2 TUPE loops the loop

In the second of our two part feature on recent cases we examine the latest decisions on the crucial issue of whether there has been a transfer covered by the TUPE regulations. This aspect is often the most fiercely contested by employers and is one of the most frequently raised defences when workers seek to rely on TUPE to preserve their employment rights.

Is there a transfer?

In our October 1999 edition we welcomed the decision of the Court of Appeal in ECM v Cox which took a progressive approach to the application of TUPE, consistent with the purpose of the Acquired Rights Directive of safeguarding the rights of employees.

The Court in ECM was concerned with a case where the new employer declined to take on staff from the old employer in an effort to get round TUPE. The Court decided that it was relevant to consider the reason why the employees were not taken on and, in doing so, decided that there was a transfer.

This positive approach appeared, at first, to find a warm welcome. Certainly this was true of the Court of Session in Scotland in the Lightways case. Here a company had tendered for and won a contract on the express basis that TUPE applied to the exercise. It took on seven staff, including a foreman. There was no transfer of assets, but the work carried on was largely the same.

Subsequently, Lightways denied that TUPE applied. The Employment Tribunal and the Court decided, following ECM v Cox, that it was legitimate to take into account that the company had bid for and won the contract on a TUPE basis. A declared intention by the contractor prior to the transaction that TUPE will apply is a statement to the effect that the character of the undertaking will remain substantially the same and may shed light on the true nature of the transaction.

This does not mean that a contractor will be legally bound by a statement that TUPE will apply, but it is a factor to be taken into account and will make it easier for the employees to establish that there has been a transfer.

However, the serene progress towards a universal acceptance of a broad and purposive approach post the ECM v Cox case has received a jolt in two EAT decisions delivered in April.

Whitewater Leisure Management Limited v Barnes and ADI v Willer and others
In each case the Employment Tribunal had found there was no transfer. In the Whitewater case there had been a change in the contractor managing a leisure centre, but no transfer of ownership of assets, nor the transfer of a majority of the workforce. The ADI case concerned the contract for security at a shopping centre where the use of facilities transferred, but no staff were taken on.

The judgments are very similar in terms. The EAT correctly identifies that there are two separate questions to be answered: whether there was an identifiable economic entity and whether there was then a transfer of that entity.

The EAT formulates the first question as requiring there to be a "stable and discrete economic entity". This appears an overly restrictive interpretation of the case law, with undue emphasis on the requirement for "stability".

On the second question, the EAT says that in labour-intensive transfers one is looking to see whether the workforce is "substantially the same". Again, this appears to refine the case law test in a way which makes it more difficult for employees to satisfy.

The EAT seems sceptical of the positive impact of ECM, focussing not so much on the Appeal Court's attempt to put the European Court's Suzen decision in context, but more on the limited extent to which the reason why staff were not taken on may be relevant.

In both of the cases, the EAT upheld the decision that there was no transfer even though the operation was carried on in much the same way, in the same place, using the same facilities.

So what will emerge from the apparently mixed messages from the EAT? Will these two decisions represent a trend towards a less expansive approach or will the purposive approach in the ECM case and cases such as Lightways will prevail?

Fortunately the negative trend appears to have been swiftly reversed by The President of the EAT in the case of RCO Support Services Ltd v UNISON and others (EAT 28/6/00, unreported), a case handled for UNISON by Thompsons.

The EAT made no reference to the two EAT judgments referred to above, but reviewed the decisions of the European Court and the Court of Appeal. They asked themselves the question: "can we still safely rely on Suzen?"

The EAT, relying on the Court of Appeal decision in ECM v Cox, rejected the "simple and inflexible summary view" that Suzen meant there could be no transfer when there was neither a movement over of a majority of the workforce nor any significant assets.

They recognised that there can be an undertaking and a transfer notwithstanding that neither significant assets nor the majority of the workforce move over. The decisive criterion is whether the business in question retains its identity. Of particular importance is whether its operation was continued by the new employer with similar activities.

Assets and the transfer of staff are only two of the factors to be taken into account. The EAT focused also on the training, system and organisation that lay behind the activity.

The EAT concluded that there was a transfer and, in doing so, gave a ringing endorsement of the purpose and scope of TUPE. They emphasised the danger that giving Suzen unqualified force would mean employers could avoid TUPE by the simple expedient of refusing to take on staff and, in doing so, would deprive employment protection to workers - particularly in labour-intensive areas of employment such as cleaning and catering recognised by the EAT as "perhaps the most vulnerable of all classes of workers". The EAT rejected that approach and gave powerful support to the role of TUPE in protecting employment rights.