3rd Annual Employment Law Seminar
TUPE in Twenty Twelve:
An Expert Review of the Law on
Transfers
Chair
Professor Gillian Morris
Service Provision Changes:
The New Common Sense Approach
Claire Darwin
clairedarwin@matrixlaw.co.uk
Parliament’s Intention?
• Judge Burke QC in Metropolitan Resources:
“the introduction in TUPE 2006 of the concept
of a transfer of undertakings by a service
provision change was intended to remove or
at least alleviate the uncertainties and
difficulties created, in a variety of familiar
commercial settings, by the need under TUPE
1981 to establish a transfer of a stable
economic entity which retained its identity in the
hands of the alleged transferee”
Common Sense?
• Judge Burke QC in Metropolitan
Resources:
– An
ET
should
adopt
a
straightforward
and
common
sense application of the relevant
statutory words to the individual
circumstances before them.
– There is no need for a purposive
construction.
Slade J in Hunter v McCarrick:
“There is no warrant for adopting an
interpretation of reg 3(1)(b) other than that
required by the ordinary meaning of the
language used”
No More Stretching?
Underhill P in Eddie Stobart:
“[I]t remains necessary to define the
circumstances in which a relevant transfer
will occur, and there is no rule that the
natural meaning of the language of the
Regulations must be stretched in order to
achieve transfer in as many situations as
possible”
Who is the Client?
• Reg. 3 (1) (b) as:
“a situation in which—
(i) activities cease to be carried out by a person (“a
client”) on his own behalf and are carried out instead by
another person on the client’s behalf (“a contractor”);
(ii) activities cease to be carried out by a contractor on a
client’s behalf (whether or not those activities had
previously been carried out by the client on his own
behalf) and are carried out instead by another person (“a
subsequent contractor”) on the client's behalf; or
(iii) activities cease to be carried out by a contractor or a
subsequent contractor on a client’s behalf (whether or not
those activities had previously been carried out by the
client on his own behalf) and are carried out instead by
the client on his own behalf,
and in which the conditions set out in paragraph (3) are
satisfied.”
Who is the Client?
• The residents in a care home?
(Nottinghamshire NHS Healthcare Trust
v
Hamshaw
&
Others
(UKEAT/0037/11/JOJ)
• The recipients of IT services?
(Enterprise Management Services Ltd v
Connect-Up Ltd and others [2012] IRLR
190)
The Decision Maker
Bean J in Hamshaw:
“This cannot be correct, because in sub-paragraphs (1)
and (3) the “client” is the person who is carrying out the
activities before or after the transfer as the case may be
and on whose behalf (not “for whose benefit”) the
activities are carried out. Moreover, in all three subparagraphs of reg 3(1)(b) the “client” is the person who
makes the decision about transfer, since by regulation
3(3)(b) it is necessary for a service change provision
that the client must intend that the activities, following
the change, will be carried out by the transferee”.
The Approach in Practice
Slade J in Hunter:
“There is no warrant for giving a different
meaning to “the client” in 3(3)(a)(i) and in (ii). If
“the client) were to include the plural, whose
intention would be relevant for the purposes of
reg 3(3)(a)(ii)? Regulation 3(1)(b) which HH
Judge Burke QC held was introduced to provide
certainty would be rendered uncertain by such
an interpretation”.
One Specific Client
Slade J in Hunter :
“In our judgment “the client” in reg 3(1)(b)(ii)
refers back to a specific client. The specific
client referred to earlier in the provision is the
client on whose behalf the transferor
contractor carried out activities.”
1 Client 1 Contractor
• Slade J in Hunter:
“If the framers of the Directive or TUPE
had intended the contractual terms of
employees employed on an activity to
follow that activity when it was undertaken
for a different client they could have so
provided.”
The Activities
• Hamshaw:
A material shift in the
ethos of the service and the manner of
its provision.
• Enterprise:
The fact that the
subsequent contractor did not carry out
15% of the work carried out by the
contractor (the curriculum work).
Fragmentation
Enterprise: the spread of the work
between 5 different providers meant that:
“the provision of services formerly
provided by Enterprise were so
spread amongst other providers as
well as Connect that no service
provision change had taken place on
that basis” (paragraph 15).
