Deciding when a TUPE has occurred is difficult because not only will it be unclear until after whether there was a TUPE but in the real world parts of businesses or service provision may transfer at different times or gradually over time. If TUPE is a donkey then you are blind as to whether it is there so pinning the tail on it to show when the transfer has occurred is an especially difficult game of “pin the tail on the donkey”; indeed you may be blindfolded and trying to the tail on a donkey which has run away, is not actually there or is not there yet.
Housing Maintenance Solutions Ltd v McAteer and others
As long as I can recall from the early 1980s the Transfer of Undertakings (Protection of Employment) 1981 and now the Transfer of Undertakings (Protection of Employment) 2006 (TUPE) have created uncertainty in the context of both the transfer of businesses or parts of businesses, and the creation or termination of contracts for the provision of services. This is despite the attempts in 2006 to make the position more certain in respect of service provision change, and the further changes earlier this year which have clarified and simplified various aspects of TUPE. I wrote about this earlier this year in the article at [LINK].
However, TUPE still needs to be thought of at the earliest stage of a transaction or service provision contract not simply to deal with the due diligence but also the structure of the arrangements because they may mean TUPE does not apply if careful thought is given. This is a difficult matter because the Tribunals have shown a willingness to see through avoidance techniques. If one can avoid TUPE that may be very valuable indeed. One issue which has not been addressed the TUPE Regulations is when the TUPE transfer occurs. This has been left to case law where the Tribunals have had to grapple with very difficult factual circumstances.
By way of one example if a night club contract ends and the night club closes and it is opened by another owner after a refit but assuming the night club is fundamentally the same while there is clearly a TUPE transfer on what date did the TUPE transfer occur? Is it on closure, over time or on opening of the night club under new ownership?
When trying to pin down the date of a TUPE transfer it can seem like trying to pin the tail on the donkey as one cannot see the full transaction or one can see part of one side of a transaction.
Unfortunately even where all the parties are working together such as the property owner, the outgoing night club owner and the incoming night club owner a simple agreement as to when the transfer occurs is not determinative because the transfer occurs by operation of law. Having said that an agreement between the parties or some of them should specify when the transfer occurs and the indemnities should then work off that date as should the practical arrangements. In the case of service contracts the due diligence to be provided, the warranties and indemnities and practical arrangements on exit should also be dealt with. For example say 3 months before exit the contractor should provide due diligence information and be committed to not changing terms or personnel on the contract as one of those practical arrangements.
In Housing Maintenance Solutions Ltd v McAteer and others the Employment Appeal Tribunal (EAT) has recently decided that a TUPE transfer occurred when responsibility for the business passed from the old contractor to the new contractor not when the new contractor assumed responsibility for the employees.
Housing Maintenance Solutions Ltd (HMS) was established to provide repair and maintenance services to its parent company which is a housing association (“HA”).
HA entered into an agreement with Kinetic for the provision of repair and maintenance services but the services were unsatisfactory so HA terminated the contract with immediate effect on 9 June 2011. Administrators were appointed to Kinetic and staff were sent home. On 14 June 2011, staff were told that their employment with Kinetic had been terminated on 9 June due to redundancy.
As at 9 June 2011, neither HA nor HMS were able to carry out the repair and maintenance work previously carried out by Kinetic. However, HA referred emergency work on an ad hoc basis to approved contractors.
On 9 June 2011, HMS engaged in consultation with Kinetic employees and reassured them that it would employ them. Four senior ex-employees of Kinetic were asked by HA to assist in the set up of HMS and began working for HMS on 15 June 2011.HMS commenced cleaning services work for HA on 20 June. On 1 July 2011, HMS started its full repair and maintenance service for HA.
Some employees of Kinetic brought unfair dismissal claims saying that that they had been unfairly dismissed by Kinetic on 9 June 2011 and that they were owed wages for the period 9 June to 30 June. They applied for a declaration as to the identity of their employer between those dates. Claims were also made for failure to inform and consult in respect of TUPE and collective redundancy consultation.
The first questions to be decided by the Employment Tribunal were:
- Was there a transfer and/or service provision change (SPC) from Kinetic to HMS?
