TUPE in 2012 Who and What is Protected by - Matrix Chambers

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    15 MARCH 2012


    1. This paper considers recent caselaw and live issues in respect of two aspects of the law relating to transfers of undertakings: 1.1 Who transfers?

    1.2 What transfers?

    A. Who Transfers?

    2. Regulation 4 (“Effect of relevant transfer on contracts of employment”) provides as follows, so far as is material:

    “(1) Except where objection is made under paragraph (7), a

    relevant transfer shall not operate so as to terminate the

    contract of employment of any person employed by the

    transferor and assigned to the organised grouping of

    resources or employees that is subject to the relevant transfer,

    which would otherwise be terminated by the transfer, but any

    such contract shall have effect after the transfer as if originally

    made between the person so employed and the transferee.

    (2) Without prejudice to paragraph (1), but subject to paragraph

    (6), and regulations 8 and 15(9), on the completion of a

    relevant transfer-

    (a) all the transferor’s rights, powers, duties and liabilities

    under or in connection with any such contract shall be

    transferred by virtue of this regulation to the

    transferee; and

    (b) any act or omission before the transfer is completed, of

    or in relation to the transferor in respect of that

    contract or a person assigned to that organised

    grouping of resources or employees, shall be deemed

    to have been an act or omission of or in relation to the


    (3) Any reference in paragraph (1) to a person employed by the

    transferor and assigned to the organised grouping of

    resources or employees that is subject to a relevant transfer, is

    a reference to a person so employed immediately before the

    transfer, or who would have been so employed if he had not


    been dismissed in the circumstances described in regulation

    7(1), including, where the transfer is effected by a series of

    two or more transactions, a person so employed and assigned

    or who would have been so employed and assigned

    immediately before any of those transactions.”

3. Regulation 2(1) provides that “assigned” means “assigned other than on a

    temporary basis”.

    4. The basic rule is that a relevant transfer has the effect of statutorily

    novating a relevant contract of employment. One may safely assume that

    this will occur unless one or more of the following exceptions applies: 1 4.1 the person concerned is not an ‘employee’ as defined by TUPE 2006;

    4.2 the person concerned is regarded as being employed on a contract

    that would not otherwise be terminated by the transfer;

    4.3 the person is not employed by the transferor “immediately before

    the transfer;

    4.4 the person is not “assigned” to the undertaking being transferred;

    4.5 the person makes a valid objection to the transfer.

    This paper will only address the fourth of these points, the others having

    thrown up no particular recent issues.

The General Rule on Assignment

    5. TUPE 2006 provide little help in ascertaining who is assigned to the

    undertaking or part transferred. Indeed, “assignment” is not defined at

    all, save by way of a somewhat delphic exclusionary definition at reg.2(1)

    (see above and below). This is unfortunate, since the question of

    assignment i.e. the practical question of precisely which employees

    transfer, may be very difficult to determine, especially where parts of a

    business are transferred, or where individuals perform roles across a

    number of functions.

    6. “Assignment” is not a term found in the ARD. Art.3(1) provides that the

    transfer is of “The transferor’s rights and obligations arising from a

    contract of employment or from an employment relationship existing on

    the date of a transfer”. Plainly, it could not have been contemplated that

    all of the transferor’s employees should transfer on the date of transfer,

    without regard to the degree of their connection with the part of the

    undertaking transferred. Yet it is equally plain that the types of

    employment relationship that would transfer would ordinarily be a 2matter for national law see Art.2(2).

     1 See the extended definition of “employee” at reg.2(1). 2 Art.2(2) provides that the ARD shall be “without prejudice to national law as regards the

    definition of contract of employment or employment relationship”.


    7. The key European decision remains Botzen v. Rotterdamsche Droogdok

    Maatschappij BV [1986] 2 CMLR 50 ECJ. This case concerned a shipping company that got into financial difficulties. Some parts were sold to a new company, but other parts were retained. The claimant employees were mainly employed in the retained departments, but all performed some duties for the transferred parts. Were they entitled under the Directive to be transferred, in accordance with Art.3(1)?

    8. The Advocate General proposed a test that an employee should be wholly engaged” in the transferring business (subject to de minimis exceptions). This formulation has the advantage of clarity and simplicity. It has the disadvantage of strictness and fails to reflect the flexible and varied nature of much modern employment.

