In a surprise decision, with potentially wide-ranging ramifications, an employment tribunal has found that workers, as well as traditional employees, transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).(1)
The employment tribunal's decision concerns so-called 'Limb (b) workers'. This refers to the definition of 'worker' in Section 230(3)(b) of the Employment Rights Act 1996 and other similar employment legislation. Limb (a) of the definition covers those working under a contract of employment (ie, individuals who are also employees). Limb (b) then provides that someone who undertakes to perform services personally for a third party, which is not a client or customer of a profession or business undertaking operated by them, also counts as a worker.
In the decision, the employment tribunal considered the question of who is protected under the EU Acquired Rights Directive (77/187/EC), the EU law which is implemented in the United Kingdom by TUPE. The case concerned cycle couriers who claimed that they had automatically transferred from City Sprint to Revisecatch when the former lost and the latter won a contract with a client.
TUPE itself has a different definition of an 'employee' – namely, "any individual who works for another person whether under a contract of service… or otherwise but does not include anyone who provides services under a contract for services".
The employment tribunal noted that the EU Acquired Rights Directive is intended to protect anyone in an employment relationship – it refers to a transfer of rights and obligations "arising from a contract of employment or from an employment relationship existing on the date of a transfer". This implies that the protected class is not limited to those with a contract of employment, but how exactly should this be defined?
Referring extensively to case law from the European Court of Justice, the employment tribunal concluded that it was open to EU member states having different types and levels of employment rights and protections, but that the purpose of the EU Acquired Rights Directive is to preserve these.
The employment tribunal looked at other areas of UK statutory employment law. It noted that Limb (b) workers are also 'employees' within the meaning of the Equality Act 2010, and that the Trade Union and Labour Relations (Consolidation) Act 1992 uses the phrase 'employer' when describing persons who provide work to a Limb (b) worker. The employment tribunal also referred to a Supreme Court judgment (Bates van Winkelhof) which drew a distinction between:
- self-employed persons who carry on a profession or business on their own account and enter into contracts with clients and customers, who are not protected as whistleblowers; and
- those who provide their services as part of a profession or business undertaking carried on by someone else, who do have whistleblowing protection.
Relying on this, the employment tribunal concluded that the EU Acquired Rights Directive should be construed as encompassing not only those with a traditional contract of employment, but also those in the intermediate class who are recognised as Limb (b) workers and whose rights substantially derive from EU law. This class of working person – the wider UK law concept of a 'worker' under the Employment Rights Act and the Working Time Regulations 1998 – is covered by the EU Acquired Rights Directive.
How, then, should a tribunal meet the challenge of interpreting the TUPE definition of an 'employee' consistently with the EU Acquired Rights Directive? The employment tribunal noted the broad and far-reaching obligation to interpret legislation in a manner consistent with EU law obligations, the only restriction being that the meaning must align with the legislation and be compatible with its underlying ideas.
The employment tribunal concluded that the words or otherwise in the TUPE definition are to be construed as embracing Limb (b) workers (and Equality Act employees). The exclusion for those providing services under contracts for services is intended to catch only independent contractors who are genuinely in business on their own account and have no employment or labour law rights to be preserved in the event of a transfer.
The decision is employment tribunal level only, so it has no binding precedent weight and may be appealed. Nonetheless, it raises some immediate practical considerations, while leaving some questions unanswered.
Parties engaged in TUPE transfers, whether as transferors or transferees, often give workers considerably less thought than employees when undertaking due diligence and negotiating employment provisions in sale and purchase and services agreements – the assumption being that they will not transfer. This may now need to change.
The same is true of TUPE information and consultation obligations. If this decision is right, transferors must now ensure that Limb (b) workers are covered – for example, by being included in elections for employee representatives. Otherwise, they may face claims for protective awards of up to 13 weeks' pay (which is one of the claims being pursued in this case). Importantly, Limb (b) workers are not necessarily only low-paid individuals; many highly paid consultants and contractors also potentially fit the definition. However, in their case, there may be more of a question as to whether they are in business on their own account. The question of whether personal service is required (which was left unexplored by the employment tribunal in this case) may also be relevant.
What of the restrictions on making changes to terms and conditions and the penalty of automatic unfair dismissal, which form the core of the protection for employees under TUPE? That was not in issue in this case, which concerned unpaid holiday and an alleged failure to inform and consult. However, there must now be a question as to how (if at all) other TUPE rights should be applied in the worker context. Most worker contracts tend to be flexible and terminable on short notice and the transferor will often – to the extent that the transferee wishes to retain workers – terminate their existing contracts after which the transferee will offer re-engagement on its standard terms. To do this in the context of a TUPE transfer could be automatic unfair dismissal for a traditional employee, but workers are outside the ambit of the unfair dismissal regime.
On the face of TUPE there is no problem because the limitation on making changes to terms and conditions is expressly limited to individuals with contracts of employment, not individuals with a wider employment relationship, and the protection against dismissal is also limited to 'employees' as defined by the Employment Rights Act. However, this raises a tantalising question as to whether that is consistent with the EU Acquired Rights Directive, which makes no such distinction:
- Article 3 of the directive states that a transferor's rights and obligations arising from a contract of employment "or from an employment relationship existing on the date of transfer" transfer to the transferee; and
- Article 4 of the directive states that if a contract of employment or employment relationship is terminated because a transfer involves a substantial change in working conditions to the employee's detriment, the employer will be treated as responsible.
This is a story that could run and run.
(1) Dewhurst v Revisecatch Ltd t/a Ecourier. The employment tribunal's decision is available here.
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