The ECJ has ruled that the Acquired Rights Directive on the transfer of undertakings can apply where a business is being sold by an operating company but the employees assigned to work in that business are actually employed by a service company in the group.

The ECJ decided that the operating company was a transferor covered by the Directive, given that it expressly applies to those with an "employment relationship" with the employees other than a contract of employment. The operating company here was such a "non-contractual employer".

The ECJ did not address the consequences of this, but for the employees to have any meaningful protection the implication is that their rights under the actual contracts of employment with the service company transfer.

There is no clear UK authority on the position of service company employees under TUPE, although there has been judicial suggestion that TUPE can apply to transfer them by viewing the service company as employing the staff as agent for the operating company.

This ruling provides further encouragement to UK tribunals to construe TUPE to cover service or other group company employees. It remains to be seen whether they will feel able to – and indeed whether an operating company could be deemed a "non-contractual employer" of long term agency or seconded employees.

Certainly buyers who do not want to take on employees should not assume they will be able to safely leave service company employees behind: they should consider asking the seller for indemnities and/or a pre-sale reassignment. Likewise, where the parties to a transaction want service company employees to transfer, it may remain prudent to move them into the operating company pre-transfer to avoid argument. (Albron Catering BV v FNV Bondgenoten, ECJ)