    9. The ECJ held as follows:

    “An employment relationship is essentially characterised by the link

    existing between the employee and the part of the undertaking or

    business to which he is assigned to carry out his duties. In order to

    decide whether the rights and obligations under an employment

    relationship are transferred under Directive [2001/23/EC] by reason

    of a transfer within the meaning of Article [3.1] thereof, it is therefore

    sufficient to establish to which part of the undertaking or business the

    employee was assigned.”

    10. Botzen proceeds on the assumption that it will be possible to determine a particular part of the undertaking to which the employee was assigned. This assumption has leached into domestic law, even where it is obvious that an employee may be assigned, as a matter of ordinary language, to more than one part of an undertaking. It is as well, though, to bear in mind the sometimes artificial nature of the test which applies.

    11. There are two preliminary observations to be made about the nature of the assignment issue.

    11.1 First, it is a question of fact to be determined by a tribunal

    considering all the relevant circumstances of the particular

    case: Buchanan-Smith v. Schleicher and Co International Ltd

    (EAT/1105/94, unreported, per Mummery J) as endorsed by

    the Court of Appeal in Jones v. Darlows Estate Agency [1998]

    EWCA Civ 1157.

    11.2 Second, it may well overlap with the question of whether

    there has been a relevant transfer at all. This phenomenon is

    amply illustrated by the facts in Eddie Stobart v. Moreman and

    others, UKEAT/0223/11, unreported. A PHR was listed to

    consider the transferee’s application to strike out on the

    ground that there were no reasonable prospects of the

    claimants succeeding in proving that they had been assigned


    to a transferred part of the business. However, at the PHR,

    the case was determined on the basis that there had been no

    relevant transfer. The putative transferor’s appeal was

    introduced on the basis that its witness evidence had been

    shaped by its understanding that it was “assignment” that had

    to be determined, and not the “undertaking” question. This

    was not so much a ground of appeal as an introductory

    argument. In any case it was rejected by Underhill P: “I accept

    that the issues of whether there existed an organised grouping

    satisfying the requirements of regulation 3(3)(a)(i) and of

    whether, if so, all or any of the Claimants were assigned to

    that grouping are analytically distinct, and that the evidence

    before the Judge was addressed only to the latter issue. But

    the two points nevertheless self-evidently overlap to a very

    considerable extent, since for the purpose of considering who is

    assigned to a putative “organised grouping” it is necessary to 3identify what that grouping consisted of.”

Assigned to the Undertaking the domestic approach

    12. There has been no shortage of appeal cases on the assignment issue,

    largely owing to the infinite number of ways that an employer has of

    allocating functions to an employer. In the circumstances it is not

    possible to provide a one-size-fits-all guide to assignment, but certain

    trends may be observed in certain common situations.

    13. Three relatively common situations were identified by Morison P in

    Duncan Web Offset (Maidstone) Ltd v. Cooper [1995] IRLR 633:

    13.1 X has a business employing several people and transfers part

    of that business to Y.

    13.2 X employs A to work in Y’s business and Y transfers that

    business to Z.

    13.3 X is part of a group of companies. The employee, A, works

    partly for X and partly for other companies in the group.

    14. Part-only transfer. Per Morison P, some of the factors that might be

    relevant to determine assignment in such a case include: the amount of

    time spent by the employee on one part of the business or another; the

    amount of value given to each part by the employee; the terms of the

    contract of employment showing what the employee could be required

    to do; how the cost to the transferor of the employee’s services was

    allocated between different parts of the business. On the whole, these

     3 See Eddie Stobart, at para.16. Counsel for Eddie Stobart was unable to identify any other

    evidence that her client might have wished to deploy had the “undertaking” issue been

    identified in advance of the hearing. Of course, there may be other cases where there is a

    genuine evidential difference between the issues.


    are unremarkable factors. However, it is questionable whether tribunals

    place any significant weight on the possibilities available to the employer

    under the contract in this writer’s experience, tribunals are more

    interested in how the contract was actually operated than in how it could 4 be operated.

    15. Service/holding companies. The issue in this case is whether reg.4 applies

    at all. In Duncan Web Offset, Morison P considered that on its face, there

    would be no transfer where the employee is employed by a service or

    holding company to work in Y’s business and Y’s business is then

    transferred to Z. This is because it is a requirement that the employee be

    employed by the transferor: Askew v. Governing Body of Clifton Middle

    School [2000] ICR 286. Although Morison P warned that courts and

    tribunals will be astute to ensure that holding and service companies

    should not be used as a device to avoid the protection of TUPE, there is

    precious little evidence that tribunals have taken up his suggestions of 5piercing the corporate veil in appropriate cases.

