3rd Annual Employment Law Seminar

TUPE in Twenty Twelve:

An Expert Review of the Law on Transfers

Chair

Professor Gillian Morris

Service Provision Changes: The New Common Sense Approach

Claire Darwin

clairedarwin@matrixlaw.co.uk

Parliament’s Intention?

• Judge Burke QC in Metropolitan Resources:

“the introduction in TUPE 2006 of the concept of a transfer of undertakings by a service provision change was intended to remove or at least alleviate the uncertainties and difficulties created, in a variety of familiar commercial settings, by the need under TUPE 1981 to establish a transfer of a stable economic entity which retained its identity in the hands of the alleged transferee”

Common Sense?

• Judge Burke QC in Metropolitan Resources:

– An ET should adopt a straightforward and common sense application of the relevant statutory words to the individual circumstances before them.

– There is no need for a purposive construction.

Slade J in Hunter v McCarrick:

“There is no warrant for adopting an interpretation of reg 3(1)(b) other than that required by the ordinary meaning of the language used”

No More Stretching?

Underhill P in Eddie Stobart:

“[I]t remains necessary to define the circumstances in which a relevant transfer will occur, and there is no rule that the natural meaning of the language of the Regulations must be stretched in order to achieve transfer in as many situations as possible”

Who is the Client? • Reg. 3 (1) (b) as:

“a situation in which—

(i) activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client’s behalf (“a contractor”);

(ii) activities cease to be carried out by a contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client's behalf; or

(iii) activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf,

and in which the conditions set out in paragraph (3) are satisfied.”

Who is the Client?

• The residents in a care home? (Nottinghamshire NHS Healthcare Trust v Hamshaw & Others (UKEAT/0037/11/JOJ)

• The recipients of IT services? (Enterprise Management Services Ltd v Connect-Up Ltd and others [2012] IRLR 190)

The Decision Maker

Bean J in Hamshaw:

“This cannot be correct, because in sub-paragraphs (1) and (3) the “client” is the person who is carrying out the activities before or after the transfer as the case may be and on whose behalf (not “for whose benefit”) the activities are carried out. Moreover, in all three sub-paragraphs of reg 3(1)(b) the “client” is the person who makes the decision about transfer, since by regulation 3(3)(b) it is necessary for a service change provision that the client must intend that the activities, following the change, will be carried out by the transferee”.

The Approach in Practice

Slade J in Hunter: “There is no warrant for giving a different meaning to “the client” in 3(3)(a)(i) and in (ii). If “the client) were to include the plural, whose intention would be relevant for the purposes of reg 3(3)(a)(ii)? Regulation 3(1)(b) which HH Judge Burke QC held was introduced to provide certainty would be rendered uncertain by such an interpretation”.

One Specific Client

Slade J in Hunter :

“In our judgment “the client” in reg 3(1)(b)(ii) refers back to a specific client. The specific client referred to earlier in the provision is the client on whose behalf the transferor contractor carried out activities.”

1 Client 1 Contractor

• Slade J in Hunter:

“If the framers of the Directive or TUPE had intended the contractual terms of employees employed on an activity to follow that activity when it was undertaken for a different client they could have so provided.”

The Activities

• Hamshaw: A material shift in the ethos of the service and the manner of its provision.

• Enterprise: The fact that the subsequent contractor did not carry out 15% of the work carried out by the contractor (the curriculum work).

Fragmentation

Enterprise: the spread of the work between 5 different providers meant that:

“the provision of services formerly provided by Enterprise were so spread amongst other providers as well as Connect that no service provision change had taken place on that basis” (paragraph 15).

The Reg 3(3) Conditions(a) immediately before the service provision change—

  (i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;

(ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and

(b) the activities concerned do not consist wholly or mainly of the supply of the goods for the client's use.”

Design not Accident

Underhill P in Eddie Stobart :

“The statutory language does not naturally apply to a situation where, as here, a combination of circumstances essentially, shift patterns and working practices on the ground – mean that a group (which, NB, is not synonymous with a “grouping”, let alone an organised grouping) of employees may in practice, but without any deliberate planning or intent, be found to be working mostly on tasks which benefit a particular client.”

The Need for Certainty

“If the putative “grouping” does not reflect any existing organisational unit there are liable to be real practical difficulties in identifying which employees belong to it. It is important that on a transfer employees should, so far as possible, know where they stand” (Eddie Stobart, paragraph 20).

Goods or Services?

Pannu & Ors : Whose activities?

“The fact that that organised group provide a service (directly to their contractor employer) cannot answer of itself the separate reg.3(3)(b) question” (paragraph 21).

