Henke v Gemeinde Schierke, Verwaltungsgemeinschalft "Brocken"
European Court, 15 October 1996

The transfer of administrative functions from one local authority to a new larger authority formed by a number of municipalities is not covered by the Acquired Rights Directive, the European Court of Justice has concluded in a surprise decision. While the case is significant when purely administrative functions are transferred, it does not apply to services contracted out under compulsory competitive tendering.

These services are clearly economic entities which are required to make a rate of return and will remain subject to TUPE when they are contracted out. This should include white-collar service functions as well as services like refuse, catering and cleaning. 

More difficult questions may arise when all of a council's functions are transferred to a new body. Where this includes economic activities, including services, one would expect the Directive to apply. We do not know enough about the activities transferred in the Henke case to know how this compares to the situation in Germany. 

When the municipality of Schierke was merged with other councils to form the 'administrative collectivity' of Brocken, the councils' administrative functions were transferred to Brocken. Mrs Henke, who was secretary to the mayor's office in Schierke, argued that the council carried out, at least to some extent, activities of an economic character and that it should be regarded as an undertaking. 

The European Commission and the governments of Germany and the UK argued that a local public authority does not come under the Directive. The ECJ appears to agree, but without any supporting analysis. 

The court asserts that 'reorganization of structure of public administration or the transfer of administrative functions between public administrative authorities' falls outside the Directive. The court refers to the definitions of undertaking in the community languages, again without a proper analysis of the implications. 

The crux of the judgment is where the court concludes that the transfer 'related only to activities involving the exercise of a public authority. Even if it is assumed that those activities had aspects of an economic nature, they could only be ancillary.' 

This is difficult to reconcile with the Court's analysis in Rask (1993) IRLR 133, Redmond (1992) IRLR 133 and Commission v UK (1994) IRLR 392 which establish that the Directive applies to transfers of ancillary functions and non-profit making undertakings. It is likely that when interpreted in the context of those decisions, the impact of the Henke case will be limited - rather like the impact of Rygaard (1996) IRLR 51 which was heralded by employers as a sea change in TUPE decisions, but turned out to be nothing of the sort. 

In Henke the court focused on the administrative nature of the functions concerned and the exercise of public authority. Frustratingly, we are not told what functions were transferred, so we cannot make a comparison with authorities in the UK. 

Administrative reorganisations in the UK usually involve specific legislation which provides transfer rights for employees. It is difficult to see why the protection of the Directive should be denied to certain groups of workers when, unlike the Collective Redundancies Directive, there is no express exclusion for 'public administrative bodies or establishments governed by public laws', a concept considered in British Coal (1993) IRLR 104.Â