The Reg 3(3) Conditions
(a) immediately before the service provision change—
(i) there is an organised grouping of employees situated in
Great Britain which has as its principal purpose the carrying
out of the activities concerned on behalf of the client;
(ii) the client intends that the activities will, following the
service provision change, be carried out by the transferee
other than in connection with a single specific event or task
of short-term duration; and
(b) the activities concerned do not consist wholly or mainly of
the supply of the goods for the client's use.”
Design not Accident
Underhill P in Eddie Stobart :
“The statutory language does not naturally apply to a
situation where, as here, a combination of
circumstances essentially, shift patterns and working
practices on the ground – mean that a group (which,
NB, is not synonymous with a
“grouping”, let alone
an organised grouping) of employees may in practice,
but without any deliberate planning or intent, be found
to be working mostly on tasks which benefit a
particular client.”
The Need for Certainty
“If the putative “grouping” does not reflect
any existing organisational unit there are
liable to be real practical difficulties in
identifying which employees belong to it.
It is important that on a transfer
employees should, so far as possible,
know where they stand” (Eddie Stobart,
paragraph 20).
Goods or Services?
Pannu & Ors : Whose activities?
“The fact that that organised group
provide a service (directly to their
contractor employer) cannot answer of
itself the separate reg.3(3)(b) question”
(paragraph 21).
The Difference
• Supply of Sandwiches + Drinks
• Supply of Sandwiches + Drinks +
Canteen Staff
Other Points on the Application
of the Regulations
Mathew Purchase
Who and What is Protected
James Laddie
Unfair Dismissal
Thomas Linden QC
Information and Consultation
Laura Prince
RECENT CASES ON INFORMATION/ CONSULTATION
• Phillips v Xtera Communications Ltd
[2011] IRLR 724;
• Independent Insurance Company Ltd v
Aspinall [2011] IRLR 716;
• Todd v Strain [2011] IRLR 11.
THE RELEVANCE OF COLLECTIVE
REDUNDANCY CASES
• Xtera and Aspinall are both cases decided in the
context of the collective redundancy consultation
requirements;
• They also apply to the information and consultation
requirements under TUPE;
• Xtera concerned the requirement to hold an election
under s.188A TULRA (which is had identical
wording to r.14 TUPE);
THE RELEVANCE OF COLLECTIVE REDUNDANCY
CASES
• Aspinall considers the ability of an individual to seek
compensation on behalf of other employees (in the form of
a protected award);
• In Todd the EAT recognised that although the
“mechanism for a protected award is formally different
from an award of ‘compensation’ for breach of the
information and consultation obligations under TUPE, the
underlying purpose and substantive effect of the
provisions are effectively the same” (at paragraph 24);
• Therefore although both Aspinall and Xtera deal with
collective redundancy consultation they are also
applicable claims for breach of the consultation and
information requirements under TUPE.
Phillips v Xtera Communications Ltd; Facts
• Employer planned to close the site at which the Claimant
worked;
• Redundancies would be made as a result of the site
closure;
• Employer invited staff to nominate two employee
representatives under TULRA;
• Employees met and put forward two nominees;
• Employer asked if there was any objection to those two
nominees being elected;
• No objections were received;
• The nominees were appointed, without any ballot or vote
being held.
Phillips v Xtera;The Issue
Was the employer required to hold a
ballot of employees where the number
of candidates precisely matched the
number of vacancies for elected
representatives?
Phillips v Xtera; The applicable legislation
• S.188A sets out the requirements for
election of employee representatives.
This is in identical terms to r.14 TUPE
[p.3-4 handout];
• Detailed provisions which envisage
“candidates, votes, a count and then
‘election’ of the chosen candidate”
(paragraph 24 Xtera).