The Difference

• Supply of Sandwiches + Drinks

• Supply of Sandwiches + Drinks + Canteen Staff

Other Points on the Application of the Regulations

Mathew Purchase

Who and What is Protected

James Laddie

Unfair Dismissal

Thomas Linden QC

Information and Consultation

Laura Prince

RECENT CASES ON INFORMATION/ CONSULTATION

• Phillips v Xtera Communications Ltd [2011] IRLR 724;

• Independent Insurance Company Ltd v Aspinall [2011] IRLR 716;

• Todd v Strain [2011] IRLR 11.

THE RELEVANCE OF COLLECTIVE REDUNDANCY CASES

• Xtera and Aspinall are both cases decided in the context of the collective redundancy consultation requirements;

• They also apply to the information and consultation requirements under TUPE;

• Xtera concerned the requirement to hold an election under s.188A TULRA (which is had identical wording to r.14 TUPE);

THE RELEVANCE OF COLLECTIVE REDUNDANCY CASES

• Aspinall considers the ability of an individual to seek compensation on behalf of other employees (in the form of a protected award);

• In Todd the EAT recognised that although the “mechanism for a protected award is formally different from an award of ‘compensation’ for breach of the information and consultation obligations under TUPE, the underlying purpose and substantive effect of the provisions are effectively the same” (at paragraph 24);

• Therefore although both Aspinall and Xtera deal with collective redundancy consultation they are also applicable claims for breach of the consultation and information requirements under TUPE.

Phillips v Xtera Communications Ltd; Facts

• Employer planned to close the site at which the Claimant worked;

• Redundancies would be made as a result of the site closure;

• Employer invited staff to nominate two employee representatives under TULRA;

• Employees met and put forward two nominees;• Employer asked if there was any objection to those two

nominees being elected;• No objections were received;• The nominees were appointed, without any ballot or vote

being held.

Phillips v Xtera;The Issue

Was the employer required to hold a ballot of employees where the number of candidates precisely matched the number of vacancies for elected representatives?

Phillips v Xtera; The applicable legislation

• S.188A sets out the requirements for election of employee representatives. This is in identical terms to r.14 TUPE [p.3-4 handout];

• Detailed provisions which envisage “candidates, votes, a count and then ‘election’ of the chosen candidate” (paragraph 24 Xtera).

Phillips v Xtera; Judgment“Parliament must be taken to have appreciated that it would not be uncommon that the number of candidates from a given workforce may fall short of, or precisely tally with the number of representatives to be elected. Can it really be suggested that the necessary construction of the language Parliament has used is such as to compel the employer to nevertheless conduct a ballot or provide a voting opportunity in such cases? In our judgment, in the context of arrangements for workplace representation, we consider that to be highly unlikely. The net result would not achieve anything beyond the employer (in what is already a redundancy situation context) expending valuable time and resources on a wholly unnecessary exercise.” (at paragraph 30)

Phillips v Xtera; Judgment• Court identified the possibility that the requirement for a

ballot was intended as a safeguard against ‘rigging’ by the employer to avoid a situation where the employer encouraged favoured ‘yes men’ and then arranged the number of places to be made available to ‘fit’ the number of candidates;

• The EAT held that the protection against ‘manipulation of the democratic process’ was contained within s.188A(1) (a) which sets out that the employer ‘shall make such arrangements to ensure that the election is fair’. The same safeguard is set out at r.14(1)(a) TUPE.

Independent Insurance Company Ltd v Aspinall; Facts

• R went into provisional liquidation;• Majority of employees made redundant with

immediate effect;• Employer failed to comply with its obligation

to inform and consult;• No recognised trade union or employee

representatives;• Individuals made claims and failure to inform

and consult.

Independent Insurance Company Ltd v Aspinall; Issue

• Can an individual employee seek a protective award under s.189 of the 1992 Act not only for himself but for all other persons similarly affected?

• As set out above, the outcome of this case is also likely to be applicable in TUPE information and consultation claims.

Independent Insurance Company Ltd v Aspinall; Judgment

• The trade union and elected representatives have separate constituencies;

• The trade union effectively represents those persons who are affected employees in respect of whom an independent trade union is recognised by their employer (paragraph 10);

• The constituency of the elected representative is... broader, but it will depend on how many employee representatives the employer has decided to have elected. In cases of large numbers of potentially redundant employees, the employer is likely to want to appoint or to have elected representatives for particular classes or sections of employees (paragraph 11).

