Fairhurst Ward Abbots Ltd v (1) Botes Building Ltd; (2) Mr K Vaughan and others EAT 1007/00, IRLB 721 September 2003

In this recent case the Employment Appeal Tribunal has considered the issue of whether there is a transfer when a contract comes up for tender in a second generation transfer and is divided into separate parts.

The case concerned workers who had previously been employed by the London Borough of Southwark and who had transferred under TUPE to Botes Building Limited in 1996. In 1998 Southwark sought tenders for the provision of services undertaken by Botes and in doing so divided the contract into Area 1 and Area 2. Fairhurst was successful in its bid for Area 2 and decided that none of the eight workers were assigned to Area 2 and therefore their contracts did not transfer. Botes considered that the eight employees did transfer. Both companies refused to employ them, and neither would take responsibility for the dismissal.

The ET considered that there was an undertaking which transferred in two parts. Six of the workers were dismissed by Fairhurst and two were dismissed by Botes.

Fairhurst appealed on the ground that there was no economic entity capable of retaining its identity upon transfer because the contract for Area 2 was not the same economic entity as existed previously and because no assets had transferred.

Split contract retains identity

The EAT rejected Fairhurst's argument. In reaching its decision that Area 2 was an economic entity capable of transfer the EAT relied on both the Acquired Rights Directive and the Regulation 3 of TUPE which refer to both an undertaking or part thereof.

The EAT rejected Fairhurst's contention that there had to be a discrete and identifiable economic entity before the transfer. The EAT noted that although the specific question had not been addressed by either the European or domestic courts it was neither logical nor practical that there had to be a separate economic entity before a transfer. In particular, the EAT considered that the fact that the regulations specifically mentioned a "part of an undertaking" envisaged the situation where a body will only want to contract out of one of its functions otherwise there would be no need for a specific provision.

Furthermore, the EAT took a purposive approach to the Directive and the Regulations and considered that if this situation was not covered then employers could simply divide entities into smaller parts as a ruse for circumventing the TUPE regulations.

No workforce does not mean no transfer

The Employment Tribunal had found that even though Fairhurst had refused to take on the eight workers from Botes in the honest belief that it was entitled to refuse to do so, there was still a transfer. The EAT upheld the tribunal's decision.

The EAT considered that the fact that Fairhurst had refused to take on the workforce on legal advice (as opposed to deliberately trying to avoid TUPE) did not necessarily mean that there was no transfer.

This decision confirms that employers in second generation transfers cannot avoid their responsibilities under TUPE by simply carving up contracts. Nor can an employer rely on legal advice as a legitimate reason for not taking on a workforce under a contract.

Employers beware: the Courts are on to you.