Holis: the facts

Newell made curtains and blinds under the "Swish" brand name at a factory in Tamworth. The factory employed 180 people and the GMB was recognised. Management decided to stop making curtain tracks and poles and this part of the business was sold to Holis, a company based in Israel. Over 100 employees were told that "the jobs were going to Israel" and that unless they agreed to move to Israel with their jobs, they would be made redundant. Perhaps unsurprisingly, staff were generally made redundant but nevertheless a claim was made alleging failure to consult properly under Regulation 13 of TUPE. The claim seems to have been brought against both the UK and the Israeli companies. The Israeli company asked for the claim to be struck out on the basis that TUPE did not apply. The Birmingham Employment Tribunal refused and the Israeli company appealed on this point of law.

Holis: the arguments

The EAT looked at a wide range of arguments advanced to suggest that TUPE would not apply. One question was whether it was possible for an undertaking to retain its identity where it moved from one country to another. This is relevant where you are looking at the "old" definition of an undertaking (economic entity retaining its identity etc), but probably not to the new concept of "service provision change", which may be more relevant to business services offshoring. In any event, the EAT thought this argument unattractive.

Another argument considered was the idea that TUPE and the Acquired Rights Directive are not designed to have extraterritorial effect, i.e. they do not reach out to affect the rights and duties of people based and operating outside of the EU. This should include Holis, based in Israel. However, the fact remained that the sale and the redundancies related to an undertaking situated in the UK at the point of transfer. The relevant staff deserved protection even if the undertaking (or, presumably, service) employing them was to be transferred outside of the EU. Indeed, on one view their need for protection is even greater. The key is the fact that, prior to transfer, the undertaking or entity and its people were in the UK. As Counsel for the employees put it, to say that this approach was extraterritorial, and therefore wrong, would be like saying that a foreign visitor to the UK would be exempt from liability for an accident he caused just because he was from overseas.

Another interesting suggestion related to enforcement. The argument was that there was little point in creating TUPE rights for UK employees against overseas nationals or corporations because it would be hard for employees to sue and enforce judgments. They may therefore be in a worse position than they would have been if their rights were restricted to their original UK employer. Understandably, the EAT saw this as confusing the existence of a legal right with the ease of enforcing that right. In any event, the EAT saw the enforcement "problem" as one that is getting easier.

Holis: the decision 

So, in the final analysis the EAT refused to overturn the Birmingham Employment Tribunal and confirmed that TUPE can, in principle, apply to the offshoring of a UK undertaking or (implicitly) service.

Comment 

Thus far it has largely been possible for UK employers to duck this issue by managing the workforce consequences of offshoring. This has been done by managing attrition, stopping gaps with agency workers, redeployment and comparatively low risk voluntary severance and retirement packages. Major fights between employers and staff/unions over offshoring have been rare in the UK. As people have become more global in their outlook and the "war for talent" has become a world war, there has been enough appetite for international transfers among employers and employees to allow these preferences to be accommodated.

In this sense, the fact that Holis is the first UK (possibly EU) case on the offshoring issue is not so surprising. No-one has "been there" before because no-one wanted or needed to "go there". But as the write offs mount and the liquidity crunch spreads, the focus on cost cutting (particularly in banking where offshoring is common) will inevitably become more intense and offshoring (recently showing some signs of fatigue as a business concept) may be pursued with more vigour and aggression. In that environment, and given the increasingly global horizons of the union movement, the Holis decision may become very important indeed.

Note

In July, the European Commission published a first phase consultation of social partners on proposed amendments to the Acquired Rights Directive to address the issue of cross-border transfer of undertakings. While the European Commission's review is at a very early stage, it is notable that the issue is under review. Previously, the Commission had taken the view that cross-border business transfers were rare and therefore it was not worth revising the Acquired Rights Directive to clarify the position. We await any future EU level developments.

Suggestions for action

As is so often the case in employment law, the best advice is probably to run your offshoring process in as planned, flexible and transparent a way as possible. "No surprises" is the order of the day. But especially in an increasingly volatile and nervous financial services community, this measured approach could be hard to achieve.