Rotsart de Hertaing v J Benoidt SA and IGC Housing Service [1997] IRLR 127 (ECJ)
Secretary of State for Trade and Industry v Cook (EAT) 13 December 1996, IDS Brief 583
The European Court of Justice confirmed in its ruling in Rotsart that TUPE Regulations automatically transfer the employment contracts of those employed in the part transferred. The old employer and the new employer cannot avoid this by trying to reach a different outcome.
This means that contracts transfer even if the potential new employer refuses to take on the staff. The old employer and the new employer cannot reach an agreement between themselves which seeks to avoid this, nor can they agree to postpone the date on which the transfer of employment contracts occurs. The transfer of employment contracts occurs automatically on the same day that the transfer of undertaking occurs.
This is not in itself surprising. The Directive is intended to safeguard employee rights and it should not be possible for employers to reduce those rights. But it is worth reflecting on the consequences.
A transfer which is automatic would not require the consent or agreement of any of the parties: old employer, new employer or employee. This means an employee can be transferred without their knowledge.
The Employment Appeal Tribunal previously decided that there was no transfer of employment contracts unless the employee was given notice of the transfer (Photostatic Copiers v Okuda [1995] IRLR 11). This is wrong. If it was correct it would be alarming because employers could deny employees their rights on a transfer simply by not telling them about the transfer. There is of course an obligation to inform employee representatives of all transfers. Fortunately, the EAT now shares this approach and in a recent decision declared that the Okuda case was wrongly decided (Secretary of State v Cook, IDS Brief 583).
The decision also reinforces the approach in the case of Wilson v St Helens BC [1996] IRLR 320. In that case, an agreement to change terms and conditions was invalid because it conflicted with the TUPE Regulations, even though no-one thought TUPE applied at the time.
It must mean that a dismissal for a reason connected with the transfer is not only unfair, but also cannot validly prevent the transfer of contracts of employment to the transferee. This is important because the EAT tried to get round Wilson in Meade [1996] IRLR 541by saying that because the employees had been dismissed and re-employed, they could be employed on less favourable terms. They could not insist on their old contracts, but only claim compensation for unfair dismissal.
This does mean that employees will be transferred whether they want to be or not. They do have the right to object (Regulation 5(4A)), but if they do so they will be treated as resigning. They will not be entitled to redundancy or unfair dismissal. This can operate very harshly (see Hay v George Hanson [1996] IRLR 427).
The position is different for employees who are faced with a substantial detrimental change in working conditions. They can resign and claim unfair dismissal. In those circumstances their contracts will not be transferred. A reduction in remuneration will be regarded as a substantial detrimental change, according to the Merckx case in the European Court [1996] IRLR 467.
This applies even if remuneration is reduced without changing the contract. An employee who is paid commission or profit-related pay who transfers to an employer where she will be able to earn less commission or profits will be lower has this option available. The same approach can be applied where the new employer refuses to offer a comparable pension.
Resigning and claiming unfair dismissal in those circumstances is hardly a viable option for an employee, but it does enhance the bargaining position of employees who do not want to transfer but would rather receive a redundancy payment or remain with their existing employer.