In this article we look back at some key cases and updates from the last few months involving TUPE and the lessons which we can learn from them.

What is TUPE?

As a brief reminder, TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006. TUPE, which implements the European Acquired Rights Directive (ARD), protects employees in situations where there is a transfer of a business or a service provision change by ensuring that the employees transfer to the new owner/provider on their existing terms and conditions of employment and with their continuity of employment preserved. TUPE also places obligations to inform and consult with representatives of the employees affected by the transfer.

Tabberer and others v Mears Ltd and others UKEAT/0064/17

This first case looked at what contractual terms had to be continued following a TUPE transfer. TUPE provides that any changes to an employee’s terms and conditions of employment are void if the sole or principal reason for the change is the transfer itself.

In this case, the electrician’s employees had a contractual travel time allowance in their contracts of employment. This clause had existed since 1958, originally to compensate for the loss of a productivity bonus caused by the need to travel to different depots.

However, by the time of the transfer, all but one of the depots had been closed, removing the need to travel and the original productivity bonus had also been phased out. Following a TUPE transfer, the contractual travel time allowance was removed by the new employer. The employees brought claims in the Employment Tribunal (ET) for unlawful deductions from wages arguing that the change to their terms was void under TUPE.

However, both the ET and the Employment Appeal Tribunal (EAT) rejected the employees argument, finding that the removal of the contractual allowance was because it was outdated and no longer relevant not because of the transfer itself.

This case makes clear that employers wanting to make contractual changes post transfer must ask the question “what is the reason the change is being made?”. If an employer is satisfied that the reason for the contractual change is unrelated to the transfer and would apply irrespective of a TUPE transfer, then the change will be permissible. However, this will not ordinarily allow employers to make contractual changes to the transferring employees’ contracts simply to harmonise terms with their existing workforce. Such a situation would only be because of the transfer and therefore the changes would be void.

Colino Sigüenza v Ayuntamiento de Valladolid and others (Case C-472/16) ECLI:EU:C:2018:646

Although this case was concerned with the ARD rather than TUPE, it still has value for employers in the UK. The ARD states that an employer’s rights and obligations under an employment contract shall transfer to the new employer and that transferring employees cannot be dismissed because of the transfer unless the dismissal is for an economic, technical or organisational reason entailing changes in the workforce (‘ETO reason’). Case law has established that the ARD can apply to situations where the employer contracts out, insources or changes the provider of a service (which under TUPE is referred to as a service provision change).

In this case, the European Court of Justice (ECJ) had to decide whether the ARD applied to a change in service provider where a contract to operate a Spanish music school was terminated for non-performance and staff were dismissed but 5 months later the service was resumed by a new provider. The new provider used the same premises, instruments and resources as the previous one. In addition, if the ARD did apply, the ECJ had to decide whether staff had been dismissed for an ETO reason or because of the transfer itself.

The ECJ decided that a transfer had potentially taken place despite the five month gap. However, it went on to hold that the dismissal of staff was likely to be for an ETO reason because the dismissal took place a considerable amount of time before the date of the transfer and it was impossible in the circumstances for the old service provider to pay its staff at the time.

This case reminds employers that just because there is a gap between activities before or after the transfer this does not necessarily stop a relevant transfer taking place, although all the circumstances would have to be examined in order to determine whether or not TUPE applies. Although this case concerned the ARD, the English Courts would follow it when deciding a case under TUPE.

Nicholls v London Borough of Croydon and others UKEAT/0003/18

This case looked at whether the transfer of a primary care trust’s public health team to a local authority constituted a relevant transfer under TUPE. For there to be a relevant transfer, there has to be a transfer of an economic entity which retains its identity following the transfer. An economic entity is an organised grouping of resources, people and assets all working together on an economic activity. Normally, a reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities is not a relevant transfer under TUPE.

The claimants worked in Croyden’s Primary Care Trust’s public health team. The team’s functions were transferred to the local authority in such a way that the transferring employees’ contracts of employment were not terminated and had full effect post-transfer. In 2015, the local authority asked the claimants to vary their contracts but they refused. Four resigned and the local authority dismissed the remaining ten and offered re-engagement on new terms, which only six accepted. The claimants claimed unfair dismissal and breach of TUPE.

The ET said that no transfer had happened under TUPE due to the fact it was a transfer of administrative functions between public administrative authorities. The claimants appealed.

The EAT considered the complexities of assessing when a company within the public sector constituted an ‘economic entity’ capable of transferring by virtue of TUPE, as opposed to constituting an ‘administrative function’ which would be incapable of transfer. Ultimately, the EAT agreed with the ET but sent the case back to the ET to be reconsidered on the grounds that the ET had not explained its reasoning adequately on the issue of whether a public health services team was carrying on an economic activity for the purposes of TUPE.

This is an interesting case because of the high level of technical argument on the meaning of 'undertaking', 'economic entity' and 'administrative function'. The EAT has provided a useful summary of the elements to be considered when determining whether there is an undertaking capable of transfer by virtue of TUPE which employers in the public sector are well advised to consider when transferring administrative functions.

Key change

On a final note, employers should be aware that HMRC has amended its policy in relation to enforcing national minimum wage penalties following a TUPE transfer. From 2 July 2018, where a TUPE transfer occurs, all national minimum wage liabilities are now imposed against the new employer. Previously, HMRC charged the former employer for all or part of the penalties where they related to amounts due to employees before they transferred under TUPE.