Independent Insurance Company Ltd v Aspinall; Judgment

• We note the descriptions of the constituencies of the trade union and the employee representatives to which we have referred. It would be an amazing sea change in the legislation if a right of an individual gave that individual greater representative status than the trade union or elected representative (at paragraph 49);

• The legislative history suggests that it was intended that the right should be limited to those persons who were represented by a trade union or employer only, or to claim in their own right only (at paragraph 52).

Todd v Strain; Facts

• R owned a care home; R called a meeting at the care home where she informed staff that she was selling the business to Care Concern but that their jobs were all safe;

• No further information was given to the employees;

• The TUPE transfer took place on 4th January 2008;

• Employees were sent a letter with their final pay slips which informed them that their wages from 1st to 3rd January would be paid by R asap and that the new owner would pay them from 4 January;

• The letter also said that the part payment might not attract the correct tax deduction and an adjustment may need to be made at the end of the month; There was also some extra pay in respect of holiday entitlement which was subject to being reclaimed by Care Concern.

Todd v Strain; the issue

• Is the obligation to inform under r.13(2) dependent upon the obligation to consult arising under r.13(6)?

• What amounts to a ‘measure’ for the purposes of regulation 13(6)?

• How should the award for failure to inform and consult under TUPE be calculated?

• In cases of joint and several liability under r.15(9) should the order be made against both the transferor and transferee?

Todd v Strain; the Judgment – the obligation to inform

• The EAT held that the obligation to inform arises under Regulation 13(2) even if no obligation to consult arises under Regulation 13(6);

• The EAT held that this was appropriate because otherwise “in a case where the employer did not envisage taking any such measures as would engage the obligation under para. (6) he would be under no obligation to give employees, via their representatives, even the basic information that the transfer is to take place or its date”;

• The EAT added that such an approach was consistent with r.13(11) (which enables individual employees to receive information where no representatives are appointed) and the Directive which TUPE seeks to implement.

Todd v Strain; ‘Measures’ definition

• Approved Millet J’s observation in the IPCS case that ‘Measures’ is ‘a work of the widest import which includes any action step or arrangement’;

• Added that ‘it must nevertheless be something deliberately done by the transferor over and above what necessarily occurs as a consequence of the transfer itself (at paragraph 18);

• Found that the arrangements regarding payment of the salary from 1 to 3 January in advance (and potential tax rebates) was a ‘measure’ even though it was not disadvantageous to the employees;

• Accepted that the de minimis principle applied but the changes in this case were not de minimis [paragraph 20 Judgment, set out at paragraph 31 of my note]

Todd v Strain; Judgment Compensation

• Regulation 16(3) provides that the Tribunal can make a maximum award of 13 weeks pay per employee;

• The guidance given by the Court of Appeal in Susie Radin (dealing with the protected period in respect of breach of collective redundancy information and consultation requirements) applied in TUPE cases;

• The guidance given in Susie Radin that the maximum award is the starting point “is directed at the case where the employer has done nothing at all”;

• On compensation see also the case of Cable Realisations where the Tribunal split the 13 week period into 3 weeks for the information requirement and 10 weeks for consultation. Commenting on this award the EAT said “like baby bear’s porridge, it was just right”.

Todd v Strain; Joint and severable liability

• Regulation 15(9) states “the transferee shall be jointly and severely liable with the transferor”;

• The terms of reg 15(9) are unequivocal (paragraph 33);

• “The issue of apportionment fell to be determined, if necessary, in the ordinary courts” (at paragraph 35). This would be under the Civil Liability (Contribution) Act 1978;

• In Dillon v Todd it was held that it is appropriate for both transferor and transferee to be party to proceedings in respect of a claim for failure to inform or consult under TUPE.

TUPE: Key Issues in Insolvency Cases

Andrew Smith

Insolvency & TUPE• Article 5(1) of the Acquired Rights Directive 2001/23:

''Unless Member States provide otherwise, Articles 3 [transfer of the employment relationship] and 4 [prohibition of dismissals on ground of the transfer] shall not apply to any transfer of an undertaking, business or part of an undertaking or business where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of a competent public authority (which may be an insolvency practitioner authorised by a competent public authority)''

• Consolidation of ECJ case law on this topic

• Dethier Équipement v Dassy and Sovram SPRL (In Liquidation) [1998] IRLR 266:

“…In deciding whether the Directive applies to the transfer of an undertaking subject to an administrative or judicial procedure, the determining factor is the purpose of the procedure in question although account should also be taken of the form of the procedure, insofar as it means that the undertaking continues or ceases trading, and of the Directive's objectives...''