Phillips v Xtera; Judgment
“Parliament must be taken to have appreciated that it
would not be uncommon that the number of candidates
from a given workforce may fall short of, or precisely tally
with the number of representatives to be elected. Can it
really be suggested that the necessary construction of the
language Parliament has used is such as to compel the
employer to nevertheless conduct a ballot or provide a
voting opportunity in such cases? In our judgment, in the
context of arrangements for workplace representation, we
consider that to be highly unlikely. The net result would
not achieve anything beyond the employer (in what is
already a redundancy situation context) expending
valuable time and resources on a wholly unnecessary
exercise.” (at paragraph 30)
Phillips v Xtera; Judgment
• Court identified the possibility that the requirement for a
ballot was intended as a safeguard against ‘rigging’ by
the employer to avoid a situation where the employer
encouraged favoured ‘yes men’ and then arranged the
number of places to be made available to ‘fit’ the number
of candidates;
• The EAT held that the protection against ‘manipulation of
the democratic process’ was contained within s.188A(1)
(a) which sets out that the employer ‘shall make such
arrangements to ensure that the election is fair’. The
same safeguard is set out at r.14(1)(a) TUPE.
Independent Insurance Company Ltd v Aspinall; Facts
• R went into provisional liquidation;
• Majority of employees made redundant with
immediate effect;
• Employer failed to comply with its obligation
to inform and consult;
• No recognised trade union or employee
representatives;
• Individuals made claims and failure to inform
and consult.
Independent Insurance Company Ltd v Aspinall; Issue
• Can an individual employee seek a
protective award under s.189 of the
1992 Act not only for himself but for
all other persons similarly affected?
• As set out above, the outcome of this case is also likely to be
applicable in TUPE information and consultation claims.
Independent Insurance Company Ltd v Aspinall;
Judgment
• The trade union and elected representatives have
separate constituencies;
• The trade union effectively represents those persons
who are affected employees in respect of whom an
independent trade union is recognised by their
employer (paragraph 10);
• The constituency of the elected representative is...
broader, but it will depend on how many employee
representatives the employer has decided to have
elected. In cases of large numbers of potentially
redundant employees, the employer is likely to want to
appoint or to have elected representatives for particular
classes or sections of employees (paragraph 11).
Independent Insurance Company Ltd v Aspinall; Judgment
• We note the descriptions of the constituencies of
the trade union and the employee representatives
to which we have referred. It would be an amazing
sea change in the legislation if a right of an
individual
gave
that
individual
greater
representative status than the trade union or
elected representative (at paragraph 49);
• The legislative history suggests that it was intended
that the right should be limited to those persons
who were represented by a trade union or
employer only, or to claim in their own right only (at
paragraph 52).
Todd v Strain; Facts
•
R owned a care home; R called a meeting at the care home where
she informed staff that she was selling the business to Care
Concern but that their jobs were all safe;
•
No further information was given to the employees;
•
The TUPE transfer took place on 4th January 2008;
•
Employees were sent a letter with their final pay slips which
informed them that their wages from 1st to 3rd January would be
paid by R asap and that the new owner would pay them from 4
January;
•
The letter also said that the part payment might not attract the
correct tax deduction and an adjustment may need to be made at
the end of the month; There was also some extra pay in respect of
holiday entitlement which was subject to being reclaimed by Care
Concern.
Todd v Strain; the issue
• Is the obligation to inform under r.13(2) dependent
upon the obligation to consult arising under r.13(6)?
• What amounts to a ‘measure’ for the purposes of
regulation 13(6)?
• How should the award for failure to inform and
consult under TUPE be calculated?
• In cases of joint and several liability under r.15(9)
should the order be made against both the transferor
and transferee?
Todd v Strain; the Judgment – the obligation to inform
• The EAT held that the obligation to inform arises under
Regulation 13(2) even if no obligation to consult arises
under Regulation 13(6);
• The EAT held that this was appropriate because otherwise
“in a case where the employer did not envisage taking any
such measures as would engage the obligation under
para. (6) he would be under no obligation to give
employees, via their representatives, even the basic
information that the transfer is to take place or its date”;
• The EAT added that
with r.13(11) (which
receive information
appointed) and the
implement.
