Lawyers view: (Transfer of Undertakings (Protection of employment) regulations

first_imgLawyers view: (Transfer of Undertakings (Protection of employment) regulationsOn 1 Nov 2003 in Personnel Today It’s all change with the TUPE (Transfer of Undertakings (Protection ofemployment) regulations. John McMullen brings you up to the markWe start our update with the confusing case law on when TUPE applies. Thefollowing is an analysis of the present law following the Court of Appealdecision in RCO Support Services v Unison [2002] EWCA Civ 464. The Ayse Suzen case In Suzen v Zehnacker Gabaudereinigung GmbH Krankenhausservice [1997] ECRI-1259 it was held that a changeover of contracts providing services to acustomer is not of itself a transfer. In Ayse Suzen, which involved achangeover of contractors providing cleaning services to a school, the EuropeanCourt held that the directive does not apply merely because a person who hasentrusted the cleaning of his premises to a first undertaking terminates thatcontract and enters into a new contract with a second undertaking. There has, for a transfer to take place, to be a concomitant transfer fromone undertaking to another of significant tangible or intangible assets or thetaking over by the new employer of a major part of the workforce in terms ofnumbers and skills assigned by the predecessor to the performance of thecontract. Three EFTA court decisions – Eidesund (Case E-2/95), Ulstein (Case E-2/96)and Tor Angeir ASK (Case E-3/96) – also involving contractor changeovers haveapproved Suzen, as have five further European Court decisions concerningoutsourcing (Vidal (C-127/96), Santner (C-229/96), Montana (C-74/97) [1999]IRLR 132, Hidalgo (C-173/96) and Ziemann (C-247/96) [1999] IRLR 136 and a morerecent decision concerning intra-group subcontracting Temco Service Industriesv Imzilyen [2002] IRLR 214). The approach in the UK 1) labour-intensive service contracts The problem with Ayse Suzen is that it leads to an unfortunately circularreasoning. In the type of outsourcing situation where no assets transfer (ie alabour intensive function, such as, commonly, cleaning, security, maintenance)whether a transfer occurs will depend on whether a major part of the workforceis taken on. The circularity is this: should it be right that whether I have the right totransfer as an employee depends on whether I do transfer? The Employment AppealTribunal and, subsequently, the Court of Appeal, in the case of ECM (VehicleDelivery Service) v Cox [1999] IRLR 559 introduced, in response, a”motive” test. Under this, Suzen should prima facie apply, but if thereason for the new contractor not taking on a major part of the workforce wasto avoid TUPE, then nonetheless TUPE should still apply. The latest ruling in the UK on TUPE is the Court of Appeal decision in RCOSupport Services v Unison [2002] EWCA Civ 464. In this case, RCO won a contractto provide specialist cleaning services at a new hospital to which an NHS trustwas transferring its operation. It offered jobs to employees of the outgoingcontractor, but only on a non-TUPE basis. The employee rejected the terms andtherefore no employees transferred and no assets transferred. The Court ofAppeal held nonetheless that TUPE applied. The Court of Appeal in RCO Support Services v Unison is, for the moment, themain reference point on the current position on labour-intensive servicecontract creation and transfers. It should be noted, however, that leave wasgranted to appeal to the House of Lords and, at the time of writing, the caseawaits hearing by their Lordships. A somewhat clearer view of the entire areamay be available towards the end of 2003. The synthesis to be constructed from RCO v Unison is, I suggest, as follows:– Employment tribunals must follow the Suzen case. It will be highlymaterial, therefore, in a labour intensive function that there is no takingover of a major part of the workforce in terms of numbers and skills. – At the same time, however, the fact that employees are not taken on willnot of itself prevent TUPE applying. There may be certain cases where no assetsor employees are transferred, where there may still be a TUPE transfer. – This is because the Court prefers a “multi factorial” approach.If all things are equal, the absence of assets and employees will be highlymaterial and militate against a transfer. However, there may well be, in manyoutsourcing cases, other factors pointing towards the transfer. – Questions that therefore, should be considered in the round, (and not as asingle factor) could include the motive of the new employer in wishing to avoidTUPE obligations (see ECM v Cox, above). The particular factors pointingtowards a transfer in the RCO case were first, that RCO was not deliberatelyseeking to avoid TUPE but was willing to take on employees (albeit on non-TUPEterms). Second, the Court of Appeal emphasised the specialist nature of thecleaning services in question that suggests the position could be different ifthe services were not specialist. Two subsequent cases have provided other examples of where it may belegitimate for an employer not to take on employees, in which case Suzen wouldapply. First, in Williams v Lockhart Security Services Ltd (EAT/1395/01) on achangeover of security services the customer requiring the security servicestipulated that the new