Hernandez Vidal SA v Gomez Perez [1999] IRLR 132 (ECJ)
Sanchez Hidalgo v Associacion de Servicio Aser [1999] IRLR 136 (ECJ)
Magna Housing Association Ltd v Turner and others, EAT 21/10/98 (IDS Brief 631)
Lightways (Contractors) Ltd v Hood and others, EAT 17/11/98 (IDS Brief 631)
The UK Government is currently engaged on a re-draft of the TUPE Regulations following last year's amendment to the Acquired Rights Directive from which TUPE derives.
As reported in Issue 24 of LELR, the amendments introduced a new definition of the scope of the Directive. They included the provision: "There is a transfer within the meaning of the Directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary."
This convoluted phraseology was an attempt to synthesise the decisions of the European Court in a series of cases, particularly in the light of the Suzen judgment (reported in Issue 10 of LELR).
In two recent cases the European Court has demonstrated a desire to interpret Suzen in a way which reflects the new definition in the Directive. In doing so, the Court indicates a change in emphasis from some parts of the Suzen decision.
The Gomez Perez case involved a business which contracted out the cleaning of its premises. It then terminated the contract and decided to carry out the work itself. The Court said that the mere fact that the work carried out before and after the change is similar does not of itself mean that the Directive applies.
The transfer is covered by the Directive if the operation is accompanied by the transfer of an economic entity, meaning "an organised grouping of persons and assets enabling an activity which performs a specific objective to be exercised". This language bears a remarkable similarity to the amended Directive which, of course, did not apply to this case and has not yet been brought into force in Member States.
This left the question of whether there can be a transfer of undertaking without a transfer of assets. The Court recognised that a transfer of assets is of little relevance in a labour-intensive contact.
The Court considered this issue in Gomez Perez and in the related case of Sanchez Hidalgo, which concerned home help and security services which were transferred from one contractor to another. In both cases the Court said that "in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity". This led the Court to the conclusion that the Directive will apply where the new employer does not merely pursue the transferred activity, but takes over a major part of the employees assigned to the contract.
This leaves the unsatisfactory position where the application of TUPE to the transfer of a labour-intensive contract depends to a large extent on the proportion of employees who transfer. This is a circular argument, leading to uncertainty.
The EAT in the UK has taken a refreshingly positive and robust approach to the issue. It has said that an employer's refusal to take on staff cannot prevent TUPE applying (ECM v Cox, Issue 26 of LELR). In two recent cases the EAT decided there was a transfer even though the majority of staff did not transfer.
In the Magnet case, no assets or employees transferred, but the EAT said that the question was whether the employees should have been taken on.
In the Lightways case, the EAT accepted that in the context of service contracts, an economic entity could amount to nothing more than the workforce or part of it. It was not essential that a majority of the workforce transfer, just a "material and identifiable" number of employees and as the new contractor required particular personnel to carry out the contract in this case, there was a transfer.
This enlightened approach is welcome, but the continued development of law at European level and the opacity of the language makes it very difficult for workers, unions and employers to know where they stand. In this context, it is welcome that the Labour Government does not intend merely to "copy out" the wording in the Directive, but to draw up a new TUPE tailored specifically to deal with the situation in the UK. The Government is consulting with the unions, contractors and the public sector in an effort to achieve a solution supported by consensus.