such an approach was consistent
enables individual employees to
where no representatives are
Directive which TUPE seeks to
Todd v Strain; ‘Measures’ definition
• Approved Millet J’s observation in the IPCS case that
‘Measures’ is ‘a work of the widest import which includes
any action step or arrangement’;
• Added that ‘it must nevertheless be something deliberately
done by the transferor over and above what necessarily
occurs as a consequence of the transfer itself (at
paragraph 18);
• Found that the arrangements regarding payment of the
salary from 1 to 3 January in advance (and potential tax
rebates) was a ‘measure’ even though it was not
disadvantageous to the employees;
• Accepted that the de minimis principle applied but the
changes in this case were not de minimis [paragraph 20
Judgment, set out at paragraph 31 of my note]
Todd v Strain; Judgment Compensation
• Regulation 16(3) provides that the Tribunal can make a
maximum award of 13 weeks pay per employee;
• The guidance given by the Court of Appeal in Susie Radin
(dealing with the protected period in respect of breach of
collective redundancy information and consultation
requirements) applied in TUPE cases;
• The guidance given in Susie Radin that the maximum
award is the starting point “is directed at the case where
the employer has done nothing at all”;
• On compensation see also the case of Cable Realisations
where the Tribunal split the 13 week period into 3 weeks
for the information requirement and 10 weeks for
consultation. Commenting on this award the EAT said
“like baby bear’s porridge, it was just right”.
Todd v Strain; Joint and severable liability
• Regulation 15(9) states “the transferee shall be jointly and
severely liable with the transferor”;
• The terms of reg 15(9) are unequivocal (paragraph 33);
• “The issue of apportionment fell to be determined, if
necessary, in the ordinary courts” (at paragraph 35). This
would be under the Civil Liability (Contribution) Act 1978;
• In Dillon v Todd it was held that it is appropriate for both
transferor and transferee to be party to proceedings in
respect of a claim for failure to inform or consult under
TUPE.
TUPE:
Key Issues in Insolvency Cases
Andrew Smith
Insolvency & TUPE
• Article 5(1) of the Acquired Rights Directive 2001/23:
''Unless Member States provide otherwise, Articles 3
[transfer of the employment relationship] and 4 [prohibition
of dismissals on ground of the transfer] shall not apply to
any transfer of an undertaking, business or part of an
undertaking or business where the transferor is the
subject of bankruptcy proceedings or any analogous
insolvency proceedings which have been instituted with a
view to the liquidation of the assets of the transferor and
are under the supervision of a competent public authority
(which may be an insolvency practitioner authorised by a
competent public authority)''
• Consolidation of ECJ case law on this topic
• Dethier Équipement v Dassy and Sovram SPRL (In
Liquidation) [1998] IRLR 266:
“…In deciding whether the Directive applies to the
transfer of an undertaking subject to an administrative
or judicial procedure, the determining factor is the
purpose of the procedure in question although account
should also be taken of the form of the procedure,
insofar as it means that the undertaking continues or
ceases trading, and of the Directive's objectives...''
Objectives of the ARD
• Principal purpose = protection of employees’
interests in the event of a transfer
• But: where an employer faces severe financial
difficulties, there is an inherent tension between:
i.
Protecting existing Es’ T & Cs ‘at all costs’; and
ii.
Promoting the interests of the wider workforce,
by encouraging / facilitating a ‘rescue culture’
The Domestic Regulations
• ‘Sliding scale’ of protection
i.
‘Standard’ Reg. 3 transfers;
ii.
Reg. 8 (6) transfers: “relevant insolvency
proceedings”; and
iii. Reg. 8 (7) transfers: “bankruptcy proceedings
or any analogous insolvency proceedings…”
Reg. 8 (6) TUPE
• Reg. 8 (6) defines “relevant insolvency
proceedings” as meaning:
“insolvency proceedings that have been
opened in relation to the transferor not with
a view to the liquidation of the assets of
the transferor and which are under the
supervision of an insolvency practitioner”
Reg. 8 (6) TUPE
• Consequences of Reg. 8 (6) being triggered
include:
- Some ‘pre-existing’ financial liabilities will not
transfer to the transferee, but to the Secretary of
State: Reg. 8 (3), (4) and (5) (NB. Pressure
Coolers v Molloy) ; and
- Greater scope for agreeing variations of contract:
Reg. 9 “permitted variations”
- But: importantly, Regs. 4 and 7 continue to apply
Reg. 8 (7) TUPE
• Regs. 4 and 7 are disapplied where:
“... the transferor is the subject of bankruptcy
proceedings or any analogous insolvency
proceedings which have been instituted with
a view to the liquidation of the assets of the
transferor and are under the supervision of an
insolvency practitioner.”
