In an important decision* delivered by Mr. Justice Edwards on the 28th May 2009, the High Court has clarified the fate of employees who object to moving to the new employer in circumstances where their job is outsourced as part of a TUPE transfer. This issue had become a matter of particular concern for employers following the Employment Appeals Tribunal's decision in this case in 2007.
Background - EAT decision:
In November 2006, Symantec Limited ("the transferor") transferred part of its undertaking to Corporate Occupier Solutions (Ireland) Limited ("the transferee") in order to outsource its EMEA facilities. The transferor told the two employees concerned that if they refused to transfer, this would result in their resignation. Following their refusal to transfer both employees claimed before the EAT that they had been dismissed by reason of redundancy. The EAT found that the employees in these cases were entitled to refuse to transfer to the transferee and that this refusal gave rise to a redundancy situation with the transferor and consequently awarded statutory redundancy payments to both employees. The High Court overturned the EAT's finding.
Regulation 4(1) of the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 provides that
"the transferor's rights and obligations arising from a contract of employment existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee."
This Regulation is based on Article 3(1) of the underlying Directive, which further gave the option to member states to provide that, after the date of transfer, and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment. Ireland did not include this option in the transposing Regulations which do not address the consequences of an employee refusing to transfer.
At the High Court hearing, both parties relied on different interpretations of the same ECJ caselaw in this area. The Kastikas** case and the Merckx case*** both confirm the entitlement of an employee of the transferor to refuse to transfer to the transferee, on the basis that an employee must be free to choose his employer. In both decisions, the ECJ goes on to confirm that it is for Member States to determine what the fate of the contract of employment should be in such a case - Member States may provide that the contract of employment is then terminated either by the employer or by the employee.
The Transferor argued before the High Court that it was open to the employees to challenge the transferee that in fact their positions were redundant but it was not open to them to challenge it, as Transferor, on this point.
Mr. Justice Edwards disagreed with the employees' interpretation of the ECJ caselaw and found that the fact that the 2003 Regulations are silent as to what happens to employees refusing to transfer to the transferee in a TUPE transfer operates against them.
"The fact that an employee objects to the transfer does not of itself have the effect of negativing the transfer (according to Katsikas). It is just that the employee is not obliged to continue an employment relationship with the transferee. .....If the Irish legislature had wished the employment relationship with the transferor to continue so as to facilitate the employee in making a claim for redundancy it could have enacted legislation to that effect. It has not done so."
The decisions of the EAT in these related cases had created uncertainty for employers wishing to sell or outsource part of their business. The High Court's clarification on this point should be welcomed by employers, who no longer have to consider the possibility of incurring significant redundancy related costs in circumstances where employees refuse to transfer to the new employer in a TUPE transfer.
However, employers need to remember that the case has no bearing on the right of an employee to object to being transferred "for cause" in circumstances where the transfer involves a substantial change in working conditions to his detriment – for example changes in his place of work or his terms and conditions of employment. In those circumstances the Directive specifically provides that responsibility for the termination of the employee's contract of employment remains with the outgoing employer. Liabilities in those circumstances could include constructive unfair dismissal and, therefore, compensation of up to two years remuneration per employee. Transferors should ensure that they have proper contractual protection in place to protect them against objections in circumstances where these arise out of proposed employment-related changes by the new employer after the transfer has taken place.
*Symantec Limited -v- Leddy and Symantec Limited-v- Lyons, The High Court, 28th May 2009
**Katsikas -v- Konstantinidis [1992} ECR I 6577
*** Merckx & Neuhuys -v- Ford Motor Co of Belgium  ECR I - 1253