Secretary of State for Trade and Industry v Cook [1997] IRLR 150 (EAT)

Contracts of employment automatically transfer to the new employer where there is a transfer of an undertaking, the Employment Appeal Tribunal has finally accepted. And the EAT went on to say that its decision in a previous case, which undermined this principle, was wrong and should not be followed by Industrial Tribunals.

In Issue 9 of LELR we reported on the European Court of Justice decision in Rotsart de Hertaing (see: EAT puts right a TUPE wrong). The Court stressed that, where there is a transfer of an undertaking, employees' contracts automatically transfer even if the transferee refuses to employ the affected staff.

We commented that this confirmed the view that the Employment Appeal Tribunal had been wrong in its previous decision of Photostatic Copiers v Okuda [1995] IRLR 11. In that case the EAT said that employment contracts do not transfer where the employee has not been notified of the transfer or the identity of the transferee.

Happily in the Cook judgment, the EAT has now taken the opportunity to say that the Photostatic Copiers decision is wrong and should not be followed by Industrial Tribunals. 
The EAT points out that if the Photostatic Copiers judgment was right, employers could avoid the impact of the TUPE Regulations. All employers would need to do was fail to tell employees about the transfer or the identity of the new employer. The contracts would not then transfer and the employees' only remedy would be a claim for unfair dismissal against the old employer which may be insolvent.

This EAT decision confirms that contracts, and liability, transfer automatically. But this may not always be beneficial for the employee.

In Cook it meant the employees could not recover payments under the state redundancy fund because liability transferred from the insolvent old employer to the solvent new employer, whose identity they did not know when they were dismissed.

This does mean that employees may find contracts of employment transferred without their knowledge. This deprives them of the opportunity to object to transfer, but (as the EAT points out) this is a pretty useless right as it involves resigning and giving up any claim to unfair dismissal or redundancy.

The EAT points out that an employee who discovers the contract of employment has transferred after the transfer could resign anyway, and may also be able to claim constructive dismissal if the new employer has concealed the true position.

This must include the right to resign and claim constructive dismissal after the transfer where the change of the identity of the employer is, of itself, a significant detrimental change for the employee (TUPE Regulation 5(5)). A Tribunal may well conclude that concealment of the identity of the transferee reinforces the employee's argument on this point.

The employee has the additional protection that there must be information and (usually) consultation in all cases where a transfer occurs, even if only one employee is affected. If an employee is transferred without his knowledge, he will be able to bring a claim for failure to consult and, if he is dismissed or has his terms and conditions reduced, he will be able to bring a claim under TUPE against the new employer.

There would seem to be little advantage to employers in concealing transfers. Employees' legal rights will be protected anyway and an employer who infringes those rights and conceals the fact of transfer will have no prospect of successfully defending a claim. A Tribunal will be bound to conclude that dismissals of employees in those circumstances are connected to the transfer and automatically unfair and that attempts to reduce terms and conditions are invalid.

TUPE and derecognition

Whent and others v T. Cartledge Ltd [1997] IRLR 153 (EAT)

Employers bidding for public service contracts have adopted a number of strategies in attempts to avoid the impact of the Transfer of Undertakings Regulations (TUPE). One by one these strategies have been undermined by successive decisions.

Contractors have recently concentrated their attacks on limiting the effects of TUPE. 
This involved cuts in terms and conditions, but the scope for this approach has been greatly restricted by the Employment Appeal Tribunal decision in Wilson v St Helens BC [1996] IRLR 320 which outlawed changes made as a result of the transfer. The appeal in the Wilson case is due to be heard by the Court of Appeal on 9 May 1997.

Many employers chose to preserve existing terms for transferred staff, but deny them any pay rise. This was undermined by the EAT decision in BET v Ball, reported in Issue 7 of LELR (see: Right to pay increases following a transfer) which said that where the right to a pay rise was enshrined in a collective agreement which was incorporated into individual contracts, the new employer was bound to meet the pay rises even where he did not participate in the process which set the new rate.

This has been taken a step further in the GMB's case of Whent, involving the transfer of the street lighting department of Brent Council. Following the transfer, the new employers derecognised the GMB and wrote to all employees saying that all recognition arrangements and collective agreements no longer had effect.

The employees all had contracts saying their "rate of remuneration ... will be in accordance with" the national conditions in the collective agreement, the NJC terms. The employers persuaded the Industrial Tribunal that withdrawing from the collective agreements meant that the collective bargaining machinery no longer applied to them and they were not bound by subsequent pay increases.

The EAT overturned that conclusion. The NJC terms were incorporated into individual contracts. This meant the employers could not take away the employees' rights simply by terminating the collective agreements. The mechanism for fixing pay was a term which became part of the individual contract. The employees were entitled to receive pay rises in line with NJC rates following the transfer.

The employers complained that they would be bound by the NJC rates ad infinitum even though they had terminated the collective agreement. The EAT said this was wrong. The employers could still negotiate changes or force changes by dismissing employees and 
re-employing them on worse terms.

This would be subject to the restriction that if those changes were connected with the transfer they would be invalid and dismissals connected to the transfer would be automatically unfair. This is as it should be. If the transfer had not occurred, there would not have been pay cuts, pay freezes or sackings, so the transfer should not provide a reason for those steps.

The combined effect of the Wilson, Ball and Whent decisions means that many employees transferred to private companies remain entitled to pay rises in line with the public sector bargaining arrangements, even where employers have tried to deprive them of those rights.