Reg. 8 (7) TUPE
• Disapplication of Regs. 4 and 7 means:
(i) No automatic transfer of employment;
(ii) No automatic UD if the C of E is
terminated;
(iii) Financial liabilities will fall upon the NIF /
RPO – subject to statutory caps
When will Reg. 8 (7) apply?
• Bankruptcy – although note technical definition
under UK law (i.e. applicable to individuals,
rather than corporations)
• ‘Insolvent liquidations’, such as:
i.
Creditors’ voluntary liquidation / winding up
ii. Compulsory liquidation / winding up
•
But: CVAs fall outside the scope of Reg. 8 (7)
When will Reg. 8 (7) apply?
• What about
example:
-
‘solvent
liquidations’,
for
Members’ Voluntary Liquidation?
• Logically, such proceedings should not
amount
to
“analogous
insolvency
proceedings”
When will Reg. 8 (6) apply?
• BIS Guidance: “relevant insolvency proceedings” will
include:
“…any collective insolvency proceedings in which the
whole or part of the business or undertaking is
transferred to another entity as a going concern. That is
to say it covers insolvency proceeding in which all
creditors of a debtor may participate and in relation to
which the insolvency office-holder owes a duty to all
creditors. The Department considers that ‘relevant
insolvency proceedings’ does not cover winding-up by
either creditors or members where there is no such
transfer.”
Statutory Administration Proceedings
• Schedule B1 of the Insolvency Act 1986
• Oakland v Wellswood (Yorkshire) Ltd [2009]
IRLR 250 – “pre pack” administration
deemed to fall within Reg. 8 (7)
• Different conclusion reached in OTG v
Barke [2011] IRLR 272
OTG v Barke – per Underhill P
• “Absolute” approach = correct
• Fact-based approach = wrong
• “A bright line rule has clear advantages”
• The purpose of the ARD is “avowedly to
safeguard the rights of workers”
OTG v Barke cont.
• Tension between rights of individual Es and the
workforce as a whole
• Undesirable to deter a “rescue culture”
• Ultimately, however, “the Directive chooses not to
allow the rights of the employees to be trumped
altogether”; and
• The UK’s implementation of Art. 5 (2) derogations
“…do in fact go a considerable way to diminishing
the disincentives to rescue”
Key 2 Law v De Antiquis
• Recent clarification from the CA in Key 2 Law
v De Antiquis [2011] EWCA Civ 1567
• The “absolute” approach to administration
proceedings is correct
• Must
consider
the
“purpose
of
an
administration order when actually made”,
rather than “what the applicants for the order
hoped to achieve by it if it were to be made...”
(per Rimer LJ)
Key 2 Law v De Antiquis
• Per Warren J:
“The focus of article 5(1) of the 2001 Directive
is on the purpose of the procedure in
question and not on the reasons for which the
procedure is invoked or the result which it is
anticipated will be reached...”
Key 2 Law v De Antiquis, per Rimer LJ
• The “primary objective” of statutory
administration proceedings is to “rescue
the company as a going concern”
• Even if this objective looks improbable, it
“must formally be considered” by the
administrator at the outset
Key 2 Law v De Antiquis,
• Accordingly, it cannot be said that statutory
administration
proceedings
are
ever
instituted “with a view” to the liquidation of
the assets, even if this is what ultimately
transpires (and indeed was envisaged as
being almost inevitable from a very early
stage of the process)
• Furthermore, the “absolute approach” has
the benefit of legal certainty
Other Considerations
• When have insolvency proceedings been
formally “opened” or “instituted”?
• Secretary of State for Trade and Industry v
Slater [2007] IRLR 928
• 25 July 2006 – decision to place the
insolvent company, CFG, into voluntary
liquidation
SSTI v Slater
• 26 July 2006 – notices of redundancy given
to staff members by the company accountant
/ ‘liquidator’
• Assets of CFG purchased by a new company
(comprising several of the directors of the
original company)
SSTI v Slater
• 16 August 2006 - CFG formally placed into
voluntary liquidation, when the statutory
meeting of the members took place
• ET concluded that "the business was sold by
the liquidator on behalf of CFG (the
transferor) as a going concern.
