TUPE and labour-intensive contracts

ADI (UK) Limited v Firm Security Group Limited [REF] (CA)
Rossiter v Pendragon plc [2001] IRLR 256 (EAT)

The TUPE regulations continue to cause uncertainty and controversy. The longevity of this saga is perhaps caused by the courts perceiving a conflict between logic and policy. This dilemma is certainly apparent in the latest pronouncement on the scope of TUPE: the ADI case.

Once again it is a case concerning contracting out, in this instance security services in a shopping centre. ADI terminated the contract with the client. The contract was awarded to Firm Security. Despite initial discussions, Firm Security did not take on the staff stating "it is not our intention to take on the existing staff and [from the cases of Suzen and Betts]...it is apparent that the transfer of undertakings is not an issue in this situation".

The Court of Appeal accepted that the security service at the shopping centre was a discrete economic entity. The question was whether it transferred with the change of contractor.

The Court took the view that the Suzen decision did represent a shift in emphasis, reinforced by the recent European Court decision in Oy Liikenne (see LELR issue 56), which the Court of Appeal took as being in line with the unhelpful earlier Appeal Court decision in Betts v Brintel [1997] ICR 792.

Very little in the way of assets transferred in the ADI case. The transferee accepted that if the employees had transferred, there would have been a TUPE transfer. The Court agreed that this was a labour intensive transfer and consequently that if the employees had transferred, TUPE would have applied and that as they did not transfer, TUPE would generally not apply.

The Court of Appeal then turned to the issue raised by the ECM case [1999] ICR 1162. Where employees are not taken on by the new contractor, can the court take into account the reason why staff were not taken? A 2:1 majority of the Court decided that this could be taken into account and there would be a transfer if the reason for not taking on the employees was in order to avoid TUPE.

To that extent, the decision is to be given a limited welcome. However, its overall emphasis on the importance of Suzen, Betts and Oy and on the transfer of assets in non-labour intensive contracts suggests a generally restrictive approach to the application of TUPE that may re-ignite some of the disputes that plagued the early 1990s.

The government should urgently bring forward its consultation on revisions to TUPE, which should have been implemented by the European deadline of 17 July 2001.

TUPE, changes in terms and conditions and constructive dismissal

There is better news to report in relation to the issue of TUPE, changes in terms and conditions and constructive dismissal.

In Rossiter, the employee resigned in February 1999 following a transfer in October 1997 stating that his position had become untenable.

Regulation 5(5) of TUPE provides that the automatic transfer of the contract of employment under TUPE is "without prejudice to any right of an employee arising apart from these Regulations to terminate his contract if a substantial change is made in his working conditions to his detriment". In other words, the right to resign and claim constructive dismissal is preserved.

The Employment Tribunal said that this meant that, in keeping with the cases on constructive dismissal, there was only a dismissal where the employee resigned in response to a fundamental breach of his or her contract.

The EAT disagreed. It said that in the context of TUPE there does not need to be a fundamental breach to trigger a resignation giving rise to a constructive dismissal. It is enough for there to be a substantial change in the employee's working conditions to his or her detriment.

This is a welcome decision, in line with the purpose of the Directive. It will assist workers bringing claims where the transfer involves a change in their working conditions, including for example a change of job or workplace, and potentially may assist claims for employees who resign and claim constructive dismissal when their employer does not offer a comparable pension, although this remains to be tested, with Tribunal cases in the pipeline.