    16. Employees with global or group-wide responsibilities. These are highly

    fact-sensitive situations. A good example of a possible outcome is found

    in Michael Peters Ltd v. (1) Farnfield (2) Michael Peters Group plc [1995]

    IRLR 190. Here, the group was the holding company for some 25

    subsidiaries. The claimant was employed as the group’s chief executive

    and was responsible for overseeing the financial management of all of the

    subsidiary companies. Four of the largest subsidiaries were based at the

    same headquarters as the holding company. These subsidiaries were sold

    to another business and the claimant was made redundant. The question

    of assignment only arose on appeal, and the EAT held that the ET had

    made a crucial finding of fact that the claimant was responsible for the

    running of the group as a whole and was therefore to be taken to have

    been assigned to the group rather than any of the subsidiaries. See also

    Jones v. Darlow Estate Agency [1998] EWCA Civ 1157.

    17. Assignment “immediately before the transfer”. There is currently an

    open question as to whether, under TUPE, the relevant employee must

    be assigned to the organised grouping of resources or employees

    immediately before the transfer. (It is important to distinguish this

    argument from the uncontroversial position that the relevant employee

    must be employed, or deemed to be employed, immediately before the

     4 For further examples of this type of case, see: Buchanan-Smith v. Schleicher (supra); MRS

    Environmental Services v. Dyke, EAT/93/0096 here the EAT upheld an ET decision based

    solely on the time spent by the employee in the two different parts of the transferee’s

    business; CPT Distribution Ltd v. Todd [2003] IRLR 28; Williams v. Advance Cleaning

    Services Ltd, EAT/0838/04 (in this case, the work conducted by the claimant project leader on the transferred part of the business took between 50% and 70% of his time, but the EAT declined to interfere with the ET’s ruling that he was insufficiently integral to that part of the business to have been assigned to it). 5 E.g. Brookes v. Borough Care Services [1998] ICR 1198.


    transfer.) This argument is based on the fact that the “immediately

    before the transfer” requirement in the first part of reg.4(3) only relates

    to employment, and not to assignment. However, this somewhat literal

    construction is undermined by the remainder of reg.4(3) and the 6 definition of “assigned” in reg.2(1).

    18. It is fair to note that this argument may be important in reverse “poison

    pill” cases, where high-performing employees are de-assigned from the

    transferring entity relatively shortly before the transfer so that the

    transferor is able to retain those employees valued services. In such a

    case, either the employee himself or the transferee may be able to argue

    that the mere fact that the employee was not assigned immediately prior

    to the transfer should not defeat the operation of reg.4(1).

    19. Temporary Assignment. As indicated above, assignment does not include

    assignment on a “temporary basis” (reg.2(1)). What does this mean? As

    a matter of ordinary language, temporary assignment means assignment

    for a relatively short period only. However, two decisions of the EAT and

    Court of Appeal suggest that things might not be quite so simple:

    19.1 Securiplan v. Bademosi, EAT/1128/02, unreported. C worked

    as a security guard at a site operated by T for 21 years. After

    suffering an accident at work, he was assigned to work at

    Marylebone magistrates’ court, but he was unhappy there. He

    worked at the court for almost 12 months. He was told in

    December 2001 that he could return to work at the original

    site in January 2002, but shortly after that, the contract to run

    security at the court was abruptly terminated and the contract

    was awarded to a third party, X. T declined to continue

    employing C and argued that his employment had transferred

    to X. The EAT upheld the decision of the ET that his

    assignment to the court was only temporary and that his

    employment had not transferred to X. Unsurprisingly, this was

    on the basis that his assignment at the court was due to end

    shortly in any event.

    19.2 Marcroft v. Heartland (Midlands) [2011] IRLR 599. M was

    employed by PMI under a contract with restrictive covenants.

    On 15 September 2009, he handed in his notice (6 weeks). On

    25 September 2009, PMI informed him that the commercial

    insurance business in which he predominantly worked would

    be sold to H, and that, because there was little work to do, M

    need not attend work but should be on call at home. Between

     6 Reg.4(3) provides that the employee must have been assigned immediately before the

    transfer where the transfer takes place over a series of transactions. Reg.2(1) excludes

    cases where the assignment is temporary. This implies that the assignment should have

    lasted at least until the date of transfer.