Objectives of the ARD

• Principal purpose = protection of employees’ interests in the event of a transfer

• But: where an employer faces severe financial difficulties, there is an inherent tension between:

i. Protecting existing Es’ T & Cs ‘at all costs’; and

ii. Promoting the interests of the wider workforce, by encouraging / facilitating a ‘rescue culture’

The Domestic Regulations

• ‘Sliding scale’ of protection

i. ‘Standard’ Reg. 3 transfers;

ii. Reg. 8 (6) transfers: “relevant insolvency proceedings”; and

iii.Reg. 8 (7) transfers: “bankruptcy proceedings or any analogous insolvency proceedings…”

Reg. 8 (6) TUPE

• Reg. 8 (6) defines “relevant insolvency proceedings” as meaning:

“insolvency proceedings that have been opened in relation to the transferor not with a view to the liquidation of the assets of the transferor and which are under the supervision of an insolvency practitioner”

Reg. 8 (6) TUPE

• Consequences of Reg. 8 (6) being triggered include:

- Some ‘pre-existing’ financial liabilities will not transfer to the transferee, but to the Secretary of State: Reg. 8 (3), (4) and (5) (NB. Pressure Coolers v Molloy) ; and

- Greater scope for agreeing variations of contract: Reg. 9 “permitted variations”

- But: importantly, Regs. 4 and 7 continue to apply

Reg. 8 (7) TUPE

• Regs. 4 and 7 are disapplied where:

“... the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner.”

Reg. 8 (7) TUPE

• Disapplication of Regs. 4 and 7 means:

(i)No automatic transfer of employment;

(ii)No automatic UD if the C of E is terminated;

(iii)Financial liabilities will fall upon the NIF / RPO – subject to statutory caps

When will Reg. 8 (7) apply?• Bankruptcy – although note technical definition under UK

law (i.e. applicable to individuals, rather than corporations)

• ‘Insolvent liquidations’, such as:

i. Creditors’ voluntary liquidation / winding up

ii. Compulsory liquidation / winding up

• But: CVAs fall outside the scope of Reg. 8 (7)

When will Reg. 8 (7) apply?

• What about ‘solvent liquidations’, for example:

- Members’ Voluntary Liquidation?

• Logically, such proceedings should not amount to “analogous insolvency proceedings”

When will Reg. 8 (6) apply?

• BIS Guidance: “relevant insolvency proceedings” will include:

“…any collective insolvency proceedings in which the whole or part of the business or undertaking is transferred to another entity as a going concern. That is to say it covers insolvency proceeding in which all creditors of a debtor may participate and in relation to which the insolvency office-holder owes a duty to all creditors. The Department considers that ‘relevant insolvency proceedings’ does not cover winding-up by either creditors or members where there is no such transfer.”

Statutory Administration Proceedings

• Schedule B1 of the Insolvency Act 1986

• Oakland v Wellswood (Yorkshire) Ltd [2009] IRLR 250 – “pre pack” administration deemed to fall within Reg. 8 (7)

• Different conclusion reached in OTG v Barke [2011] IRLR 272

OTG v Barke – per Underhill P

• “Absolute” approach = correct

• Fact-based approach = wrong

• “A bright line rule has clear advantages”

• The purpose of the ARD is “avowedly to safeguard the rights of workers”

OTG v Barke cont.

• Tension between rights of individual Es and the workforce as a whole

• Undesirable to deter a “rescue culture”

• Ultimately, however, “the Directive chooses not to allow the rights of the employees to be trumped altogether”; and

• The UK’s implementation of Art. 5 (2) derogations “…do in fact go a considerable way to diminishing the disincentives to rescue”

Key 2 Law v De Antiquis

• Recent clarification from the CA in Key 2 Law v De Antiquis [2011] EWCA Civ 1567

• The “absolute” approach to administration proceedings is correct

• Must consider the “purpose of an administration order when actually made”, rather than “what the applicants for the order hoped to achieve by it if it were to be made...” (per Rimer LJ)

Key 2 Law v De Antiquis

• Per Warren J:

“The focus of article 5(1) of the 2001 Directive is on the purpose of the procedure in question and not on the reasons for which the procedure is invoked or the result which it is anticipated will be reached...”

Key 2 Law v De Antiquis, per Rimer LJ

• The “primary objective” of statutory administration proceedings is to “rescue the company as a going concern”

• Even if this objective looks improbable, it “must formally be considered” by the administrator at the outset

Key 2 Law v De Antiquis,

• Accordingly, it cannot be said that statutory administration proceedings are ever instituted “with a view” to the liquidation of the assets, even if this is what ultimately transpires (and indeed was envisaged as being almost inevitable from a very early stage of the process)

• Furthermore, the “absolute approach” has the benefit of legal certainty

Other Considerations

• When have insolvency proceedings been formally “opened” or “instituted”?