The
transaction occurred on 27 July 2006..."
SSTI v Slater
• Transferred Es brought claims for back
pay and holiday pay
• EAT held that the transferee (CFG
Nationwide) was liable to meet the entirety
of the claims
SSTI v Slater
• The transfer had taken place before the
shareholders winding-up resolution and
before the meeting of creditors
• Insolvency proceedings had therefore not
been “instituted” or “opened” by the date of
the transfer; and
• Accordingly, the transfer fell outside the
Reg. 8 (7) ‘exclusion zone’
SSTI v Slater
• When will insolvency proceedings be
“under the supervision of an insolvency
practitioner”?
• Not until the formal appointment has
been made
SSTI v Slater
“...the definition of insolvency practitioner [in
section 388 IA 1986] makes it plain that it was
not until he was appointed liquidator that he
could be so described. He was of course
qualified to act as an insolvency practitioner,
but he was not acting in that capacity with
respect to the transferor...” (para. 31, per
Elias P)
Transfer of Liabilities
• Pressure Coolers Ltd v Molloy and ors EAT
0272/10
• The transferee, not the Secretary of State,
was liable to pay an E’s basic award and
notice pay following his UD by the transferee
after a "pre-pack" TUPE transfer
• Reg. 8 (3) applies only to those ‘eligible’
liabilities incurred before the transfer
Pressure Coolers v Molloy
• Per Cox J:
“...the key words in article 5.2(a), for the purposes
of the present case, seem to us to be those
providing that the contractual or other debts that
shall not be transferred to the transferee are those
which are ‘payable before the transfer’” (para. 78)
• Formal notice of (summary) dismissal had been
given very shortly after the relevant transfer
(although had plainly been in contemplation for
several days beforehand)
Pressure Coolers v Molloy
• “Since [the] claimant was unfairly dismissed
by the acquiring employer after transfer,
PCL’s liability to pay the basic award and
notice pay cannot sensibly be said to
constitute a liability of a transferring
employee.
As at the time he is being
transferred there is no such liability...”
The Statutory Compensation Scheme
• What types of ‘pre-existing’ financial liabilities are
covered?
i.
Arrears of pay (which is broader than simple salary
payments – see section 184 (2) ERA);
ii.
Notice pay;
iii. Holiday pay; and
iv. A basic award of compensation for unfair dismissal
The Statutory Compensation Scheme
• Statutory caps:
i.
Amount of a week’s wages: currently £430 (with effect
from 1 February 2012); and
ii.
Arrears of pay: a maximum of 8 weeks may be
reclaimed from the Secretary of State (section 184 (1)
(a) and 186 ERA)
•
Any pre-existing debts which exceed the amounts
payable by the Secretary of State under Part XII of the
ERA will pass to the transferee
Reg. 9 Variations
• Extension of Reg. 4 (5) power to agree
variations of T & Cs
• Strict requirements – both substantive and
procedural
Reg. 9 Variations
• Reg. 9 (7): the variation will be a “permitted variation” if:
“(a) the sole or principal reason for it is the transfer and
is not an economic, technical or organisational reason
entailing a change in the workforce (which of course
would otherwise be valid (see Reg 4(5)(a)); and
(b) it is designed to safeguard employment
opportunities by ensuring the survival of the
undertaking, business or part of the undertaking or
business that is the subject of the relevant transfer”
Reg. 9 Variations
• Agreement must
representatives”
be
with
“appropriate
• In practice, may overlap with information and
consultation (Reg. 13)
• But:
important
to
confirm
representatives’ authority
scope
of
• Strict procedural formalities contained in Reg. 9
(5) – union / non-union distinction
Reg. 9 Variations
• Obvious logistical problems:
i.
short time-frames;
ii. difficulty arranging elections;
iii. potentially unattractive changes on offer;
iv. individuals may feel ‘singled out’ by the
proposals
Reg. 9 Variations
• Q: what if the affected Es choose not to
elect representatives?
• No express ‘fall back’ provision
individual consultation (cf. Reg. 13)
for
• Subsequent insolvency of employer – are
old T & Cs ‘revived’?
Questions
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