Tupe or not Tupe

Last year, the European Court, in the cases of Francisco Hernandez Vidal SA and Sanchez Vidalgo, confirmed that a transfer of undertaking occurs when a transfer of a significant proportion of employees takes place. The court emphasised that a transfer of an undertaking is a transfer of an economic entity, and that where the function is ‘labour intensive’, the existence of the economic entity will depend on its work force. So a transfer of the undertaking would occur only on the transfer of a significant proportion of the employees.

This decision confirmed the landmark 1997 Suzen decision. However, in this country, these principles have not been consistently applied. In England and Wales, the Court of Appeal specifically rejected the Suzen approach last year in ECM v Cox.

In ECM, drivers claimed unfair dismissal against a contractor to which their firm had lost a car delivery contract. Although no assets had changed hands, the Court of Appeal decided there had been a transfer of an undertaking, saying the importance of the Suzen decision had been overstated. The loss of a contract, it said, does not automatically amount to a transfer of an undertaking. A distinction had to be drawn between a contract being lost while the transferor’s core business remained intact, and where part or all of that business ceased. In that case, a transfer of undertaking would have occurred.

Consultation

There have been amendments to the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) for transfers on or after 1 November 1999. Apart from requiring transferors to consult recognised trade union representatives, there is now law on the process for electing employee representatives. The maximum compensation for failure to carry out information and consultation obligations was tripled to 13 weeks’ pay per employee.

In addition, in Kerry Foods v Creber (2000) the employment appeal tribunal (EAT) held that liability for not consulting on redundancies or not consulting under TUPE will pass to a transferee.

Dismissals

As a result of the House of Lords’ decision in Wilson (1999), we now know that the dismissal rather than transferral under TUPE of employees is legally effective. So dismissal will enable a transferee to change the terms and conditions of employment at the cost of incurring liability for unfair dismissal. The maximum compensatory award for unfair dismissal has quadrupled from £12,000 to £50,000.

The courts also seem to be backtracking on their interpretation of the ‘economic technical organisational’ (ETO) exception from automatic unfairness. In Kerry Foods the EAT held that, for a dismissal to fall within the ETO exception, the main reason for dismissal must have nothing to do with the transfer itself – it must have been something that would have happened anyway.

Effect of the transfer

In Unicorn Consultancy Services Ltd v Westbrook (2000), the EAT decided that a transferee was bound to continue, after the transfer, the old employer’s arrangements for profit related pay under an Inland Revenue registered scheme just as if the employees were still in the transferor’s employment.

The High Court has, however, found a pragmatic solution to dealing with transferred personal injury liabilities. In Bernadone v Pall Mall Services (1999), it accepted that there was clearly a transfer of personal injury liabilities when employees transferred across under TUPE. However, the court ruled that the liability would still be covered by the transferor’s insurance.

Pending developments

In 1998 the underlying European Union directive was amended, but the government has yet to publish its proposals for changing TUPE.

The new directive contains a new definition of a transfer of an undertaking. The government used the Employment Relations Act to extend the application of TUPE beyond the directive’s definition and so it is possible that a much broader, all-encompassing definition could be on the horizon.

The government has also said that there will be an obligation to provide a pension for future service that is comparable with the pension scheme available under the transferor.

Also, this January, the Cabinet Office issued a statement of practice suggesting the government will treat TUPE as applying to all transfers out of the public to the private sector, whether the transaction is a first or second generation contracting-out, or, even, a contracting-in.