    25 September and 2 October, when the transfer occurred, M

    did no more than field a few phone calls. M subsequently

    began working for a new employer, allegedly in breach of his

    restrictive covenants. H brought breach of contract

    proceedings against M. M argued, unsuccessfully, that his

    employment did not transfer to H because he was only

    temporarily assigned to the department upon handing in his

    notice (and did no significant work thereafter). The Court of

    Appeal held that the judge was entitled to reject that


    “on the basis of the evidence about the work that Mr

    Marcroft continued to do after handing in his notice

    and on the basis that it cannot be right in principle,

    that an employee is automatically assigned on a

    temporary basis, thereby losing the protection of TUPE, 7simply as a result of handing in his notice.”

    The principle may be correct handing in one’s notice (which

    may be for an extensive period of time) ought not to have the

    automatic” effect of disapplying TUPE. But it is wrong to say

    that the employee would therefore lose the protection of

    TUPE it would simply mean that he would not transfer, but

    would see out his employment with the transferor. It is also

    hard to see how the supposed statement of principle is

    consistent with the plain words of reg.2(1): after all, as a

    matter of ordinary language, an individual who is working out

    his notice is only working in that role temporarily. The Court

    of Appeal (and the judge below) appeared to be influenced by

    the fact that M had undertaken some work over the relevant

    period. It is possible that had M been placed on garden leave

    and undertaken no work at all, a different result might have

    been reached.

    20. Absences at the time of transfer. How is the assignment question to be

    determined where the employee is absent at the time of transfer? The general rule is that, whatever the reason for absence, the question is whether, upon the employee’s assumed return to work, he or she would have been assigned to the undertaking or the part transferred. See Fairhurst Ward Abbotts Ltd v. Botes Building Ltd [2004] ICR 919 CA. It

    should be noted that there is ET authority on this point in the case where the employee is suspended for disciplinary reasons. A more unusual disciplinary case arose in G4S Justice Services (UK) Ltd v. Anstey [2006]

    IRLR 588. Here, on the date of the transfer, the claimants had been dismissed for gross misconduct and were awaiting the outcome of their

     7 Per Mummery LJ, at para.36.


    appeal. When the appeal succeeded, the transferee refused to reinstate

    them. The EAT held that the successful appeal hearing had the effect of

    expunging the original dismissals and so the employees should be treated

    as having been employed by the transferee from the date of transfer. (It

    is questionable whether the transferee would subsequently have enjoyed

    the benefit of any defence to the claims for unfair dismissal.)

    21. Bogus assignments. It is not unknown for a transferor to use the occasion

    of a forthcoming transfer to assign an unwanted employee to the

    transferring part of the undertaking, or to assign a valued employee from

    the transferring part to the retained business. In Carisway Cleaning

    Consultants v. Richards EAT/629/97, the EAT held that a particularly clear

    example of the former practice was “fraudulent” and the consequent

    assignment void and of no effect. The result is convincing, but not the

    reasoning. Whatever the employer’s reasons for assignment are arguably

    immaterial provided that there is a power to assign. In the view of this

    writer, a better approach to this sort of question would be to adopt the

    policy-driven narrative of the Court of Appeal in Marcroft and contend

    that an assignment (in or out) whose purpose is to discharge unwanted

    employees or retain valued ones, is temporary for the purposes of reg.2(1)

    and so not an assignment for the purposes of reg.4.

    B. What Transfers?

    22. The law on what transfers following a relevant transfer is relatively

    settled, with the exception of complications in relation to collective


    Rights and Liabilities relating to the Individual

    23. As cited above, the general rule is that all of the transferor’s rights,

    powers, duties and liabilities under or in connection with any such

    contract shall be transferred to the transferee: reg.4(2)(a). The

    transferor’s acts and omissions in respect of the contract will be deemed

    to have been an act or omission of the transferee: reg.4(2)(b).

    24. Given the relatively settled nature of this area of the law, it may be

    helpful to provide a list of the rights and liabilities that have been held to


    ; Contractual and discretionary rights and benefits, whether express

    or implied. Although there is EAT authority to the effect that non-

    contractual terms should not transfer (see London Borough of

    Newham v. Smith EAT/1345/00, in which it was held that non-

    contractual working practices would not transfer), it is apparent

    rights etc which transfer are not just arising “under” the contract,

    but extend to those “in connection with any such contract”. See

    Bernadone v. Pall Mall Services Group [2001] ICR 197, in which the


    Court of Appeal determined that tortious liability transferred. Where does this leave non-contractual working practices? It is suggested that the best view is that these do transfer, but that the transferee is as free to change those practices (subject to rules about notice and consultation) as the transferor would have been.

