In Holis Metal Industries v GMB and Newell Ltd, the Employment Appeal Tribunal rules that the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) has the potential of applying to a transfer of an undertaking from the UK to a non-EU country.

What happened in Holis?

Newell Ltd (the transferor) owned a factory in Tamworth employing 180 workers in a particular part of its business. 76 of these employees were members of the GMB, a recognised trade union for collective bargaining purposes. Holis, a company based in Israel, entered into negotiations with Newell to purchase that part of its business, with the intention of moving it to Israel. A letter was issued stating that jobs would move to Israel and the representative of the works council informed the 107 employees in the relevant part of Holis’ business that unless they wished to move to Israel, they would be made redundant following the transfer. The relevant part of Holis’ business was duly purchased by Holis and was relocated to Israel. Although some machinery also transferred to Israel, none of the affected employees wished to move to Israel so were all dismissed by reason of redundancy, and were paid redundancy payments.

Does TUPE apply to a transfer to a non-EU country?

The GMB brought claims against Holis and Newell Ltd for failure to comply with their statutory duties, under regulation 13 of TUPE and section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, to inform and consult employees with regard to the transfer and the redundancy situation. Holis argued that TUPE only applied to transfers between businesses within the EU and not, as in the present situation, to a non-EU country such as Israel. The Employment Tribunal examined regulation 3(1)(a) of TUPE which states that the regulations apply to “a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity”. The Chairman gave this regulation a “plain interpretation” and deemed that both the transfer and redundancies took place in the jurisdiction because the relevant part of Holis’ business was situated in the UK immediately before the transfer.

Holis appealed the Tribunal’s decision to the Employment Appeal Tribunal (‘EAT’). The EAT decided that a detailed examination in relation to the precise timings of the redundancies was required, and accordingly did not decide on whether TUPE applied to this particular transfer . The EAT did, however, consider that TUPE was capable of applying to transfers of businesses outside the UK, including non-EU countries.

Holis’ main argument was that the EU Acquired Rights Directive (which TUPE is intended to implement) is expressed only to relate to transfers within “the territorial scope of the Treaty,” i.e. only transfers within the EU. However, the EAT examined the wording of the Directive and regulation 3 of TUPE and decided that a purposive approach should be adopted in other words one consistent with the objective of protecting workers in the event their employer changed and therefore meant that employees involved in such transfers should be protected even if the transfer is to a non-EU country.

What does this decision mean for employers?

This is the first time in which the EAT has expressed so firm a view on whether TUPE applies in transfers to non-EU countries.

The decision also noted the point made by the GMB that it would stop “unscrupulous employers” from circumventing the protections afforded to employees by TUPE by setting up non-EU subsidiaries to purchase UK businesses or parts of them and thus avoiding the application of TUPE.

In this case the EAT recognised the possibility of practical difficulties in enforcing TUPE outside the UK but deemed this as being less of an issue in “these days of multi-national corporations and economic inter-dependency” and also took into account the fact that Holis, an Israeli company, had willingly submitted to the jurisdiction of the EAT. In practice, most employees finding themselves in a similar situation would prefer a redundancy payment (as in this case) rather than be required to relocate to another country. However, the affected employees have rights to be informed and consulted and if the transferee fails to comply with its obligations, they (or their representatives) may bring claims against the transferor or the transferee. The transferee also has an obligation under TUPE to provide the transferor with information needed so that the transferor can inform and consult the employees affected by the transfer. Where the transferee fails to so inform the transferor, the Tribunal has power to order the transferee to pay compensation to the affected employees. If the transferee is based in a jurisdiction outside the EU, this could indeed present practical difficulties for the employees and their representatives in enforcing any award of compensation made.

Click here for the EAT decision.