This month the EAT gives transferees something else to worry about on a TUPE transfer, as it concludes that they may be held liable for a transferor’s equal pay breaches, even if they did not know anything about them.

In Sodexo Ltd v Gutridge & ors a group of female cleaners transferred from North Tees and Hartlepool NHS Trust to Sodexo on 1 July 2001 under TUPE. Five years later they commenced equal pay proceedings against Sodexo. Their chosen comparators for equal pay purposes were the male maintenance assistants who had also been employed by the Trust but who had not transferred to Sodexo at the time of the transfer in 2001.

The Claimants argued that they were entitled to bring a claim against Sodexo by virtue of the equality clause that is implied into every contract of employment - the Equal Pay Act 1970 provides that all employees have the benefit of an equality clause implied into their contracts so that no-one is treated less favourably on account of his or her sex with regard to terms and conditions of employment. They claimed that before the transfer the effect of this clause would have been to bring their pay up to the level of the maintenance assistants. The TUPE transfer then had the effect of transferring these more favourable terms and conditions from the Trust (as the transferor) to Sodexo (as the transferee).

The Claimants accepted that they could not continue to compare themselves with the maintenance assistants post-transfer (because they were no longer in the “same employment”) but claimed that they should have been paid the same as them pre-transfer and, therefore, Sodexo’s continuing failure to pay them at that rate amounted to a breach of the equality clause and their contracts of employment, even though Sodexo knew nothing of the alleged inequality, or the reasons for it, and could have done nothing to address it.

The EAT agreed with the Claimants. It said “the Claimants can enforce their equal pay claims insofar as they relate to the failure by the transferee to honour their contracts”. It was prepared to accept that the effect of the equality clause was to bring their pay up to the level of the maintenance assistants and it was this term that had automatically transferred to Sodexo as a result of contractual rights being transferred on a TUPE transfer. In other words, the Claimants should be allowed to enforce against Sodexo such terms as would have been enforceable against the Trust pre-transfer. The Tribunal said that the 6-month time limit for bringing such a claim would not start to run until their employment with Sodexo came to an end, not their employment with the Trust.

What about the fact that the Claimants had not brought proceedings against the Trust to establish their right to be paid the same as the maintenance assistants? The EAT said this did not matter because an equality clause bites as soon as the conditions for its application are met; there was no need for the Claimants to have brought successful proceedings against the Trust to establish their rights first.

The EAT did however say that, in line with previous case law, the Claimants would have been out of time for bringing a claim in respect of the Trust’s alleged breach of the equality clause. It said that such a claim should have been brought within 6 months of the date of the transfer ie, back in 2001. So the Claimants were out of time for bringing their claim against the Trust (which committed the alleged equal pay breach in the first place) and yet some five years later were still in time to bring a claim against Sodexo for failing to pay the enhanced terms, even though it did not know what they were and had no responsibility for them.

How should transferees deal with this issue? Clearly they should always obtain details of a transferor’s pay structure as part of a due diligence exercise but obtaining sufficient details to enable them to try and identify any equal pay breaches that could potentially give rise to a claim in the future is just not realistic. Transferees should think about indemnities to protect them against the risk of such claims but who in practice is going to be willing to give such a wide indemnity? Perhaps we just have to hope that this matter will proceed to the Court of Appeal and it might take a different view.

Whilst this case involved claims under the original 1981 TUPE Regulations, the position would be the same under the revised 2006 Regulations.

There has also been another recent EAT decision with equally unattractive implications for transferees. In Capita Health Solutions v BBC (1) and Mrs McLean (2) the EAT made it clear that if an employee wishes to object to the transfer of his employment under the TUPE Regulations 2006 he must make this clear and must act consistently with that objection in order for it to be effective.

Mrs McLean was employed by the BBC as an Occupational Health Nurse. The BBC announced that it was going to outsource its occupational health function to Capita with effect from 1 April 2006. Mrs McLean raised a grievance setting out her concerns about the transfer. Her grievance was rejected and on 30 March she resigned. The BBC accepted her resignation but agreed to let her work out her six-week notice period “on secondment” to Capita. During this period the BBC continued to pay her and it also paid her a long service payment on termination of her employment.

Mrs McLean subsequently brought an unfair dismissal claim and the issue arose as to who had employed her and whether she had validly objected to the transfer. Whilst under the TUPE Regulations an employee has the right to object to becoming employed by the transferee it is a drastic step to take. The effect of such an objection is to terminate the employee’s employment but the employee is not treated as having been dismissed by the transferor or the transferee. The employee does not therefore have the right to bring a claim for unfair dismissal or for a statutory redundancy payment against anyone. A brave step indeed.

The EAT held that Mrs McLean’s objection to the transfer was not valid because she had agreed to continue working after it and that her employment had therefore transferred to Capita, thus giving her the right to bring a claim for unfair dismissal against it. It said that Mrs McLean had not totally objected to being employed by Capita: she was prepared to work for it, even if it was only for the short period of time representing her notice period. That was enough to allow her employment to transfer and to saddle Capita with the obligations attached to her contract.

This decision acts as a reminder to transferees that employees who have objected to the transfer should not be allowed to continue working for them, even just for a short period of time or “on secondment”, as this is likely to render any objection invalid and ultimately result in their picking up the tab for whatever led those employees to leave in the first place.