Suzen v Zehnacker Gebaudereinigung GmbH Krankenhausservice (European Court of Justice, 11 March 1997)
Betts v Brintel and KLM (Court of Appeal, 26 March 1997)
European Commission Explanatory Memorandum: Guidelines on the Application of the Acquired Rights Directive 
Evans v East Riding of Yorkshire (Industrial Tribunal, 18 February 1997)

Where does the Suzen judgment leave us? The Court effectively re-emphasises the importance of applying the factors listed in the Spijkers case [1986] CMLR 1119 which is the basis of all ECJ decisions on TUPE. The Court in Suzen rejected the view of the Advocate General that the Directive should not apply to contracting out.

The fear is that the decision will encourage contractors to attempt avoidance strategies. Contractors may think they can avoid the consequences of TUPE by refusing to take on assets or staff. This, of course, would not assist contractors when an in-house service is first put out to tender as this will still be covered by the Directive, following Schmidt.

Even second stage transfers will present difficulties for transferees. In many cases the assets will be necessary to carry out the work or the only intangible asset will be the monopoly right to carry out the service under the contract in return for reward, which will inevitably continue after the transfer. Indeed, the employees' skills are themselves an intangible asset.

A contractor who refuses to take on employees to avoid TUPE takes a considerable risk. Under the Directive, employment contracts transfer whether the new contractor likes it or not (Rotsart de Hertaing [1997] IRLR 127 ) - a point which the Suzen decision does not take properly into account. It is no excuse for an employer to say that if he had known that TUPE applied he would have had a good reason to dismiss the staff (BSG v Tuck [1996] IRLR 134).

Even if an employer wanted to refuse employment to the existing staff, he would find it hard to do so in a way which avoided TUPE liability. Suzen says that the Directive will apply where a "major part" of the staff transfers. This may be less than a numerical majority. It may be one or more key staff whose expertise is important to the contract, for example managers, supervisors or staff with particular skills. This is consistent with the idea that the skills of existing staff are an intangible asset.

These staff are likely to transfer in most cases. In many sectors, it will be open to contractors and those awarding contracts to ensure this occurs by making staff transfer a stipulation of the contract. The current exception is local government because of statutory restrictions which would make this unlawful "anti-competitive" behaviour.

Bear in mind also that the ECJ said that the identity of an undertaking can also be derived from the way in which work is organised, operating methods or operational resources - some if not all of which will remain substantially unaltered following a change of contractor.

The ECJ goes too far in saying that "the mere loss of a service contract to a competitor cannot by itself therefore indicate the existence of a transfer". But, even if this proposition is accepted, it does not alter the fact that in most cases the change of contract in these circumstances will be covered by the Directive. The Court in Suzen recognised this in its reference to "a group of workers engaged in a joint activity on a permanent basis" as a part of an undertaking capable of transfer.

Choppers chopped

The Court of Appeal appears to overlook a number of aspects of the Suzen decision in the case of Betts. The case concerns a contract to provide helicopter services to Shell oil rigs. The contract was operated by Brintel but was then awarded to KLM.

In 1995 the High Court supported the argument of the unions that this was a transfer covered by TUPE. The Appeal Court has overturned this decision and, in doing so, relied on Suzen which was decided a few days before the appeal hearing.

The Court of Appeal accepted that the provision of the helicopter service constituted an undertaking, but it defined the undertaking as including substantial assets, many of which did not transfer. It distinguished the case from labour-intensive contracts such as cleaning (as in the case of Dines [1995] ICR 11) and said that because only limited assets transferred, the undertaking did not retain its identity and was not transferred.

The Court was dismissive of the fact that KLM declined to take on staff in an effort to avoid TUPE. This is contrary to the policy behind the Directive. In taking this approach, the Court also failed to appreciate the distinction between the transfer of "a major part" of the workforce, as required by Suzen, and the transfer of a majority: a small number of significant employees may amount to a major part even if they are not the numerical majority of the workforce.

It is worth emphasising that the Court did not overturn any previous UK decisions and reaffirmed the importance of the test in Spijkers [1986] CMLR 1119 although the Court describes Suzen as a "shift of emphasis, or at least a clarification".

As clear as mud

The Suzen decision is a political decision attempting to reconcile the previous cases with the pressures on the court from governments and employers to limit the application of the Directive, particularly in the sphere of contracting out. This can be seen from the European Commission's attempt to modify the provisions of the Directive and, now, from the Commission's "Explanatory Memorandum" on the interpretation of the Directive issued on 11 March 1997 -the same day as the Suzen decision. Coincidence? Certainly not.

The Explanatory Memorandum is not legally binding, but it is an indicator of the approach the ECJ is likely to take to the cases on the Directive which are in the pipeline.

The Memorandum is described as a "useful tool for a better understanding of Community law in a very complex area which it is not always easy to interpret". As with Suzen, the Memorandum stresses the continuing validity and importance of the existing cases including Schmidt, but it wrongly states - inconsistently with Suzen- that there can only be a transfer where there is "the transfer of an organised set of assets by means of which the activities ... can be carried on in a solid manner". This involves a misquote and a misinterpretation of the Rygaard decision [1995]IRLR 51 which applies only to one-off works contracts. This misinterpretation is reflected in the Suzen judgment.

The Memorandum is useful in restating that even agreed changes in terms and conditions are invalid where the reason for the change is the transfer itself, which supports the approach of the Employment Appeal Tribunal in Wilson v St Helens BC [1996] IRLR 320 - which is shortly to be heard in the Court of Appeal.

As against this, the Memorandum is wrong to state that the Directive prohibits only dismissals where "the only reason is the transfer". If the dismissal is for a reason connected with the transfer it is automatically unfair, even if there are other reasons, unless the employer can establish an economic technical or organisational reason entailing changes in the workforce.

Perhaps the most significant aspect of the Memorandum is the list of thirteen cases on the Directive pending before the European Court. Those wishing for certainty and stability in the interpretation of TUPE are unlikely to have their wishes fulfilled.

Clarity begins at home

It is to be hoped that the UK courts will continue to adopt a pragmatic and expansive approach to the applicability of the Directive. It took some time for the message to get across, but once the courts took on board the purposive approach of the Directive, they applied it in a logical manner which confirmed its application to most contracting out, in the decisions following Dines [1994] IRLR 336. They rejected arguments that subsequent European Court decisions significantly narrowed the application of TUPE - see the response to Rygaard in BSG v Tuck. The appeal court's approach in Betts, however, does not give immediate cause for optimism.

There is support for the positive trend of cases in the Industrial Tribunal decision of Evans v East Riding which said that local government reorganisation in the UK is covered by TUPE despite the European Court decision in Henke [1996] IRLR 701.

The Tribunal was satisfied that a UK local authority is very much an economic entity. Nuances from the Suzen decision and the Memorandum should not deflect the UK courts from this type of pragmatic approach.