Proposed Amendment to the Acquired Rights Directive

Those hoping for greater certainty in the application of the legislation have not been well served by recent developments at European Union level. A Council of Ministers meeting on 4 June 1998 agreed to amend the Directive.

There may be further steps required before ratification, but it looks likely that the changes will go through. The amendment would replace existing Articles 1 to 7 of the Directive with new Articles.

The most significant change is to the scope of the Directive. A new Article 1.1(b) will say:

'...there is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary'.

This is a paraphrase of part of the judgment in Suzen, which itself is a mistaken application of part of the Rygaard decision. The preamble to the amending Directive insists that this clarification 'does not constitute an amendment to the scope of the Directive as interpreted by the Court'.

However, courts will have to apply the wording of the new Directive and this will involve considering whether there is 'an organised grouping of resources' and whether it has 'the objective of pursuing an economic activity'. These are new tests which are not part of the approach set out in Spijkers. Moreover, this new test will apply to all transfers whereas Suzen concerned only a second stage transfer from contractor to contractor.

The effect of this change has provoked intense debate. Unions are angry that it weakens protection, but the Government is adamant that this amendment amounts to a specific inclusion of contracting out and includes all transfers that 'have any substance'.

The amended Directive makes it clear that the legislation applies to public and private undertakings, whether or not profit-oriented, but writes into the Directive the Henke decision which excludes public administrative reorganisations and transfers of public administrative functions.

The Government says these changes were necessary for the proposed amendments to the UK TUPE Regulations which will 'improve the operation of the law in this area'. The proposed wording in the amended Directive will not do so: it will lead to further uncertainty and litigation which will be unwelcome for employers as well as employees. 
Any amendment in the UK should make it clear that contracting out is covered and that public employees are protected when there is a reorganisation.

The amended Directive will require the outgoing employer to provide the new employer with information on the terms and conditions which will transfer. The final version does not include earlier proposals to require only equivalent terms and conditions for public sector staff who transfer and to allow workers of agree less favourable terms after a transfer.

A welcome development allows EU countries to provide that pension rights transfer. It is to be hoped that the UK Government will take up this option, bearing in mind its support for this in its Public Consultation Document.

There are also changes which allow a dilution of employee protection on insolvency by, first, the non-transfer of pre-transfer debts and, second, agreed reductions in terms and conditions on insolvent transfers.

The Government insists its intention is to clarify the law and protect employee rights. The forthcoming revisions to the TUPE Regulations will give it the opportunity to demonstrate this.