Out-Law News | 22 Aug 2014 | 4:00 pm | 3 min. read
In a recent ruling, the EAT found that the original employment tribunal had been wrong to rule that the transfer had taken place at the point when the new employer could be said to have "assumed responsibility" for the workers. Mrs Justice Slade said that regardless of the new employer's actions, legal responsibility for the workers passed to it on the date of the transfer under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). It was not the case that the date of the transfer dictated when assumption of responsibility began, but the other way around, she said.
"In my judgment the [employment tribunal judge] erred in law in treating the alleged date of acceptance by [the new employer] as determinative of the date of the transfer of the undertaking," she said.
"It is the assumption of responsibility by the transferee as employer for previous employees of the transferor by reason of the operation of TUPE which is referred to in [previous case law]. That assumption of responsibility occurs on the date of the transfer of the undertaking not vice versa. The belief of the parties or their actions into entering or not entering contracts of employment do not dictate the date of the transfer of an undertaking," she said.
TUPE also provides that a transfer can be "effected by a series of two or more transactions", the judge said. However, the original employment tribunal judge did not rule on whether this had taken place. She returned the case to the employment tribunal, where a different judge would be asked to rule on what date the transfer had taken place.
The EU's Acquired Rights Directive, implemented in the UK through TUPE, protects employees if the business in which they are employed changes hands by moving them and any liabilities associated with them from the old employer to the new employer by operation of law. A protected transfer under TUPE occurs either when an economic entity which retains its identity transfers; or there is a change in service provider. Case law has established that the transfer occurs when the new employer takes on responsibility for carrying on the business, regardless of whether the parties have agreed anything differently between themselves.
The case involved a contract for the repair and maintenance of housing association properties in Liverpool. The housing association terminated the contract with the service provider, Kinetic, on 9 June 2011 after it ended up in financial difficulties, and Kinetic's staff were informed that they had been made redundant as of this date. The housing association began the process of setting up a subsidiary company, Housing Management Solutions Ltd (HSL), which would provide these services and reassured Kinetic's employees that it would employ them. However, it did not begin providing services until 1 July 2011.
A number of employees brought claims for unfair dismissal, unpaid wages for the period between 9 June and 1 July and failure to inform and consult under both TUPE and collective redundancy rules. They also asked the tribunal to rule on the identity of their employer during this period. The original employment tribunal found that a TUPE transfer had taken place on 9 June as HMS had "accepted responsibility" for the employees on this date "via continued consultation and reassurance".
However, the EAT disagreed. Although Mrs Justice Slade said that there was no need for the new employer to begin carrying out the transferred activities before a TUPE transfer could be said to have taken place, the employment judge "erred in law" by treating the alleged date of acceptance of responsibility for the employees by HMS as "determinative of the date of the transfer".
Employment law expert Stuart Neilson of Pinsent Masons, the law firm behind Out-Law.com, said that although the EAT's decision "helpfully clarified" the timing of a TUPE transfer, it could still be very difficult in "practical terms" to identify the date of the transfer.
"There could well be responsibility for the business even if no activity is required or taking place," he said. "Accordingly, just because the incoming contractor is not working does not mean they do not have responsibility for the activity."
"Clearly it will be important to identify when legal and financial responsibility for the activity transfers. This could mean that where there is a gap in service between the exiting contractor and the incoming contractor, the client may take on responsibility for the employees in that interim period – a point worth noting when drafting appropriate indemnities," he said.