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Economic Dismissals Notes

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Labour 5 Dismissals

Economic

ECONOMIC DISMISSALS: TUPE AND REDUNDANCY Abbreviations: EE Employee ER Employer COE Contract of Employment EAT Employment Appeal Tribunal ET Employment Tribunal TU Trade Union D&M Deakin & Morris' textbook FT Fixed term (contract) SOSR Some Other Substantial Reason

TRANSFERS OF EMPLOYMENT Background to TUPE

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TUPE refers to the Transfer of Undertakings (Protection of Employment) Regulations 2006. It is the major limitation on the principle of freedom of contract + ER's power to arrange commercial and corporate affairs in a manner to minimise/fragment liabilities under employment law. Main effect: requires EE's CoE to be transferred to transferee, preserving the employment r/s, and the pre-existing terms and conditions of EEs.
Will potentially affect the employment costs and liabilities of both ER1/ER2!
Main purpose of the Directive is to protect employment - ensure continuation of CoE/employment relationship without change, so as to avoid worker being disadvantaged by the transfer - Ny Molle Kro,

1987. Workers have right to continuing employment and right to be treated as they were before (principle of acquired rights).
But need balance! Especially in area of procurement/outsourcing, where there is public interest in open competition. Idea of labour law is not to prevent outsourcing, but to place floor of rights under the competition process (prevents competition based on pay alone/inferior working conditions)

Scope of TUPE i.

"Undertaking"

Definition has been widened! In the 1981 Reg, reg 2(1) defined "undertaking" as "any trade or business", and used to require undertaking to be of commercial nature. Directive art 1(a)(c)/TUPE reg 3(4)(a) is now clear that it applies to public and private undertakings engaged in economic activities, whether or not profit-motivated. Limitations: Directive does NOT apply to transfers entirely within public sector, but TUPE has gone beyond this and will apply in UK to intra-public sector transfers, to ensure consistency. Also does not apply to admin reorganisation/functional transfer of public admin authorities (Reg 3(5); art 1(a)(c)). Dr Sophie Redmond Stichting v Bartol, 1992: ECJ held that Directive can apply to transfers of public sector undertakings into the private sector. Cf Henke case, 1996: ECJ held that Directive does NOT apply to transfers concerned exclusively with 'activities involving the exercise of public authority'. Cabinet Office issued a statement in 2000, revised in 2007, providing general rule that TUPE provisions should be applied to transfer of functions within public sector, AND transfers between public and private sector, even if this goes beyond strict terms of Regulations!

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ii. Economic

"Relevant transfer": the 'economic entity' test

Test under Directive: whether there is transfer of an economic entity which retains its identity =
organised grouping of resources which has objective of pursuing an economic activity, whether or not that activity is ancillary/central - 2001 Directive Art 1(b)

TUPE has similar definition in reg 3(1)(a) - relevant transfer is transfer of economic entity which retains identity; reg 3(2) defines economic entity in same terms as Directive.

Closely follows wording of 'economic entity' test articulated by ECJ in Spijkers case, 1986
consider whether business was disposed of as a going concern - whether operation continued with similar activities. Must look at all the facts relating to the nature of the enterprise!

"organised grouping of resources" not precluded by alteration in organisational structure of the entity, as long as there remains a "functional link" between the various elements of production, and ER2 is pursuing an identical/analogous economic activity as ER1 (Klarenberg case, 2009 ECJ) Relevant factors (Spjikers):

(a) (b) (c) (d) (e)-Value of intangible assets at time of transfer Whether majority of EEs are taken on by ER2 Whether customers are transferred

Degree of similarity between activities carried on pre and post transfer, and any period of suspension of those activities.
-but none of the factors are conclusive in themselves! Absence of one will not necessarily prevent Directive/Reg from applying. Rask, 1992: ECJ said just cos activity transferred is merely ancillary for the transferor/not connected with transferor's objects will NOT exclude transfer from scope of Directive. TUPE reg 3(6)(a): can have relevant transfer even if effected through more than one transaction Reg 3(6)(b): can have relevant transfer even if no property is transferred. Application to special categories of cases....

