In this brief update we consider an ECJ decision concerning the circumstances in which an economic entity retains its identity when it is integrated into the transferee's organisation post transfer and a recent tribunal decision on the application of TUPE when a client changes law firms.
ECJ decision on retention of identity following a TUPE transfer
In order for there to be a relevant transfer for the purposes of the Acquired Rights Directive and Regulation 3(1)(b) of TUPE 2006, there needs to be a transfer of an "economic entity that retains its identity". The ECJ has confirmed that, where there is a transfer of a part of an undertaking, it is not necessary for the part transferred to retain organisational autonomy following the transfer in order for it to retain its identity. It will not be possible to avoid the consequences of TUPE by integrating the entity within the transferee's organisation so that it does not exist as a distinct organisational unit following the transfer. Provided that key elements of the entity prior to the transfer, such as labour and materials continue to be linked together following the transfer in pursuit of similar activities, there will be sufficient retention of identity to satisfy the definition of a relevant transfer (Klarenberg v Ferrotron Technologies GmBH).
TUPE and the professional services sector – TUPE transfer on a change of law firm An employment tribunal has held that there was a relevant transfer for the purpose of TUPE when a client changed solicitors (Royden and others v Barnetts Solicitors). Twenty-three of the employees in the transferor's conveyancing department, who were allocated to the contract, formed an "organised grouping of employees" with the principal purpose of carrying out the activities on behalf of the client. Thus the change in law firm amounted to a service provision change under TUPE. However none of the allocated employees spent all of their time on the client's work and only 2 of the employees were sufficiently involved with the client's work to transfer to the new law firm (Barnetts). Barnetts required the transferring employees to relocate from Birkenhead to Southport and the tribunal held that this amounted to a substantial change to their material detriment entitling the employees to treat their contracts as terminated unfairly by Barnetts, who were liable for the unfair dismissal claims. The majority also held that Barnetts had failed in its duty to consult under TUPE.
Impact on employers
This tribunal decision is not binding on other tribunals, but it is the second decision under the 2006 TUPE Regulations to confirm that TUPE can apply on a change of professional adviser (see also the decision in Hunt v Storm).
It is likely to be of limited effect in certain sectors such as law and accountancy, in which professionals usually do work for a number of clients and are not "assigned" to a particular client.
However, in other sectors in which work is organised differently, this case demonstrates the possibility of a new service provider inheriting employees from the old service provider and having associated obligations under TUPE. From the client's persepective, the outcome may be unsatisfactory as the change of provider will not necessarily bring about a change in the personnel providing the services.