In on the act – Tupe

This
week Sarah Lamont of law firm Bevan Ashford looks at the highly problematic
legislation on staff transfers and the continuing confusion over what actually
constitutes a transfer of staff from one employer to another

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Most employers are familiar with The Transfer of Undertakings (Protection of
Employment) Regulations 1981, known as Tupe. What is surprising is that, 20
years after Tupe came into force, we are still trying to get to grips with it
in practice. 

The
Act and its purpose

Tupe
is the UK’s legislation enacted to implement the Acquired Rights directive. Its
purpose is to protect the rights of employees where there is a transfer of the
undertaking (or part) in which they are employed, to a new employer. This is
done by way of an automatic transfer of the contracts of employment of
employees from the transferor to the transferee. There are also special
protections against dismissal and consultation obligations.

Important
developments

Many
of the important developments have centred on the most fundamental question of
all – how do you define a transfer of a undertaking?  

While
it is relatively easy to identify the requisite change in employer when company
A buys company B’s business, it is less clear in the case of service contracts,
such as where company A contracts out a service to company B, particularly  where there are no assets to transfer.

This
continues to be an area which is subject of argument,  (see Recent developments). The key to this is the decision of the
European Court in Süzen v Zehnacker Gebaudereinigung Krankenhausservice, 1997,
IRLR 255. Before Süzen, the court had said that the transfer of an activity
from the transferor to the transferee was sufficient to show a Tupe transfer
(Schmidt v Spar und Leihkasse der Fruheren Amter Bordesholm Kiel und
Cronshagen, 1994, IRLR 302). But in Süzen, the court made it clear that it is
not sufficient of itself that there is a transfer of an activity.

The
problem is that not all UK courts are willing to recognise this change of
direction, the leading case being ECM v Cox, 1999, IRLR 559 in which the court
said that “the importance of Süzen was overstated”. So we now have two
dramatically different approaches being used by the courts to determine if
there is a transfer.

Other
developments include changes to the rules on notification to and  consultation with employees in the context
of a transfer, the latest being the Collective Redundancies and Transfer of
Undertakings (Protection of Employment) (Amendments) Regulations 1999 (SI 1999
No. 1925). These regulations removed the employer’s right to choose whether to
consult with an existing trade union or whether, instead, to invite affected
employees to elect representatives.

Now,
if a union is recognised, it must be consulted. There are also provisions
regarding the election of  appropriate
representatives and the penalty on employers for failing to consult was
increased.

Recent
developments

The
first has been touched on above and concerns the question of whether Tupe
applies to competitive tendering, 
namely the tension as to whether Süzen is the correct test to apply. The
reason behind this appears to be one of policy. Applying the ruling in Süzen –
that Tupe will only apply where a change in contractor involves the transfer of
significant assets or a major part of the workforce – could leave staff
unprotected. If the transferor refuses to take on the assets and/or a major
part of the workforce, Tupe will not apply. Understandably, some tribunals are
reluctant to allow that. 

This
has led to some conflicting recent cases at EAT level, some of which have
applied the reasoning in Süzen and others which have taken their cue from the
ECM decision, holding that there has been a transfer notwithstanding that there
was no transfer of assets or staff.

Another
recent development relates to the right of employees to object to the automatic
transfer of their contracts of employment to the transferee. The case of
University of Oxford v Humphreys, 2000, IRLR 183 held that, where an employee
objects to the transfer of their contract because they know that the transferee
intends to make substantial and detrimental changes in terms and conditions,
this will be a constructive dismissal by the transferor. Also, the liability
for that dismissal stays with the transferor.  

Transferors
cannot limit the risk of liability simply by keeping quiet about any proposed
changes because this is likely to conflict with the obligation to consult
with  employees.  In practice, therefore, indemnities are
specifically drafted to cover the risk that the transferor will be liable for
these constructive dismissals.

For
transferees, the case of Kerry Foods v Creber, 2000, IRLR 10 gives concern. The
EAT held that if the transferor fails to consult, the liability to pay a
protective award to affected employees passes to the transferee. It is sensible
to obtain an indemnity from the transferor.

Conclusion

This
is obviously an area which needs to be resolved. It can only be hoped that the
amendments to Tupe which the Government is bound to introduce this year, will
help.

The
draft consultation paper is with ministers for consideration but there appears
to be no indication of when the consultation process might begin.

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