1. Privatisation/sub-contracting/outsourcing-

Whether business's tangible assets (building/moveable property) are transferred

Local Govt Act 1988: established that local authorities are required to submit large parts of services to periodic compulsory competitive tendering (compulsory outsourcing). Also precluded LA from stipulating "non commercial matters" like fair wages policies/recognition of independent TUs, hence tipping balance in suppliers' favour But if Directive/TUPE can be shown to apply, then there is chance to reintroduce degree of control over such matters, since supplier would have to respect pre-existing T&Cs of internal workforce, and offer employment to LA's EEs. Secretary of State has power to exclude, by order, a matter from the list of 'noncommercial matters'

2. Transfers involving single-contract entities

Idea that a single EE could constitute a relevant undertaking

Schmidt case, 1994: EE worked as cleaner for bank, until bank dismissed her and outsourced to cleaning company, which then offered her job for less pay. ECJ held that her position (as a single person) could constitute "part of an undertaking" for the Directive's purposes Not easy to reconcile with the entity test put forth in Suzen, 1997/new Directive.

Suzen narrows ECJ's approach, but does not repudiate earlier cases. Said that Directive would not apply where to single person transfers without concomitant transfer of significant assets/major part of workforce. In this case, ECJ decided the 2

Labour 5 Dismissals

EconomicDirective did not apply to change from one cleaning contractor to another - no transfer of assets/major part of the workforce. Still, it confirmed that there can still be transfer without contractual relationship between the 2 contractors, but mere similarity of service will not suffice for Directive to apply - undertaking is more than just an activity. Need to look at other factors like workforce, resources, organisation of work, management staff etc. Still, British case law suggests single EE, or several EEs, working on 'single-contract' arrangement could amount to economic entity under TUPE if other aspects of the test are satisfied.

Argyll Training Ltd case, 2000: EAT held transfer of training contract of a single EE could, in principle, be within scope of TUPE.

3. 'Labour intensive' vs 'tangible asset' transfers - distinction developed after Suzen.

Oy Liikenne Ab v Liskojarvi, 2001: ECJ sought to distinguish between

1.4. 2nd-generation transfers: transfers from one subcontractor to anotherEntities based mainly on manpower - voluntary transfer of EEs is necessary and sufficient to establish transfer, and

2. Entities where tangible/non-human assets are essential to identity - necessary to show that ER2 took on relevant physical assets. Implications: allowed ERs to circumvent Directive, by framing commercial transactions and declining to take on workforce/purchase physical plant and equipment. Hence, in Oy Likennes Ab, physical assets were essential to operation of public transport system so failure to transfer assets excluded Directive. In Clece SA v Valor, 2011, ECJ held that ER2's failure to take on EEs in labour-intensive case meant transfer didn't come within scope!
British courts have interpreted this jurisprudence flexibly, using 'multi-factor approach' to give TUPE a purposive reading

ECM case, 1999: CA declined to interpret Suzen as deciding that transfer would be outside Directive/TUPE where ER2 did not take on pre-existing EEs. Also emphasised that court would see through "shams". Left open possibility of there being TUPE transfer even if no workers/assets are transferred over. (but recently, in Law Society v SoS for Justice, 2010, where no EEs/assets transferred and only regulatory functions changed, transfer held NOT to come within TUPE by UK courts)

RCO Support Services and Aintree Hospital Trust v UNISON, 2000: EAT formally rejected proposition that not having a transfer of significant assets/major part of workforce would necessarily mean there is no relevant transfer! (confirmed on appeal by CA). Adopted multi-factorial approach.

**Lightways Ltd v Associated Holdings Ltd, 2000: court ruled tribunal is entitled to look into the transferee's motive in declining to take on assets/EEs, scrutinising transactions deliberately designed to avoid TUPE. Note tension: if we interpret "economic entity" too broadly, might be a disproportionate restriction of ER's private autonomy in organising contractual r/s according to his legit interests (recognised by Advocate General in Clece) - principle of free competition!

