CHAPTER 16
Continuity of
employment and
transfers of
undertakings
Continuity of employment and transfers of undertakings
Concepts of continuity of service –
including the effect of the Transfer of
Undertakings Regulations 2006 (TUPE)
– normal working hours and a week’s
pay are important.
This is because many statutory rights are
dependent upon minimum length of
service, and payments are related to
statutory concepts of normal working
hours and a week’s pay.
Continuity of employment and transfers of undertakings
CONTINUITY OF EMPLOYMENT
It is a statutory concept and the courts
will look to see whether there has
been a break in service.
Employment is presumed to have
been continuous unless the contrary
is shown, although this is not so
where there is a succession of
employers.
Continuity of employment and transfers of undertakings
A period of continuous employment,
which begins with the day on which
the employee ‘starts work’, is
computed in months – and a week
which does not count breaks the
period of continuous employment.
Continuity of employment and transfers of undertakings
Usually when an employee leaves one
employer and starts working for
another, the period of continuous
service is broken.
In certain circumstances a person will
be regarded as having been
employed by the new employer as
from the date his or her previous
employment commenced.
Continuity of employment and transfers of undertakings
There are six main types of case in which
employment is deemed to be continuous
despite a change of employer:
• if there is a transfer of a trade,
undertaking, business or part of a
business. If the transfer is a relevant
transfer for the purposes of the Transfer
Regulations 2006, the fact that the
employees were dismissed and given
redundancy payments at the time of the
transfer will not necessarily affect
continuity of employment
Continuity of employment and transfers of undertakings
• if an Act of Parliament results in one
corporate body replacing another as
employer
• if the employer dies and the employee
is then re-employed by the personal
representatives or trustees of the
deceased
• if there is a change in the partners,
personal representatives or trustees
who employ the individual
Continuity of employment and transfers of undertakings
• if the individual is taken into the
employment of an associated employer
• if the employee is employed by the
governors of a school maintained by a
local education authority or by the
authority itself and he or she is
transferred to another school or local
education authority.
Continuity of employment and transfers of undertakings
TRANSFERS OF UNDERTAKINGS
The Transfer of Undertakings (Protection of
Employment) Regulations 2006 replaced the
1981 Regulations and implement the
Directive 2001/23/EC.
The intention of the Directive and the TUPE
Regulations is to protect the contract of
employment and the employment
relationship of employees who are
transferred from one employer to another.
Continuity of employment and transfers of undertakings
When a transfer takes place, it is as if the
employee’s contract of employment was
initially agreed with the transferee
employer.
• All rights contained in the contract of
employment, except pension benefits, are
transferred, as are all outstanding claims
and liabilities of the employer to the
employees.
Continuity of employment and transfers of undertakings
The TUPE Regulations 2006
The TUPE Regulations apply where the
transfer is of an undertaking or an
economic entity that retains its identity.
• An economic entity is ‘an organised
grouping of resources which has the
objective of pursuing an economic
activity, whether or not that activity is
central or ancillary’ (the Süzen test).
Continuity of employment and transfers of undertakings
• The Regulations also apply to a service
provision change. These are relevant to
outsourcing situations and are meant to
ensure a wide coverage of the Regulations.
• A service provision change takes place
when a person (client) first contracts out
some part of its activities to a contractor,
when such a contract is taken over by
another contractor (a so-called secondgeneration transfer), and when the client
takes back the activity in-house from a
contractor.
Continuity of employment and transfers of undertakings
Who is to be transferred?
A transfer shall not operate to terminate any
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’.
Continuity of employment and transfers of undertakings
• There is a problem in deciding who is
assigned to the part transferred, when
only part of an organisation is transferred
to a new employer.
• A basic working test is to ask whether, if
that part of the business had been
separately owned before the transfer, the
worker would have been employed by
the owners of that part or the owners of
the remaining part.
Continuity of employment and transfers of undertakings
Contract variations
The 2006 Regulations give added flexibility
in varying the contract of employment, but
this is mostly flexibility for employers. The
issue is important to many employers.
Quite apart from the issue of bringing in a
workforce with different terms and
conditions, there is often a need to
reorganise the business to cope with any
such transfers.
Continuity of employment and transfers of undertakings
The 2006 Regulations provide that it is not
possible to vary a contract of employment
if the sole or main reason was the transfer
or any other reason that was not an
economic, technical or organisational
reason (ETO reason) entailing changes in
the workforce. The employer and
employee are able, therefore, to agree a
variation if it is changed for an ETO reason
or ‘a reason unconnected to the transfer’.
Continuity of employment and transfers of undertakings
Employee choice
The original Directive was silent on the
subject of whether an individual employee
can decide that he or she does not wish to
transfer.
• The current position is that an employee is
not transferred if he or she objects to being
transferred. The outcome is that the
employee is then in a ‘no man’s land’; he or
she has not been transferred, but the
transferor cannot be treated as having
dismissed the employee.
Continuity of employment and transfers of undertakings
Insolvency
Measures to deal with insolvency were
absent from the original Directive. The
main problem was that the obligation for
the transferee to take over all the debts of
the insolvent organisation's employees,
and to transfer all those employees at
their current terms and conditions, would
act as a disincentive to the 'rescue' of
such insolvent enterprises.
Continuity of employment and transfers of undertakings
The 2001 Directive excluded any transfers
where the transfer is the subject of
bankruptcy proceedings with a view to
liquidation of the assets of the transferor.
Member States are also given the option of
excluding transfers of liabilities in other
types of insolvency proceedings.
Continuity of employment and transfers of undertakings
Those elements which the government
would normally be responsible for under
its statutory obligations towards the
employees of insolvent employers do not
transfer. The debts owed to employees
by the transferor, to the limits of its
statutory obligations, will be guaranteed
by the Secretary of State. This includes
some arrears of pay, notice periods,
holiday pay and any basic award for
unfair dismissal compensation. Other
debts owed to employees will transfer.
Continuity of employment and transfers of undertakings
In addition to this subsidy there is provision for
the employer and employee representatives to
agree ‘permitted variations’ to their contracts of
employment.
• Permitted variations are those which are not
due to ETO reasons entailing a change in the
workforce and are designed to safeguard
employment opportunities by ensuring the
survival of the undertaking
• Note that the phrase ‘employment opportunities’
is used, rather than just ‘employment’. This
suggests that the justification for any variations
can be argued widely on the basis that the
business is rescued or safeguarded, and this
will safeguard employment opportunities in the
future.
Continuity of employment and transfers of undertakings
Information and consultation
The Regulations contain the obligations to
inform and consult employees.
• There is also provision for the notification
of employee liability information and a
statutory duty for the transferor to pass on
to the transferee certain information.
Continuity of employment and transfers of undertakings
Public sector
‘Employees in public sector organisations
should be treated no less favourably than
those in private sector organisations when
they are part of an organised grouping of
resources that is transferred between
employers.’