Transferee’s motive is the key in Tupe avoidance

The reasons behind a tranferee refusing to take on a transeror’s staff are
critical in Tupe case rulings

For some time, there has been debate about the relevance of the motive of a
transferee who deliberately tries to avoid Tupe by refusing to take on the
transferor’s staff.

If the staff involved in a service to be contracted out are not transferred,
this can certainly be a factor to indicate that Tupe will not apply to the
contract. However, there have been indications that tribunals are not prepared
to allow Tupe to be deliberately avoided in this way.

Deciphering the motive

In the recent case of ADI (UK) v Firm Security Group, unreported, CA, 22
June 2001, the Court of Appeal looked at determining whether Tupe applied where
the transferee had tried to do exactly that.

ADI provided security services at a shopping centre but decided to terminate
the contract. Initially, the shopping centre said it would take over the
employment of ADI’s security officers assigned to the contract, but
subsequently changed its mind. No assets were transferred and, as a result of
the shopping centre’s decision, no staff were transferred.

The question for the tribunal was whether, in these circumstances, there was
a transfer of an undertaking. The employment tribunal held that there had been
no transfer, partly because neither assets nor staff were taken on by the
shopping centre. This reasoning was upheld by the EAT.

The case then went to the Court of Appeal, which identified two issues to
consider:

– Whether it was necessary to consider whether the shopping centre had
avoided taking the staff so as to avoid the effect of the Tupe regulations, and

– If so, whether that motive would have an impact on the determination of
whether Tupe applied.

On the first issue, the majority of the court held that the motive of a
transferee in deciding not to take on workers of the transferor was relevant so
that, if that issue was raised by one of the parties, a tribunal would have to
consider it.

On the second issue, the majority held that a transferee’s deliberate
refusal to take on staff would not allow transferees to avoid the effect of
Tupe, otherwise the purpose of Tupe was thwarted.

This means that where a tribunal has decided that the transferee has
deliberately not taken on the workforce to avoid Tupe applying, the tribunal
should treat the case as if the transferee has taken on all the workforce.

In relation to the facts in the present case, the majority of the Court of
Appeal held that the shopping centre had tried to avoid Tupe by not taking on
the staff and that that motive should be taken into account so that there was a
transfer. It should be noted, however, that Brown LJ, in the minority, held
that the motive for not taking on staff was not relevant – the only issue was
whether in fact the staff had been taken on.

This case follows the statements in ECM v Cox, 1999, IRLR 559, concerning
the relevance of a motive of the transferee. However, it should also be noted
that the issue of whether, where the motive was to avoid Tupe, the case should
be treated as if the staff had transferred, was not fully argued because it was
conceded by the transferee in this case.

There is, therefore, scope for more authoritative case law on this area. In
practice, this ruling is likely to mean that the transaction parties will have
to consider carefully to the reason for not taking on staff and carefully
document any reasons, in view of the fact that it may well become a live issue
in tribunal proceedings and will require evidence.

Key points

– A transferee’s motive for not to taking on the transferor’s staff is
relevant in deciding if Tupe applies.

– A deliberate refusal by a transferee to take on staff may mean a tribunal
will treat the case as if those staff had been taken on.

– Transferees will have to consider their reasons for not taking on staff
and, if valid, document them.

By Sarah Lamont, a partner at law firm Bevan Ashford

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