The flow of decisions from the courts and tribunals on all aspects of TUPE has continued unabated. This is the first in a two part feature on recent cases.
Next month's issue will examine the latest decisions on when there has been a transfer covered by the TUPE regulations including the Employment Appeal Tribunal case of RCO Support Services v UNISON, where judgment was given as we were going to press.
TUPE Dismissals and economic reasons
DJ Collins v John Ansell & Partners Ltd, IDS Brief 659, EAT/124/99
A dismissal for a reason connected with a transfer is automatically unfair, but if the reason for dismissal is an economic, technical or organisational reason (ETO) entailing changes in the workforce, it is possible for the dismissal to be fair.
The courts have had some difficulty working out the relationship between TUPE as the principal reason for dismissal and an ETO reason for dismissal, as discussed in LELR of September 1999 and the Court of Appeal decision in Whitehouse v Blatchford.
The EAT in the DJ Collins case adopts the view that where a dismissal is for a reason connected with the transfer, the automatically unfair dismissal provisions are disapplied if the reason counts as an ETO reason. Therefore, an ETO reason may itself be connected with the transfer.
The EAT was satisfied in this case that the reason was both connected to the transfer and economic or organisational, but was unable to determine whether that economic reason entailed changes in the workforce involving a change in the overall numbers and functions of the employees looked at as a whole, even if there had been changes in the identity of those employees who make up the workforce.
Dismissals, Insolvency and TUPE
Honeycombe 78 Limited v Cummins and other and the Secretary of State for Trade and Industry, IDS Brief 657 EAT/100/99
Maxwell Fleet and Facilities Management Limited (in administration) [2000] IRLR 368 (High Court)
Euro-Die (UK) Limited v Skidmore and Genesis Diesinking Limited, IDS Brief 655, (EAT)
Honeycombe 78 Limited got into financial difficulty. An insolvency practitioner advised that the only likely purchasers were the directors. The company went into administration on the basis this was more likely to lead to a sale as a going concern. All staff were dismissed by the administrator, but the majority were then offered jobs by the directors in the new company to take effect when the transfer took place a few days later.
The EAT reached the rather surprising conclusion, overturning the Employment Tribunal, that in those circumstances the reason for the dismissal was an economic one, so it came within the ETO category (see above) and that consequently the transfer-related reason was displaced. This meant that the staff who were not re-employed were not entitled to be transferred as they were not "employed immediately before the transfer" because they had been validly dismissed. The EAT thought that the dismissals were despite of the potential sale, not because of it.
If that decision may be taken as an encouragement by some insolvency practitioners or directors to dismiss in an attempt to avoid TUPE, the Maxwell Fleet decision is welcome as sounding the death-knell for the "hiving down" provisions in TUPE.
Maxwell Fleet, an insolvent company dismissed its employees, transferred the business into a wholly owned subsidiary company who in turn transferred the business to another company which offered employment to most of the employees, but without the benefit of TUPE.
This transparent device appeared to be allowed by the express "hiving down" provisions of Regulation 4 of TUPE. However, the EAT accepted that this was a situation where an intermediary was inserted purely in an attempt to defeat the TUPE regulations and therefore the transaction should be treated as one transaction with the employees' rights transferring under TUPE.
The Euro-Die case also concerned a company in financial difficulty. Mr Skidmore was told that the company was closing, that a new company would be formed but that if he took up employment with the new company his continuity of employment would not be preserved. He refused to work for the new company on that basis. The Employment Tribunal found that this amounted to a dismissal and that the transfer was the reason for the dismissal. In those circumstances, he was treated as employed immediately before the transfer and succeeded in a claim for unfair dismissal against the new employer.
Objecting to Transfer
University of Oxford v Humphreys and Associated Examining Board [2000] IRLR 183 (Court of Appeal)
What happens when an employee objects to transferring on a TUPE transfer was considered by the Court of Appeal in Humphreys.
The Regulations say that where an employee objects to transferring simply because they do not wish to work for the new employer, they do not transfer, but they lose any right to claim unfair dismissal or redundancy. However, the Regulations also say that if the objection is because the transfer would involve a substantial change to an employee's working conditions to his detriment, he can treat his contract as terminated by the employer and claim unfair dismissal. In Humphreys the Court of Appeal held that this is so whether the employee leaves before or after the transfer.
The same point arose in the Euro-Die case where the objection was not to the transfer per se, but to the transfer without continuity of employment.
The effect of a dismissal
Clutterbuck and others v MOD, IDS Brief 662, (EAT)
In this case the EAT reaffirm the decision in Wilson v St Helens and Meade and Baxendale v British Fuels Limited that a dismissal on transfer is effective. The employee re-employed on different terms is not able to argue that his old contract continues and that there has been an unlawful, ineffective variation. The employee can only argue that the dismissal is unfair.
This leaves open the question of the appropriate remedy. We remain of the view that the appropriate remedy is reinstatement under the terms of the old contract, not merely compensation for the financial loss suffered.
What transfers?
Personal Injury Liability
There have been conflicting cases on whether a new employer under TUPE inherits liability for workplace accidents or diseases occurring before the transfer to staff who transfer.
The Court of Appeal's answer is a resounding "yes". Liability in tort transfers under Regulation 5(2)(a) of TUPE as it arises in connection with an employee's contract of employment.
There was a danger this may leave employees in a worse position. The old employer would cease to be liable. That employer would have employer's liability insurance covering the accident. The new employer would become liable, but his insurers would not be liable to indemnify for accidents arising before they became "on risk".
Fortunately, the Appeal Court conclude that the benefit of the old employer's indemnity under the insurance policy in respect of liability for the accident also transfers.
This means that the new employer is sued in legal proceedings, but the insurance company for the old employer remains liable to pay out. Where there is any doubt as to whether there has been a transfer or whether the employee concerned was employed in the part concerned immediately prior to the transfer, the safest course is to sue both the old and the new employer.