• Secretary of State for Trade and Industry v Slater [2007] IRLR 928

• 25 July 2006 – decision to place the insolvent company, CFG, into voluntary liquidation

SSTI v Slater

• 26 July 2006 – notices of redundancy given to staff members by the company accountant / ‘liquidator’

• Assets of CFG purchased by a new company (comprising several of the directors of the original company)

SSTI v Slater

• 16 August 2006 - CFG formally placed into voluntary liquidation, when the statutory meeting of the members took place

• ET concluded that "the business was sold by the liquidator on behalf of CFG (the transferor) as a going concern. The transaction occurred on 27 July 2006..."

SSTI v Slater

• Transferred Es brought claims for back pay and holiday pay

• EAT held that the transferee (CFG Nationwide) was liable to meet the entirety of the claims

SSTI v Slater

• The transfer had taken place before the shareholders winding-up resolution and before the meeting of creditors

• Insolvency proceedings had therefore not been “instituted” or “opened” by the date of the transfer; and

• Accordingly, the transfer fell outside the Reg. 8 (7) ‘exclusion zone’

SSTI v Slater

• When will insolvency proceedings be “under the supervision of an insolvency practitioner”?

• Not until the formal appointment has been made

SSTI v Slater

“...the definition of insolvency practitioner [in section 388 IA 1986] makes it plain that it was not until he was appointed liquidator that he could be so described. He was of course qualified to act as an insolvency practitioner, but he was not acting in that capacity with respect to the transferor...” (para. 31, per Elias P)

Transfer of Liabilities

• Pressure Coolers Ltd v Molloy and ors EAT 0272/10

• The transferee, not the Secretary of State, was liable to pay an E’s basic award and notice pay following his UD by the transferee after a "pre-pack" TUPE transfer

• Reg. 8 (3) applies only to those ‘eligible’ liabilities incurred before the transfer

Pressure Coolers v Molloy

• Per Cox J:

“...the key words in article 5.2(a), for the purposes of the present case, seem to us to be those providing that the contractual or other debts that shall not be transferred to the transferee are those which are ‘payable before the transfer’” (para. 78)

• Formal notice of (summary) dismissal had been given very shortly after the relevant transfer (although had plainly been in contemplation for several days beforehand)

Pressure Coolers v Molloy

• “Since [the] claimant was unfairly dismissed by the acquiring employer after transfer, PCL’s liability to pay the basic award and notice pay cannot sensibly be said to constitute a liability of a transferring employee.  As at the time he is being transferred there is no such liability...”

The Statutory Compensation Scheme

• What types of ‘pre-existing’ financial liabilities are covered?

i. Arrears of pay (which is broader than simple salary payments – see section 184 (2) ERA);

ii. Notice pay;

iii. Holiday pay; and

iv.A basic award of compensation for unfair dismissal

The Statutory Compensation Scheme

• Statutory caps:

i. Amount of a week’s wages: currently £430 (with effect from 1 February 2012); and

ii. Arrears of pay: a maximum of 8 weeks may be reclaimed from the Secretary of State (section 184 (1) (a) and 186 ERA)

• Any pre-existing debts which exceed the amounts payable by the Secretary of State under Part XII of the ERA will pass to the transferee

Reg. 9 Variations

• Extension of Reg. 4 (5) power to agree variations of T & Cs

• Strict requirements – both substantive and procedural

Reg. 9 Variations

• Reg. 9 (7): the variation will be a “permitted variation” if:

“(a)  the sole or principal reason for it is the transfer and is not an economic, technical or organisational reason entailing a change in the workforce (which of course would otherwise be valid (see Reg 4(5)(a)); and

(b) it is designed to safeguard employment opportunities by ensuring the survival of the undertaking, business or part of the undertaking or business that is the subject of the relevant transfer”

Reg. 9 Variations

• Agreement must be with “appropriate representatives”

• In practice, may overlap with information and consultation (Reg. 13)

• But: important to confirm scope of representatives’ authority

• Strict procedural formalities contained in Reg. 9 (5) – union / non-union distinction

Reg. 9 Variations

• Obvious logistical problems:

i. short time-frames;

ii. difficulty arranging elections;

iii.potentially unattractive changes on offer;

iv.individuals may feel ‘singled out’ by the proposals

Reg. 9 Variations

• Q: what if the affected Es choose not to elect representatives?

• No express ‘fall back’ provision for individual consultation (cf. Reg. 13)

• Subsequent insolvency of employer – are old T & Cs ‘revived’?

Questions

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