The Employment Appeal Tribunal (EAT) has held in Housing Maintenance Solutions Ltd v McAteer and others (UKEAT/0440/13) that the employment tribunal erred in holding that a TUPE transfer occurred when the transferee assumed responsibility for employees. The question the tribunal should have asked was when did responsibility for the relevant business pass from one entity to another? The case was remitted to the tribunal to determine the date of the transfer.
Housing Maintenance Solutions Ltd (HMS) is a wholly owned subsidiary of a housing association, LMH.
In 2009 LMH engaged Kinetics Group Limited (Kinetic) to provide LMH with repair and maintenance services for homes managed by LMH. It had been intended that, with effect from 1 July 2011, HMS would take over Kinetic’s repair and maintenance services. However, LMH terminated its contract with Kinetic with immediate effect on 9 June 2011 because LMH was not satisfied with the service provided by Kinetic. On the same day, Kinetic was placed into administration and on 14 June 2011 staff were told that their employment had terminated on 9 June 2011 due to redundancy.
As at 9 June 2011, HMS was not in a position to take over responsibility for the repair and maintenance services. Four of Kinetic’s employees were therefore “recruited” by LMH and HMS (although they were not formally recognised as employees) to assist in the management of the situation facing LMH and with a view to preparing HMS to take over the repair and maintenance services. They began “working” for HMS on 15 June 2011. Reassurances were also made to other Kinetic staff that HMS would employ them when they were in a position to “go live” with the services. On 20 June 2011, HMS began to provide some cleaning services to LMH and later began to provide repair and maintenance services from 1 July 2011 as planned. In total, 206 out of 208 Kinetic employees were utilised by HMS in the services.
A number of employees claimed that they had been unfairly dismissed by Kinetic on 9 June 2011. They also brought claims for wages between 9 June and 30 June and sought a declaration as to the identity of their employer during this period. Claims were also brought by the unions for failure to inform and consult in respect of TUPE and collective redundancy consultation.
The preliminary issue to be determined by the employment tribunal at a pre-hearing review was whether there had been a transfer or a service provision change from Kinetic to HMS and, if so, when this occurred.
Employment tribunal decision
The tribunal held that there was a transfer of an economic entity from Kinetic to HMS on 9 June 2011. In the alternative, it was satisfied that there was a service provision change on that date. It held that HMS had accepted responsibility for the employment of the claimants by engaging four of Kinetic’s employees and reassuring the remainder of the employees that HMS would employ them in the future. HMS appealed.
HMS had four grounds of appeal:-
- HMS was not ready to carry out the repair and maintenance work until 1 July 2011. Prior to 1 July, all actions were simply preparatory steps to take over the activities and, accordingly, until 1 July 2011 HMS was merely a potential, rather than an actual, transferee.
- The employment tribunal had confused the issue of whether a transfer had taken place with when it had taken place. If there is suspension of activities, the date of transfer is when the activity is continued or resumed by the new employer.
- HMS had not accepted responsibility for employees from 9 June 2011; it had simply informed employees of its future intention to employ them on or about 1 July 2011. Employees had been dismissed by the administrators on grounds of redundancy with effect from 9 June.
- 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 there could not have been a TUPE transfer on that date.
The EAT dismissed the first, second and fourth grounds of appeal. The EAT did not accept the proposition that an undertaking does not transfer until the transferee starts carrying out the transferred activities. However, it upheld the appeal on the basis of the third ground of appeal. The EAT considered the authorities, such as the House of Lords decision in Celtec v Astley and others, to be clear: the date of transfer is the date when responsibility for the relevant business transfers from one entity to another, not the date or dates when the transferee enters into contracts of employment with the employees.
Looking at the authorities, the EAT provided the following guidance:-
- All relevant factors need to be taken into account when deciding whether, and when, a transfer has taken place.
- Neither the employment of staff nor the resumption or continuation of activities is determinative of the date on which an undertaking is transferred.
- Whilst the engagement of employees employed in a labour intensive business may be a weighty factor in deciding whether there has been a transfer of that business and the date of transfer, the date of the transfer of the undertaking dictates the date when the contracts of employment transfer, not vice versa.
- The belief of the parties or their action in entering or not entering into contracts of employment does not dictate the date of the transfer of an undertaking.
There can be a transfer of an undertaking even when no employees are working and no activities are carried out. A temporary closure of an undertaking or suspension of activities therefore does not preclude a transfer taking place.
This case is a useful reminder that whether (and when) there is a transfer of an undertaking is a legal question. Whilst the parties’ intentions and actions may be indicative, they are not determinative of whether (and when) a transfer of an undertaking takes place.
It also confirms the Celtec line of authority that the date of a transfer is the date when the transferee assumes responsibility for a relevant business or service and that the transfer of employment contracts is a consequence of a transfer of an undertaking, rather than the cause of a transfer of an undertaking.