New ISG Limited v Vernon and ors
The 2006 Transfer of Undertakings (Protection of Employment) Regulations (better known as TUPE) state that an employee’s contract will not transfer to the new employer, if they inform either the transferor or the transferee of their objection in advance of the transfer.
In New ISG Limited v Vernon and ors (IDS 843), the High Court held that if an employee does not know the identity of the transferee before the transfer, they do not have to exercise their right to object beforehand.
Basic facts
Mr Vernon and his colleagues worked for ISG, a specialist recruitment agency providing staff to the rail industry. Their contracts contained a number of post termination restrictive covenants preventing them from soliciting, canvassing or dealing with clients for a year after termination.
ISG became insolvent and on 27 July 2007, New ISG (the newly created subsidiary of a competitor, UKRS) announced that it had bought the assets. None of the employees had been consulted before being told that they had transferred over.
Two days later, Mr Vernon and his colleagues resigned and started working for a competitor, ESS. New ISG sought an injunction against them for breach of the restrictive covenants, arguing that, under TUPE, they had passed to it.
The employees argued that, under regulation 4(7) they had never become New ISG employees. The company said that the employees should have made their objections clear prior to the transfer, not after.
Relevant law
Regulation 4(7) of the 2006 TUPE regulations states that an employee’s contract will not transfer if they inform “the transferor or the transferee that [they] object to becoming employed by the transferee.”
Instead, regulation 4(8) states that “the relevant transfer shall operate so as to terminate [the] contract of employment with the transferor but [they] shall not be treated, for any purpose, as having been dismissed by the transferor.”
Regulation 13 also requires employees to be provided with certain information, including the fact that there is to be a transfer, the likely date, the reasons for it and the implications of it.
High Court decision
The High Court agreed with the employees, saying that as they did not know the identity of the transferee before they was transferred to New ISG, they could not exercise their right to object under regulation 4(7) before the transfer. They had no option, therefore, but to exercise this right after the transfer.
It also noted that there were a number of breaches of regulation 13, including the fact that the employees were not informed of the identity of the transferee. Although not specifically identified as information that has to be provided, the court said that employees obviously needed it in order to decide whether it was appropriate for them to object or not.
In any event, the employees had all handed in their resignations two working days from the date of the announcement of the transfer to New ISG. This was a very short period of time and the High court said that the company could not seriously suggest that the employees had, by their conduct, indicated that they did not object to the transfer of their contracts.
It concluded that as there was no prescribed method for objecting to a transfer under the regulations, it considered that the five resignations on 1 August 2007 had been a valid way of objecting within time under regulation 4(7).
Comment
This decision is a victory for common sense. If a worker doesn’t know who the new employer is, it is difficult to see how they can make an informed decision as to whether or not to object to the transfer. Always beware, however, of the fact that the worker who elects not to transfer under regulation 4(7) is effectively treated as having resigned without entitlement to compensation. This suited Mr Vernon and his colleagues as they wanted to work for somebody else and avoid the post-termination restrictions in their contracts of employment. That will not always be the case.