Cornwall County Care Ltd v Brightman, Employment Appeal Tribunal 27 February 1998, unreported

The issue of changes in terms and conditions following a transfer of undertaking is a difficult one. Too difficult for the Court of Appeal which grappled with the issue in the Wilson and Meade cases (see Issue 13 of LELR, TUPE: Changes in Contracts) and gave a decision which has been condemned from both sides of the industrial fence.

The House of Lords was due to consider the appeal in that case in early March, but unfortunately one of their Lordships fell ill. He has our sympathy, but now we must all wait until June before the Court of Appeal decision is subjected to higher scrutiny. In the meantime, unions, emplo-yees and employers must try to make practical sense of the appeal court's decision. So must Industrial Tribunals and the Employment Appeal Tribunal, the President of which has candidly observed "we have to confess we have not found it easy to apply" the decision.

He made this comment in the Cornwall County Care case where care homes were transferred to a charitable company created and supported by the County Council. It was as transfer covered by the Transfer of Undertakings (Protection of Employment) Regulations - TUPE. Six months after the transfer, the company dismissed all staff and re-employed them on worse terms.

The Industrial Tribunal con-cluded that the transfer was a vehicle to effect wage cuts which the council was unwilling to carry out and that consequently the dismissals were related to the transfer. This was accepted by the EAT.

This left the question of the effect of the dismissal. The Court of Appeal in Wilson and Meade said that a dismissal for a reason connected with a transfer was not simply automatically unfair, it was void. This would mean it was ineffective and the employees remained employed on their old contracts, entitled still to rely on their old terms and conditions.

This was rejected by the EAT, largely on the grounds that it would lead to "unsatisfactory practical consequences". As pointed out in LELR issue 13, it is unrealistic to say that employees who are not taken on by a transferee employer are not dismissed and cannot claim unfair dismissal and must therefore turn up for work after the transfer. The effect of TUPE, the EAT says, is not to scrub out the dismissal, but to prevent the dismissal from prohibiting the employee to enforce her rights to claim unfair dismissal against the new employer, even where the dismissal takes place before the transfer occurred.

The EAT said that any alternative approach would mean that the employee would not know where she stood: was she dismissed or not? Could she claim unfair dismissal?
The decision usefully reiterates that an employer cannot use the occasion of the transfer to worsen employees' terms and conditions, although the EAT goes on to say that it must be "the transfer itself, and nothing else, which causes the adverse change which makes the agreed change ineffective".

For all this analysis, the eventual substance of the decision of the EAT is something of a damp squib. It says that the dismissal was effective because it was "accepted" by the employees agreeing the new terms and conditions whilst reserving their right to claim.
It treats this as a dismissal and re-employment for which the employees should be compensated. They would then be employed on the new terms and the compensation payment would effectively "buy out" the reduction in terms and conditions.

This ignores the remedy of reinstatement. If there is an effective dismissal, the remedy is not confined to compensation. Employees should be entitled to claim reinstatement in their old job on their old terms and conditions.

There is a strong argument that this remedy is necessary to give effect to the policy of the Directive that the employer should not use the transfer as an excuse to cut pay and conditions.

One principle has survived unscathed through this decision and the Court of Appeal decision in Wilson and Meade. Where there is no dismissal, a change in terms and conditions caused by the transfer is ineffective, even where it is agreed.

Employees remain entitled to their pre-transfer terms and conditions. It is important not to lose sight of this in the confusion surrounding cases where employers have tried to dismiss staff to push through pay cuts.

Dog wardens: TUPE bites back

The Highland Council v Walker (unreported) EAT Scotland, 25 November 1997

The decisions of the European Court in Suzen and the Court of Appeal in Betts (see Issue 10 of LELR, Losin' Suzen gives TUPE a bruisin') have led some to fear a significant narrowing of the scope of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE). This is an issue of particular importance in view of the current review of the legislation by the UK government in its Presidency of the European Union.

The Scottish Employment Appeal Tribunal has shown a welcome resolve in the face of arguments that TUPE should not apply to changes of service provider. There was the decision in Douglas. Now we have the Highland Council case.

The case concerned dog handling services which were handled for two councils by a private company called Watchdog. Local government reorganisation meant that the two councils and other authorities were subsumed in the new Highland Council. The Highland Council decided not to renew the Watchdog contract, but to carry out the work using existing staff of the former Inverness Council.

The Industrial Tribunal said this was a TUPE transfer. The dog warden services for the councils were an identifiable part of Watchdog's business, which retained its identity after transferring back to the Council. It was an ongoing activity and thus did not need to meet the additional test of being a "stable economic entity", which applied only to one-off contracts.

The employers argued that the decision was wrong because of Suzen and Betts. They also argued that the service was an administrative function and therefore not covered by TUPE because of the Henke decision (see Issue 5 of LELR, New ruling on public admin staff and TUPE).

The EAT accepted that the dog warden service was a distinct undertaking capable of being transferred, even though there were no obvious assets involved in the business.
The EAT accepted that, even after Suzen, the provision of services is an economic activity which is capable of being transferred.

The Industrial Tribunal had observed that the requirements of the dog warden service were laid down by statute and remained broadly the same. The only real asset was a van. This was not transferred, but the tribunal did not regard this as fatal to the application of TUPE, observing that "where an economic entity is able to function without any significant tangible or intangible assets, the maintenance of its identity following the transfer affecting it cannot depend on the transfer of such assets".

The tribunal concluded that the council was taking on the totality of the employees. This was not undermined by the Council's refusal to honour its obligations by refusing to "accept" the transferred workforce.

The EAT accepted that the absence of a transfer of assets did not preclude the application of TUPE and that Suzen "did not close the door" where no transfer of assets occurred. The significance of this decision is the robust approach taken to the application of TUPE, even after Suzen and Betts.

It is a reaffirmation that the absence of a transfer of assets is of little relevance where the contract which changes hands is labour-intensive. The decision may have even wider significance.

It seems to endorse the approach of the Industrial Tribunal that an employer cannot escape the application of TUPE by failing or refusing to take on staff who would otherwise transfer. This is fast becoming the crucial issue on the applicability of TUPE as employers adopt avoidance strategies: refusing to take on staff in the hope that this will prevent TUPE applying. The Highland Council case may reinforce the legal arguments against the validity of that tactic.