Legal loophole may help companies avoid Tupe

Much of the uncertainty has been caused by the apparent divergence between the decisions of the European Court on the Acquired Rights Directive (the European Directive which the Transfer of Undertakings (Protection of Employment) Regulations 1981 (Tupe) implements), and decisions of UK courts and tribunals on whether Tupe applies. This resulted in divisions of the employment appeal tribunal (EAT) coming to apparently conflicting decisions which tribunals (and employers) then have to interpret.

In one case the EAT held that the law on whether Tupe applies was in such a mess that as long as a tribunal had tried to apply the law, the decision it arrives at should be supported, which means the chances of an employer successfully appealing a decision are low.

This is obviously of little help to employers having to make decisions on a contract in advance and not with the benefit of the 20/20 hindsight which tribunals have.

The divergence has arisen as a result of the UK courts’ and tribunals’ reaction to Süzen v Zehnacher Gebäudereinigung Krankenhausservice. The European Court said the directive only applies to a contracted out service where there is a transfer of significant tangible or intangible assets, or a transfer of the major part of the workforce who provided the service prior to contracting out. The first of these tests is used where a service is “asset reliant”, that is, it depends on the use of significant assets, such as catering. The second test is used where it is “labour intensive” – where the most important element is the workforce.

UK courts, particularly the Court of Appeal, in ECM (Vehicle Delivery Service) v Cox, had disliked the fact that Süzen allows the parties to circumvent Tupe by designing the contract so assets and/or staff will not transfer.

So, the court in ECM said the importance of Süzen had been overstated and there could be a transfer of a service where neither of the tests in Süzen were fulfilled.

It also confirmed it was appropriate to examine the transferee contractor’s motive in refusing to take on staff or assets to see whether it evidenced an intention to evade Tupe. There was, therefore, a feeling that even if staff were not taken on in, say, a labour-intensive service by the new contractor, a tribunal might still find that Tupe applied.

However, two news cases, ADI (UK) v Willer and Whitewater Leisure Management v Barnes, both of which involved the contracting out of labour intensive services, prefer Süzen. In addition, the EAT decided that where assets or employees were not transferred, it did not matter if the transferee tried to avoid the Tupe regulations – intention alone was not sufficient to mean there was a Tupe transfer.

The implications of this, if tribunals follow the approach taken in these two EAT cases, is that it will be possible for transferees in contracting out situations to prevent Tupe applying and the fact the transferee intended to evade it would not change the outcome. That is the theory that seems to have been accepted in the ADI and Whitewater Leisure cases.

One word of caution – given the lack of protection available to employees in that scenario, it is difficult to believe tribunals will not want at least to explore whether there has been a deliberate decision not to take on employees/assets purely to evade Tupe. Any clarity in this area from the proposals to amend the Tupe regulations (consultation is due this year) would be welcome.

Sarah Lamont is a partner at Bevan Ashford

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