In this case, the EAT considered whether the transfer of a Primary Care Trust’s health team to a local authority fell within the “public administrative authorities” TUPE exemption.
An “administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities” will not trigger TUPE. However, the transfer of staff carrying out activities of an economic nature within a public administration does fall within TUPE. Case law on this exclusion from TUPE is rare.
When primary care trusts (PCTs) were abolished, the Secretary of State was given the power to make a staff transfer scheme providing for the transfer of employment contracts in connection with the reorganisation.
The claimants in this appeal were 14 individuals, including Mrs Nicholls. They had worked within Croydon PCT’s public health team, which commissioned third parties to provide health related services to members of the public. The team had also been involved in research, training and maintenance of the public health library. In April 2013, the functions of the team were transferred to the London Borough of Croydon when PCTs were abolished. The staff transfer scheme applied to the transfer, and provided that the transferring employees’ contracts of employment were not terminated by the transfer, but would have effect after the transfer date as if they had originally been made with the local authority. The staff transfer scheme did not, unlike TUPE, provide for protection of terms and conditions of employment.
Two years later, the Council wanted to change the claimants’ terms and conditions of employment. Initially, it invited the claimants to agree to the variation, but none of the claimants accepted this offer. Four of the claimants resigned and claimed that they had been constructively dismissed. In August 2015, the Council dismissed the remaining ten claimants, and offered to re-engage them on new terms. Six of them accepted re-engagement, and four did not. The claimants brought claims for unfair dismissal. To claim unfair dismissal, two preliminary issues had to be decided. These were:
- Whether there was a “relevant transfer” under TUPE; and
- If there was a relevant transfer, whether the claimants’ employment was transferred under TUPE.
The tribunal had held that the answer to 1 was that there had been no transfer of an economic entity because the team’s activities involved the exercise of public authority, and TUPE did not therefore apply.
In relation to the second point above, the tribunal went onto find that that, even if there had been a relevant transfer, the claimants’ employment contracts would not have been transferred because, under TUPE, only contracts of employment that would “otherwise be terminated by the transfer” transfer: the claimants’ contracts would not have been terminated by the transfer, because the contracts transferred under the staff transfer scheme.
The claimants appealed to the EAT, and the EAT allowed the appeal on both points.
The EAT conducted a review of existing European and UK case law on whether there is an economic activity or an exercise of public authority. Points of note arising from this review of existing case law are:
- The exercise of public authority does not include everything which a public authority does.
- It is necessary to consider the activities exercised by the entity being transferred, and to determine whether those activities belonged to the mutually exclusive categories of “exercising public powers” or “carrying on an economic activity”.
- Purchasing or commissioning of goods or services cannot in itself constitute an economic activity. However, where an activity consists of providing goods and services, as opposed to merely providing them and there is a market for them, it would be an economic entity even if the goods and services are provided free and without a view to profit.
- There is no single test for determining whether an activity involves the exercise of public authority.
- If an activity does involve the exercise of public authority, the transferred entity would not be carrying on an economic activity.
- It is the nature of the activity carried on by the entity that it is decisive, not the nature of the transferor.
- A transferred entity which carries on activities involving the exercise of public authority would not be treated as an economic entity merely because it carries on some ancillary activities of an economic nature.
The EAT’s review of case law also identified relevant questions (whose importance may vary from case to case) in deciding whether there is an exercise in public authority including whether:
- the activity is “necessarily” carried out by public entities, has always been carried out by public entities, or is a “core state activity”.
- it involves the exercise of “prerogatives outside the general law”, “privileges of official power”, or the exercise of rights and powers of coercion.
- it is a public service to which any idea of commercial exploitation is alien, or which cannot conceivably be carried out within a competitive system;
- it is carried out in the public interest, is a service provided to the whole community, or is intended to safeguard the general interests of the state or other public bodies;
- it involves providing services in competition with those offered by other bodies pursuing a profit motive.
The EAT considered that there was a significant gap in the tribunals’ reasoning, and it had failed to give adequate reasons, and (depending on its reasons) it may have made an error of law. The question of whether there was an exercise of public authority was remitted to a fresh tribunal.
In relation to the second preliminary question, the EAT considered that the Acquired Rights Directive, the European legislation which is incorporated into UK legislation by TUPE, does not include the words “which would otherwise be terminated by the transfer”, and (if TUPE did apply) these words should not be used to have the effect of preventing the employees from relying on the protection of terms and conditions given by TUPE.
What does this mean for employers?
The EAT’s comprehensive review of case law will be key reading for any public sector employers who are considering whether TUPE may apply to a reorganisation or transfer of administrative functions. In practice, however, employers in a similar situation will generally treat employees as having transferred under TUPE, with the protections given to them under TUPE.