“Employer” does not have strict contractual meaning for TUPE purposes

Over the course of its 30-year existence, TUPE has been revised and construed in order to prevent sham or artificial arrangements which might defeat its purpose. TUPE is intended to implement the European Acquired Rights Directive. The European Court of Justice has now considered, and closed, another potential loophole.  

This case involved the sale of Heineken’s in-house catering division. The claimant and 70 or so other workers were employed by a service company owned by Heineken, but they worked for an operating company which supplied catering to employees in the Heineken group. When the catering operation was sold, these employees sought the protection of the Dutch equivalent of TUPE and argued that their contracts of employment had been automatically transferred. The ECJ said that the Directive did apply. It operated to transfer contracts not only where the employees assigned to the business had a contractual relationship with the transferor, but also where they had an "employment relationship." This was the case even though the contractual employer was another company in the transferor’s group.  

This ruling extends the reach of the Directive from employees with a contractual relationship with the transferor to those assigned to the transferor’s business but employed by another company in the same group.  

Like its Dutch equivalent, on its face TUPE applies only to contractual employees of the transferor. Except where the contractual arrangements are a sham, UK courts have not so far been prepared to look behind them. This decision will change things.  

Nature of activity can change even if essentially same service is provided  

Service provision change transfers were first introduced as a distinct category of transfer under TUPE in 2006. A service provision change can arise where activities cease to be carried out by one contractor and are carried out by another. Immediately before a service provision change there must be "an organised grouping of employees … which has as its principal purpose the carrying out of the activities concerned on behalf of the client".  

Recent cases have considered how the relevant “activities” should be identified and the extent to which they need to remain the same post-transfer. The most recent decision concerned the provision of legal services to the Nursing and Midwifery Council. The NMC had used Ward Hadaway as one of its panel of solicitors for a number of years. When the NMC retendered its work, Ward Hadaway lost the contract.  

The question was whether the lawyers who had worked on its files would transfer to the new law firm. It was accepted that there was an organised grouping of employees who carried out activities on behalf of the client. The key issue was therefore whether the activities being provided before and after the transfer were “fundamentally or essentially” the same.  

The Tribunal held, and the Employment Appeal Tribunal (EAT) agreed, that they were not and the employees did not transfer. The activities performed by the new law firm after the transfer were different. The client had decided to do more work in-house and so the work was more limited. Ward Hadaway kept its existing work, which was “run off” and no current work in progress was handed over.

ETO reason does not need to affect whole workforce

If an employee is dismissed for a reason connected with a transfer, that dismissal will be automatically unfair unless it is for an economic, organisational, or technical reason entailing changes in the workforce (an ETO reason). In order for the reason to “entail changes in the workforce” the cases say that it must involve changes in the numbers or functions and levels of employees (eg, reorganisation or redundancy). If there is an ETO reason for a transferrelated dismissal, then the dismissal is potentially fair, provided the employer behaved reasonably in dismissing for that reason (that is, in accordance with the normal rules of unfair dismissal).  

The meaning of an ETO reason was reconsidered recently in a case involving the transfer of a number of managers from Portman Building Society to Nationwide. The managerial roles available at Nationwide differed from those at Portman and a job “mapping” process was used to allocate staff to new positions. The new roles and responsibilities were less favourable. In addition Portman staff would be given a new, less favourable bonus scheme. The managers resigned and claimed unfair constructive dismissal.  

The EAT accepted that the employees had been constructively dismissed but considered that those dismissals were not automatically unfair as there was an ETO reason. It accepted that the principle reason for the change in roles, the reduced bonus and the constructive dismissal, was the narrower product and fund range offered by Nationwide. This was accepted to be an “organisational change”: it did not need to affect the entire workforce in order to be an ETO reason.  

This case could be interpreted as broadening the possible range of ETO reasons to cover situations where organisational factors (here, differences in product range and funds and therefore bonus) are used to harmonise the terms of some of the workforce.  

Information and consultation required about “minor” administrative matters  

A recent case involving the transfer of staff in a care home considered the employer’s duty to inform and consult under TUPE. In this case the transfer had little effect upon the staff and there were few “measures” to consider. However the employer failed to arrange for the appointment of representatives and did not therefore engage in any consultation with them. It did make some attempt to inform the workforce directly, but not in accordance with TUPE.  

The employment tribunal awarded the full 13 weeks’ compensation to the affected employees. On appeal the EAT reduced this award to seven weeks. It held that 13 weeks’ compensation was not appropriate where the employer had supplied some information to employees and engaged in some consultation.