It was always clear that TUPE applies to 1st gen transfers. But unclear whether it did apply to 2nd gen transfers Jurisprudence was unclear... Suzen suggested not: "an entity cannot be reduced to the activity entrusted to it...The mere loss of a service contract to a competitor cannot by itself indicate the existence of a transfer....[the first contractor] does not, on losing a customer, thereby cease fully to exist"
*****'SERVICE PROVISION CHANGES' ("SPC")*****

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Doubts led UK govt to include modifications in TUPE 2006 (first proposed in March 2005 consultation), extending the scope of TUPE beyond the Directive. Meant to preclude ERs from circumventing effect of Directive by above doorway - see Valor.

Ensure TUPE applies even if there is no "stable economic entity" pre- and post-transfer, for "labour intensive" transfers. SCOPE...TUPE reg 3: an SPC occurs where immediately before the SPC, there was organised grouping of EEs, which had as its principal purpose the carrying out of services on behalf of the client, and that the client intends that the activities will, post-change, be carried out by the transferee (2nd sub-contractor)

Excludes single specific event/task of short-term duration. Also only covers services, NOT goods!

Hence covers 3 situations [reg 3(1)(b)(i)-(iii)]:

1. 2.

2nd gen etc transfers (from subcontractor A to sub contractor B) where there's competitive tendering and A loses out to B.

3. Reabsorption of activities into client's organisation - services returned in-house. Jurisprudence...-

Kimberley Group Housing Ltd v Humbly, 208: EAT upheld finding of a personal services company where, because there was no asset transfer, there was no transfer within the Directive BUT supply of accommodation and rental services to asylum seekers was found to be an "activity" under TUPE. Hence service provision remained essentially unchanged so TUPE applied.
**shows that reach of TUPE is broader than that of the Directive!
Metropolitan Resources Ltd v Churchill Dulwich Ltd, 2009: EAT rejected application of a multi-factor test to Reg 3, instead preferring a 'straightforward and commonsense application of the stat formula.
-minor differences in the specification of tasks pre-/post-transfer, or simple change of location, are unlikely to negative a SPC (generous in protecting EEs!) cf the following cases where court adopted a restrictive approach:
+- Enterprise Management Services Ltd v Connect-Up Ltd, 2012: EAT adopted more restrictive approach, holding that judge had been entitled to conclude that omission of curriculum work (15% of total work done) meant activities were not essentially/fundamentally the same, pre-/post-transfer
TUPE didn't apply. (undermining purpose of legislative change?)
+- Seawell v Ceva Freight, 2012: must have "deliberate putting together of a group of EEs for the purpose of the relevant client work" - not just fortuitous happenstance.
+- Hunter v McCormick, 2012: no TUPE transfer where there's change of both contractor and client. (insolvency case, where receiver took over ER's business after EE had been transferred to subcontractor. Client changed from ER to receiver-

iii. 1st gen contracting out

Transfer of the part of the undertaking to which EE is assigned

What if only part of the undertaking is transferred, so that EE's pre-transfer duties related both to the transferred part of the undertaking, and non-transferred part?
Botzen case, 1986: test is whether transfer was of the department to which they were assigned and which formed the organisational framework within which their employment r/s took effect

But the basis upon which it is to be determined if EE was assigned to this dept is unclear.

In Duncan Web Offset Ltd v Cooper, 1995: EAT declined to give guidance on this because it was largely fact-dependent. Relevant factors:

amount of time spent on one part of the business 4

Labour 5 Dismissals

Economicterms of contract showing what EE could be required to do how cost to ER of EE's services had been allocated to various parts

-non-exhaustive list!

iv. amount of value given to each part by EE

"assigned" = NOT assignment on a temporary basis.

This issue has been clarified in UK because of introduction of "organised grouping of resources" into definition of 'relevant transfer', and "organised grouping of EEs" into definition of 'service provision change'.

Change of control through share purchase

Excluded from scope of TUPE! Here, ER's identity does not change - ER is still same company, just that there is change in controlling interest. Focus of TUPE is on transfer of assets, not shares. Hence, courts not normally prepared to lift the corporate veil, to treat the controller as real ER.

