Transfer of undertakings

Although shortly about to turn 20 years old, the 1981 Transfer Regulations (Tupe) have been a source of litigation for many years. The essential difficulty has been the vacillation by the European Court of Justice as to what constitutes a transfer under Tupe.

At its heyday, in a case called Schmidt, the transfer of a cleaning contract in a bank involving only one cleaner was held by the ECJ to be a transfer within Tupe. More recently, the ECJ, in a decision called SŸzen, sought to limit severely the very broad interpretation of the legislation by stating that in a labour-intensive business there will be no transfer where a change in contractor occurs and neither significant assets nor a substantial part of the workforce, in terms of numbers or skills, are transferred. Although this was not intended, the SŸzen decision gave the green light to employers to avoid Tupe altogether – and thus the onerous employment law consequences of the regulations – by simply ensuring that neither of these two circumstances occurred.

The English courts’ approach

The decision in SŸzen was not liked by the English courts because of the obvious loophole it opened up. First we had the Court of Appeal’s decision in the Cox case which made it clear that although it was paying lip service to the SŸzen approach of the ECJ, any attempt by an employer to avoid Tupe in bad faith by not taking on the staff of the previous employer would mean Tupe still applied.

The English courts have now gone a step further in two decisions of the Employment Appeal Tribunal – RCO and Sinclair – where the leading judgment by Mr Justice Lindsay explicitly makes it clear that SŸzen can no longer be safely relied on and that the absence of movement of significant assets or a major part of the workforce does not necessarily deny the existence of the relevant transfer.

The current position

The EAT’s decisions in the above two cases have in effect relegated the SŸzen decision into non-existence. Going back very obviously to the pre-SŸzen position, the EAT has made it clear that the decisive factor is whether or not the business in question retains its identity and whether or not the business is continued by the new employer with the same or similar activities.

Citing its approval of the ECJ’s previous decisions which gave rise to the above test, the EAT concludes with a clear statement of the political reasons underlying the decision. These are that the whole purpose of the legislation is to safeguard employees’ rights on a transfer of their business from one employer to another.

It noted that it is quite easy, in activities such as cleaning and catering, for a new employer to take on a business without taking on the assets or the workforce of the previous employer since the assets are rarely crucial to the business and the employees usually have commonly-available skills. The whole purpose of the legislation could therefore be subverted by calculating employers who are cleverly legally advised.

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