contractor should not hire any of the previouscontractor’s staff. Furthermore, no assets transferred between the outgoing and incomingcontractor. The third party, customer’s, direction that no staff should betaken on entitled the incoming contractor to decline employment to the firstcontractor staff and there was no transfer. Second, in Ministry of Defence vCarvey (EAT/202/00), the Ministry of Defence took back in-house the function ofguarding services at an army camp from its contractor, Rentokil Initial. Noassets were taken and no staff taken on by the Ministry of Defence. The reasonfor not employing staff was that for strategic reasons armed guards wererequired for the camp in the future. Rentokil Initial’s security guards werenot licensed to carry arms. Because the Ministry of Defence therefore had alegitimate economic reason for not taking on the staff of the contractor, therewas no TUPE transfer. The approach in the UK2) asset-reliant service contracts Where the economic entity is an asset-reliant function, a different enquirymust be made. Unlike a labour-intensive function, the transfer of staff is lessdeterminative of whether there is a TUPE transfer. The transfer of assets andother matters become much more important. Thus held the European Court in OyLiikenne AB v Liskojarvi and Juntunen [2001] IRLR 171. After a competitivetendering exercise in Finland resulting in a change of bus operators on a numberof Helsinki routes, of 45 employees employed by the outgoing contractor, 33were taken on by the new operator, albeit on less favourable terms andconditions. No vehicles or other assets connected with the operation of the bus routesconcerned were transferred. Two drivers who had been re-engaged by the newoperator brought a case in the Finish courts arguing that a transfer of anundertaking had taken place and that they were entitled to be employed on thesame terms and conditions as they had previously enjoyed with the outgoing busoperator. Here the European Court concluded that the Acquired Rights Directive did notapply. In labour-intensive operations there might be a transfer even though noassets were transferred. But if the undertaking depends on the use ofsubstantial assets – such as plant and equipment – the provision of the servicecould not fairly be regarded as an activity based essentially on manpower aloneand other factors had to be taken into account. Here it was impossible to run the bus routes without busses. It was anasset-reliant service and as the busses were not in the main transferred therewas no transfer even though most of the employees were taken on. The EAT has, as with labour-intensive service contracts, applied its”multi factorial” softening approach to Oy Liikenne. This in P&OTrans European Ltd v Initial Transport Services Ltd and Others [2003] IRLR 125P&O was contracted to provide a petroleum delivery service. There was no transfer of Shell’s fleet to P&O, but the majority ofShell’s workforce were taken on by P&O. This was, though, to the exclusionof certain administrative staff employed by another contractor, Initial.Although it was argued that the facts of Oy Liikenne were indistinguishablefrom the present case, the EAT was satisfied that the tribunal had weighed thequestion of transfer of assets very carefully but was entitled to find otherfactors in favour of a transfer. Oy Liikenne was distinguishable principally because the drivers (themajority of the workforce) were taken on “as if TUPE applied” afactor that was not the case in Oy Liikenne. This is therefore another example of the application, in the UK of the”multi factorial” test which, while respecting cases such as Ayse Suzen(in the latter case of labour-intensive functions) and Oy Liikenne (in the caseof asset-reliant functions) allows countervailing factors to be taken intoaccount if nothing else is equal. Service contracts – practical pointers It is possible to take the European Court cases of Ayse Suzen and OyLiikenne literally and rely on the absence of employees or assets to maintainthe position that TUPE does not apply. This position allows, for example, theparties to consider non-TUPE bids in tendering for services. However, as willbe seen from the “multi factorial” test employed in the UK courts,adopting a non-TUPE stance carries with it considerable risks. Liability for failure to inform and consult under TUPE If there is a failure to inform and consult by a transferor, leading to asuccessful award under Regulation 11, is this a matter that would pass to thetransferee under Regulation 5 of TUPE or should it rightly stay with thetransferor, whose fault it was? It was held in the case of Angus Jowett & Co Limited v National Union ofTailors and Garment Workers [1985] IRLR 646 that a claim by an employeerepresentative for breach of the redundancy equivalent of Regulation 11 (aprotective award for non-consultation on multiple redundancies) was not a rightunder, or in connection with, an employment contract so as to pass underRegulation 5(2)(a) of TUPE. However, it was speculated in Angus Jowett that an employee’s individualentitlement under a protective award won by an employee representative was sucha right under or in connection with the employment contract. Although the EATregarded the competing arguments as “nicely balanced”, it decided, inKerry Foods Limited