the case.
It's been an important part of our life at Trowers, which is why we have been celebrating TUPE throughout February as TUPEfest!
Click here to see our Trowers Tuesdays webinars covering TUPE and other topics.
