Mixed messages over Tupe leaves legal chaos

A recent European Court of
Justice ruling adds to the confusion 
reigning over the application of Tupe to competitive tendering

The Department of Trade and
Industry’s long-awaited consultation document on proposals to change the
Transfer of Undertakings (Protection of Employment) Regulations 1981 has still
yet to be published. One of the DTI’s main aims will be to achieve greater
clarity and certainty over when Tupe applies to the contracting-out of services
and subsequent changes of contractor.

In the meantime, the law is in
a complete mess. This is largely on account of the European Court of Justice’s
ruling in Süzen v Zehnacker Gebaudereinigung GmbH, 1997, IRLR 255. In that
case, the ECJ essentially held that the EC Business Transfers Directive ñ on
which Tupe is based ñ applies only where a change in contractor involves the
transfer of significant assets or "a major part of the workforce, in terms
of their numbers and skills".

This seemed to suggest that in
the case of a labour-intensive activity such as cleaning, an incoming
contractor could avoid the operation of Tupe simply by refusing to take on any
of the outgoing contractor’s workforce. 

There have been conflicting
approaches to Süzen by the UK courts. Some cases have strictly applied the
ECJ’s judgment, with the result that the absence of a transfer of assets or
staff ruled out a Tupe transfer In other cases, the courts have shied away from
a rigid application of Süzen.

For example, in Cheeseman and
others v R Brewer Contracts, IDS Brief 678 last November, the EAT overturned an
employment tribunal’s decision that there was no Tupe transfer where a
maintenance contract passed from one contractor to another. According to the
EAT, the tribunal relied too heavily on Süzen and should not have treated the lack
of transfer of any assets or employees as conclusive. It should have considered
the issue "in the round".

The latest ECJ transfers
ruling, Oy Liikenne Ab v Liskojarvi and another (25 January 2001, Case
C-172/99, unreported) complicates the picture still further. Following
competitive tendering, Oy Liikenne won the contract to run seven bus routes for
Helsinki Council. It re-engaged most of the outgoing contractor’s staff, but
there was no significant transfer of assets because Oy Liikenne provided its own
buses.

The ECJ ruled that the fact
that no assets went across was decisive. In a sector such as bus transport,
which is heavily dependent upon tangible assets, there could be no transfer of
an undertaking if the new contractor did not take over a significant quantity
of its predecessor’s assets. This was despite the fact that a majority of the
workforce was taken on.

In passing, the ECJ confirmed
the Süzen approach to activities "based essentially on manpower"
(unlike bus transport). In a nutshell, the ECJ appears to be saying that there
can only be a transfer of a "people-orientated" activity if a
significant transfer of staff takes place. In contrast, with an
"asset-orientated" activity, there must be a significant transfer of
tangible assets in order for Tupe to apply ñ however many employees go
across. 

The key problem with this
approach is that it enables an incoming contractor deliberately to refuse to
take on staff ñ or assets ñ in order to avoid the application of Tupe. It
remains to be seen how the UK courts will respond to Oy Liikenne ñ and, indeed,
whether the DTI’s forthcoming proposals can find a way to resolve the present
confusion.

Key points

– Recent European court rulings
suggest that Tupe will apply to a change of contractor only if there is a
significant transfer of staff or assets, depending on the type of activity in
question.

– The UK courts have tended to
adopt a more flexible approach so as to avoid incoming contractors adopting
deliberate strategies to avoid Tupe.

– Imminent government proposals
for reform may lead to greater certainty over the application of Tupe to
contracting-out of services and service-provision changes.

Richard Lister is a lawyer
in Lewis Silkin’s employment department

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