- If so when did this occur?
The tribunal decided that there was an economic entity which transferred from Kinetic to HMS on 9 June 2011. Alternatively there was an SPC on that date. (At an earlier pre-hearing review, an employment judge had held that there was no transfer from Kinetic to HA.). They said:
"From 9 June 2011 HMS accepted responsibility for the employment of the claimants albeit it did not pay all of them. As soon as HMS was ready it would utilise the Kinetic workforce in full and that planned date was no later than 1st July 2011. It assumed responsibility however from 9 June 2011 via continued consultation and reassurance, by engaging four of the managers as soon as they were ready to take them back into work on 15 June and the cleaners on 20 June and ultimately on or before 1 July, it actively utilised 206 of the 208 Kinetic employees."
HMS appealed against the decision that there had been a transfer and/or SPC on 9 June 2011 from Kinetic to HMS on 4 grounds namely that:
- The decision that HMS was not able to carry out the services, or employ the majority of employees, until 1 July 2011 did not mesh with the decision the TUPE transfer had occurred on 9 June 2011. Prior to 1 July HMS was preparing for 1 July 2011. HMS consulted with employees before 1 July which showed that HMS was a potential, not an actual, transferee
- The tribunal had mixed up the two issues of whether a transfer had taken place with when it had taken place. The date of a transfer is the date when, even though there is a suspension, the transferee starts carrying out the activity
- Rather than having accepted responsibility for employees from 1 July 2011, HMS had informed employees of their future intention to employ them from 1 July 2011. The administrators had written to employees on 14th June, informing them that their employment had been terminated due to redundancy from 9 June
- In any event, the employment of staff without the resumption or continuation of the relevant activity cannot be decisive as to when a transfer takes place. HMS did not take on responsibility for the service on 9 June so that could not be the date of the transfer.
The employees argued that the promise to take on employees, as well as the fact of taking on four senior employees, was enough to support the decision that responsibility for the repair and maintenance service had transferred to HMS on 9 June. The fact that no-one was actually carrying out work between 9 June and 1 July was not material to the question of whether there was a transfer on 9 June.
The EAT dismissed the first, second and fourth grounds of the appeal by HMS. However, it agreed with ground three, saying that the tribunal had made a mistake when finding that the date of the transfer was when HMS assumed responsibility for employees. Based on case law it was clear that the date of the transfer must be understood as the date when responsibility for the relevant business transfers from one entity to another. Contracts of employment were transferred by operation of law under TUPE, regardless of what the parties intended or believed with regard to employment contracts. The case was returned for a tribunal to find the date of the transfer.
The EAT set out the following from previous cases:
- Employment of staff and resumption or continuation of activities do not determine the date of transfer
- European case law made clear that in reaching a decision as to whether an undertaking is transferred, all the relevant circumstances are to be taken into account. It is this aspect of TUPE which makes it most difficult to deal with in practice. Often one has to decide whether there is a donkey before one can pin the tail on it
- It is not correct that an undertaking does not transfer until the transferee starts carrying out the transferred activities. The House of Lords had held that an undertaking transfers when the transferee assumes responsibility for carrying on the business
- Temporary closure of the undertaking does not of itself preclude the possibility that there has been a transfer. Accordingly based on European cases in my night club example there would be a transfer and the date of the transfer would be when the new owner takes responsibility for the business.
COMPETITION - Message from Mark Symons, Head of Employment
I would like to invite you to take part in a competition. On what date did the TUPE transfer occur in this case? To help, find the full transcript at this link.
The winner will be decided by the Employment Tribunal’s decision. The closing date is 7 November 2014 or the date of the decision by the Employment Tribunal or the withdrawal of the case whichever is earliest. In the event of no decision by the Employment Tribunal by 31 October 2014 I will make a decision as to the date the TUPE transfer occurred based on the EAT decision. My decision will be final.
The prizes are:
- A bottle of champagne
- A TUPE advice or training session
- A tailored Payment in Lieu of Notice Clause. If your contract says the contract can be terminated by making a payment of salary in lieu of notice that will create practical problems and the clause should be amended but often there are other issues which this prize will resolve.