When a major part of the workforce is not transferred on a change of contract, a Tupe transfer can still take place. In two recently reported decisions, the EAT finds that a Tupe transfer can still take place on a change of contractor even where neither significant assets nor a major part of the workforce are transferred. Before the decision in Süzen (1997), the ECJ gave the Acquired Rights Directive (ARD) a broad interpretation, to the extent that there was almost a presumption in favour of the ARD applying to outsourcing situations. One example is Schmidt (1994) in which the ECJ held that the ARD applied where the "undertaking" consisted of no more than a cleaner together with the tasks entrusted to her at the bank where she worked.
Süzen turned this thinking on its head. The ECJ held that an economic entity cannot be reduced to the activity entrusted to it and the ARD would only apply if there was a transfer of significant assets or, where the operation was labour intensive, if the new employer took over the majority of the employees.
After initial attempts to fall in line with Süzen, the EAT has become more outspoken in its disapproval of this decision. In ECM v Cox, 1999, the Court of Appeal stated that the effect of Süzen was to create a legal loophole as it was open to an incoming contractor to avoid the application of Tupe altogether simply by refusing to take on any of the previous employer’s staff. The EAT has now gone one step further in holding that the application of ECM should not be restricted to cases where there has been a deliberate Tupe-avoidance strategy.
In RCO Support Services v Unison and others, there was a change of service provider in respect of cleaning and catering services following a change of hospitals providing in-patient care. None of the staff was taken on by the new contractors. The employment tribunal held that there was a Tupe transfer in that there was an economic entity that retained its identity after the transfer.
In upholding the tribunal’s decision the EAT held the following.
- The tribunal was entitled to find that there was a relevant transfer and that Süzen can no longer be safely relied upon.
- The ECM decision would be followed. Further, the motive of the incoming contractor to avoid Tupe should not be treated as a limiting factor of that decision.
- The decisive criterion is whether the business retains its identity. All the relevant characteristics of the transaction must be considered including whether the operation is continued by the new employer with the same or similar activities.
The EAT concluded its decision with a compelling statement that, if Süzen were to be followed without qualification, "The protection of employees’ acquired rights, a basic objective of [the ARD] would not only be jeopardised but would be jeopardised in relation to perhaps the most vulnerable of all classes of workers, those with relatively simple skills which the incoming contractor could readily choose to supply by way of others in the labour market."
In ATL v (1) Sinclair and (2) AIE, the EAT held that the tribunal had been entitled to find that there was a Tupe transfer when ATL took over a training contract from Sinclair’s employer.
It held that Süzen could not be relied on to establish that there was not a relevant transfer where neither significant assets nor a major part of the workforce transferred. It also disposed of another argument raised by ATL that the economic entity in question was confined to one specific contract and that the ECJ’s decision in Rygaard (1996) meant that the ARD does not apply in such circumstances. The EAT refused to give Rygaard such a restrictive interpretation and held that it should be limited to single contracts for building works
Key points
- Süzen should no longer be relied on.
- There can be a relevant transfer, even if no assets or employees are transferred.
- The decisive question is whether the business retains its identity.
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By Linda Farrell, a partner at Bristows, [email protected]