    ; Continuity of employment is preserved by a transfer. Oddly, it is not clear whether this is by virtue of TUPE itself or by ERA, s.218, but the correctness of the rule is not in dispute.

    ; Tortious and other civil liability. See Bernadone (above) and

    Hagen v. ICI Chemicals and Polymers Ltd [2002] IRLR 31 (liability

    for misrepresentation). The general rule that tortious and other civil liability transfer is subject to some exceptions, including:

    o Vicarious liability towards a third party. So, where an

    employee of the transferor injures a third party in the

    course of his employment, the third party’s claim against

    the transferor will not transfer to the transferee. Oddly,

    although this received wisdom is clearly in accordance with

    the design of the ARD, the ordinary wording of TUPE does

    not seem to prohibit the transfer of this sort of third party

    liability. In such a case, it would be difficult to contest the

    proposition that a claim brought by a third party is a

    transferor’s liability “in connection with” a relevant

    employment relationship. This proposition may eventually

    become tested where a third party claim is brought and

    the transferor is uninsured and/or insolvent.

    o Illegal workers of the transferor. Under the Immigration,

    Asylum and Nationality Act 2006, a transferee is granted a

    grace period of 28 days post-transfer in which to carry out

    its own checks on the immigration status of transferred


    ; Mobility clauses. These do transfer (they are, after all, express contractual terms), but insofar as the terms of the mobility clause are fixed to the location of the transferor’s business, they will remain fixed. See Tapere v. South London and Maudsley NHS

    Trust [2009] IRLR 972, in which a mobility clause permitting relocation “to similar locations within the Trust” was held to allow

    the transferee to locate the employee only within boundaries of the transferor NHS Trust.

    ; Restrictive covenants. These do transfer: Morris Angel and Son

    Ltd v. Hollande [1993] ICR 71; Marcroft (above). The transferee

    has standing to enforce the restrictive covenant. However, the covenant must be read in such a way as to ensure that its scope is no wider than it would have been had it remained with the transferor. This is achieved by requiring the covenant to be read between the employee and the transferee, as owner of the undertaking. Accordingly, a client non-dealing covenant is


    effective to prohibit dealing with the clients of the transferred

    undertaking, but does not cover the other clients of the transferee. ; Profit-sharing schemes and profit-related pay. Although logistical

    difficulties arise for transferees in determining the remuneration

    for periods during which the employee was employed by the

    transferor, the courts have nonetheless held that the benefits of

    such schemes do transfer: see Unicorn Consultancy Services v.

    Westbrook [2000] IRLR 80 EAT, and Mitie Managed Services Ltd v.

    Frnech [2002] IRLR 512 EAT. Mitie, in particular, is authority for

    the proposition that where there are significant logistical

    difficulties preventing the application of a profit-related pay

    scheme based on the transferor’s profits, the transferee must

    introduce a scheme of substantial equivalence.

    ; Contractual redundancy schemes. These do transfer. In Jackson v.

    Computershare Investor Services plc [2008] ICR 341, the transferor

    had no contractual redundancy scheme. The transferee had a

    dual scheme where the benefits payable depended on whether

    the employee had joined pre-1 March 2002. The employee had

    been employed by the transferor since 1999; the transfer was in

    2004. She argued that because her continuity of service was

    preserved, she should be treated as a pre-2002 employee. The

    Court of Appeal disagreed: for the purposes of the redundancy

    scheme, the date of her joining the transferee was an objective

    fact that was entirely unaffected by the deeming provisions of

    TUPE as to continuity of service. This decision does not clarify

    what will occur where entitlement under a redundancy scheme

    depends on length of service (rather than employment by a

    specific date) would the employee then be able to include years

    of deemed service?

    Collective Rights and Liabilities

    25. Provision is made in the ARD and TUPE for collective agreements to

    transfer to the transferee.

    26. Regulation 5 (“Effect of relevant transfer on collective agreements”)


    “Where at the time of a relevant transfer there exists a collective agreement made by or on behalf of the transferor with a trade union recognised by the transferor in respect of any employee whose contract of employment is preserved by regulation 4(1) above, then-

    (a) without prejudice to sections 179 and 180 of the 1992

    Act (collective agreements presumed to be

    unenforceable in specified circumstances) that

    agreement, in its application to the employee, shall,

    after the transfer, have effect as if made by or on


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