Transfer talks

9 July 2007

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) is a hot topic at the moment. What’s being said by the DTI, Britain’s biggest union UNITE, in the Employment Tribunal and the EAT?

One of the key changes brought about by TUPE 2006 was the broadening of the definition of “relevant transfer” to include not only simple business transfers but also service provision changes, i.e. where services are outsourced, insourced or assigned by a client to a new contractor. A matter involving the provision of PR services has recently been the subject of a pre-hearing review at the Reading employment tribunal in Hunt v Storm Communications Ltd and others (May 2007).

Ms Hunt had been employed as an Account Manager for Storm Communications Ltd since April 2001. She worked on a number of client accounts and this was reflected in her job description, which did not mention any specific clients. However, since joining the company and up until the company lost the account on 28 July 2006, she had worked on the Brown Brothers Wines Ltd account and spent at least 50% of her time each month on the contract, estimating that it took up 70% of workload over a year. Ms Hunt did not work on the account alone, there was also an Account Director, who following a decision to set up her own business, had for the last year been continuing to act in this role but on a consultancy basis to Storm. The client moved its account to a new provider, Wild Card under a contract which commenced a month later than envisaged on the 1 October 2006, due to ongoing concerns regarding TUPE. Storm had asserted that Ms Hunt should transfer to Wild Card, but Wild Card denied that TUPE applied. As a result Storm dismissed Ms Hunt on 28 September 2006.

Ms Hunt brought a claim in which Storm, Wild Card and Brown Brothers Wines Ltd were all listed as respondents. The question before the tribunal at the pre-hearing of her claim was whether there was a transfer under TUPE 2006 and if so, when and to whom.

Storm contended that there had been a relevant transfer of part of its business, but also that the transfer amounted to a service provision change. They argued the transfer occurred on 28 July when the client brought the services back in house and that there was a subsequent transfer from Brown Brothers to Wild Card.
Wild Card and Brown Brothers argued that the facts ruled out the existence of an economic entity, particularly as there was not a single organised grouping of employees but two separate groups, being Ms Hunt and the self employed consultant, so there could not be a business transfer. In addition, they argued there was not a service provision change as the time spent working on the account did not amount to a principal purpose as MS Hunt was not essentially dedicated to the task. Brown Brothers further contended that as there was no evidence that they had carried out the activities between 28 July and 1 October the services had not been brought back “in house” and therefore there was no service provision change from Storm to them.

The tribunal agreed with the second and third respondents, that there had not been a transfer of an economic entity. However, it held that there had been a service provision change in that specialist PR activities had been transferred from Storm to Wild Card. It was accepted that Brown Brothers only acted as a “caretaker” before Wild Card took over the contract as they were not capable of undertaking these activities on their own behalf. Therefore, the service had not gone back “in-house” first. The tribunal was satisfied that Ms Hunt was an organised grouping of employees whose principle purpose was the specialist PR activities for Brown Brothers. It did not matter that she was supported, on the periphery, by account executives who worked for a variety of accounts and a self employed consultant. None of these individuals fell within the organised grouping. The effective date of the transfer was held to be on 28 July, when Brown Brothers dispensed of the services of Storm in the knowledge that they would be undertaken by another provider, in this case Wild Card. Accordingly, the tribunal ordered Ms Hunt’s unfair dismissal and other claims to be listed for hearing against Wild Card

The first EAT decision on TUPE 2006 was also reported last month in Secretary of State for Trade and Industry v (1) Slater and others and (2) CF Nationwide Site Services Ltd. The key issue in the case was the interpretation of Reg 8(7), which applies when insolvency proceedings are instituted with a view to liquidating assets. Provided the transfer takes place after ‘proceedings having been instituted’ and ‘under the supervision of an Insolvency Practitioner (IP)’ employees will not automatically transfer to the transferee and there will be no unfair dismissal claims against him. However, employees of the transferor are eligible to bring a claim against the State Fund for any monies owed, such as redundancy pay, notice etc up to certain limits. The EAT decided in this case that Regulation 8(7) did not apply as it was not sufficient that the Directors had, at a meeting before the transfer, resolved to wind up the company and had involved its accountants who could act as IP’s. To be under the supervision of an IP meant that he had to have been formerly appointed. This had not occurred until after the transfer in this case.

In March 2007 the DTI published revised guidance for employees, employers and representatives on TUPE 2006. Part 3 of the guidance “Contracts of Employment” has been amended in light of the EAT decision in which although it interpreted TUPE 1981, applies equally to TUPE 2006: Power v Regent Security Services Ltd (2007). In this case, Mr Power sought to rely on a contractual variation, changing his retirement age from 60 to 65, which was made when he transferred to Regent Security Services. The company dismissed him at age 60 arguing that he could not rely on the change as it was connected to the transfer. Under TUPE changes are void unless they are unconnected to the transfer or, if connected, where there is an economic, technical or organisational reason entailing changes in the workforce. However, the EAT ruled that this strict interpretation is contrary to the intention of the Acquired Rights Directive, which is to protect the employee. Accordingly, where a contract is varied as a result of a TUPE transfer an employee may rely on the new contractual terms and only changes which the employee considers to be detrimental are void.

The DTI guidance now states “the underlying purpose of the Regulations is to ensure that employees are not penalised when a transfer takes place. Changes to terms and conditions agreed by the parties which are entirely positive are not prevented by the Regulations”. The full guidance can be downloaded at www.dti.gov.uk/files/file20761.pdf.

In other talks, recently formed trade union Unite, a merger of the T&G and Amicus, have made a recommendation to the Treasury Select Committee to extend TUPE to share transfers. The union claims many firms under new private equity ownership make drastic changes to the terms and conditions of workers by exploiting the loop hole in the law.

Although TUPE 2006 was expected to simplify the law, this is undoubtedly not the last word! Buddy will monitor the developments in this area, and elsewhere in employment law, and report back on this site. So stay tuned!