v Creber [2000] IRLR 10 that an employee’s rights under aprotective award was a liability passing under Regulation 5 to a transferee. Itseems harsh as the transferee would then pick up liability for the default of atransferor. The policy arguments in this area were therefore addressed more coherentlyin TGWU v McKinnon [2001] IRLR 597, where the EAT held that Regulation 10liability should stay with the transferor. For if it did not, there would be noincentive upon a transferor to comply with the provisions of Regulation 10,which would go contrary to the aims of the Acquired Rights Directive. Nonetheless, the most recent EAT authority on this point followed KerryFoods. In Alamo Group (Europe) Ltd v Tucker (EAT/994/01), the EAT held thatliability for breach of Regulation 10 should pass to the transferee in view ofthe breadth of the wording of Regulation 5. This area clearly needs addressingat the earliest opportunity by the Court of Appeal. In the meantime,transferees should ensure that they are indemnified against a transferor’sbreach of Regulation 10 in any transfer agreement to which they are a party. The Pinsents 2003 TUPE Survey The reader of this article will have concluded that the law on transfer ofundertakings is increasingly over complicated to the detriment of the end user,whether employees, trade unions, employers or the legal practitioner. The Pinsents Survey on TUPE, published in May will make some interestingreading. Some principal findings of this survey of HR directors are as follows: – 77.1 per cent of the sample had experienced difficulty in the applicationof the TUPE Regulations – 77.9 per cent of respondents highlighted the inheritance of unsuitableterms and conditions of employment as a major problem, while 81.7 per centcomplained about a difficulty in changing terms and conditions. Also 31.3 percent expressed concern about the inheritance of collective agreements and 29.4%expressed concern about information and consultation with employeerepresentatives – 59.2 per cent considered that TUPE had increased the expenditure of atransaction, 34.7 per cent indicated that the existence of TUPE made therespondent think of alternative ways to structure each transaction, 59.2 percent of respondents considered that TUPE slowed down the process of sale orpurchase or outsouring and 12.7 per cent considered that TUPE actually stopped atransaction from going through – An interesting aspect is the legal resourcing of TUPE advice, where 83.5per cent of employers felt the need to obtain legal advice on theirtransactions – There was unanimous concern about the delay in implementing new TUPERegulations, promised some years ago, still under consideration and on whichDTI proposals have yet to be published. Copies of the survey, when published, can be obtained from Pinsents. [email protected] new TUPE regulations All this illustrates the need for new TUPE regulations, expected in draftsoon. These will, it is widely expected, allow for a more comprehensive TUPEcoverage to service contract operations (but excluding “high levelprofessional services”). By this, it means that TUPE will apply to mostcontracting-out situations apart from where professional services are involved.New TUPE will also introduce a requirement on the old employer to notify thenew employer of employment liabilities that will be transferring under TUPE.The new regulations will clarify the circumstances in which employers canlawfully make transfer-related dismissals and negotiate transfer-relatedchanges to employment terms. And the regulations will introduce somelong-awaited flexibility in the application of the regulations concerningtransfer of insolvent businesses, giving a sharper focus to the promotion ofthe “rescue culture” of ailing businesses. For example, in relationto insolvent businesses, it may be possible more easily to change terms andconditions by collective agreement where this is necessary to ensure survivalof the undertaking. Also likely are some improvements to the information and consultation rightsin favour of employee representatives. These amendments are in compliance withDirective 98/50, which should have been implemented in July 2001. The issue of coverage of occupational pension rights under TUPE is to beconsidered separately and over a longer timescale as part of the pensionsreview being undertaken in the government’s green paper, Pensions in theWorkplace, published last December. However, it has already been stated in the pensions green paper that TUPEwill be extended to pensions. Where before a transfer of employer is in receiptof pension provision, the new employer will be obliged to match an employee’scontribution up to a maximum of 6 per cent of employee’s salary. This will be amajor change to the law and practice on TUPE, extending the current practice toobserve pension rights on TUPE transfers in the public sector, also to theprivate sector. Dr John McMullen is national head of employment law and author ofBusiness Transfers and Employee Rights, Butterworths, looseleaf and bulletins.He is acknowledged as the leading expert on TUPE and has been involved in someof the largest and most complicated TUPE transfers Related posts:No related photos. Comments are closed. Previous Article Next Articlelast_img read more

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