Milliam v Print Factory, 2007: rare instance where CA held it was appropriate to "pierce the corporate veil" and find a TUPE transfer on such facts. But unique facts - parent company assumed various managerial functions including paying applicant (EE). Exceptional!
Cf Nokes v Doncaster Amalgamated Collieries Ltd, 1940: Lord Romer (dissenting) was of the view that it was artificial to think that EE's personal liberty is at stake only where there is a formal change in ER's identity, yet not where there is change of control in share transfer.

Effect of TUPE Novation of the CoE

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At common law: sale/transfer of business or undertaking will terminate CoE of ER1's EEs, generally amounting to wrongful dismissal. (but also possible to be considered automatic termination, hence no breach). Principle of consensual variation!
Personal contractual basis of the employment r/s means that mutual consent (of both EE and ER2) is required before ER2 can be substituted as a party to the CoE.
IMPLICATIONS (recognised in Nokes v Doncaster Amalgamated Collieries): protects EE's right to refuse to serve new ER. YET also denies EE right to continuing employment!

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Common law rule has been reversed by TUPE: provides that relevant transfer will NOT operate so as to terminate the CoE. Rather, CoE will have effect, post-transfer, as if it had been made between EE/ER2. (Reg 4(1))
Automatic statutory novation!

Does not depend on EE getting notice of transfer or of ER2's identity. Also does not depend on ER2 accepting the transfer - Berg, 1988. BUT requires EE's consent

Katsikas v Konstandinidis, 1992: ECJ held that Directive does not allow MS to make provision for compulsion, since this would undermine EE's fundamental rights in freedom to choose his employer. (judgment on the 1977 version of the Directive). Directive intended to protect EE - EE can refuse to accept novation. Led to amendment to the 1981 Reg by TURERA 1993, carried over to Reg 4(7)-(9) today. Hence, if EE gives notice of objection, CoE will NOT be novated. Rather, it will be terminated but without EE being seen as "dismissed" (so EE cannot bring claim for unfair dismissal or redundancy), unless transfer would involve substantial change in working conditions to EE's detriment, in which case EE can still be treated as having been "dismissed" by "the employer" (could be referring either to ER1 or ER2, depending on whether EE objects pre or post transfer). If there is material change to EE's detriment, EE's right to resign and bring claim for unfair/wrongful dismissal is not conditional upon repudiatory breach (unlike normal constructive dismissal cases!) 5

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EconomicNB: doesn't say dismissal will be automatically unfair, but likely to be so if new terms are detrimental to EE. Further, a dismissal connected to transfer (initiated by ER) will be automatically unfair unless for ETOR. Note: who is the transferor? Directive art 2 defines this as any legal/natural person who ceases to become ER in respect of the relevant undertaking/part of it, cos of transfer.
Albron Catering, 2011: ECJ held that "transferor" could include a group company (subsidiary), even though original CoE was with parent company. EE had been employed by parent, but actual day to day business was under subsidiary, who then transferred to third company. Basically lifting corporate veil so that subsidiary, though not contractual ER, has responsibilities under TUPE because it is subsidiary not principal which is true ER.

Transfer/preservation of contractual and statutory rights/etc (i) Contractual rights

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Transfer deemed to take place at a given moment in time - when relevant transaction(s) are effected.

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EFFECT is to transfer all of ER1's rights, powers, duties and liabilities under/in connection with the CoE [reg 4(2)(a)]
ECJ has held that the equivalent provision in the Directive is mandatory - cannot be derogated from by bargaining between ER2 and EE.
Includes contractual terms relating to collective agreements!

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Bridging term will thus be subject to the novation Ackinclose v Gateshead MBC, 2005.

But can ER2 make changes to the T&Cs of the CoE, to bring them into line with those of its own EEs?
2 views...
I) Purpose of Directive/TUPE is to preserve existing rights, NOT to confer additional rights on EE. Hence, ER2 can validly vary the contract in the same way that any other employer can

Will be effective as long as it is individually agreed with the EE

II)

If there is 'bridging term', ER2 can seek to make amending agreement with the TU.

BUT there are certain obstacles to adopting the view in (I).

Daddy's Dance Hall, 1988: ECJ's dictum that even if EE were to get new benefits in compensation for the disadvantages of an amendment to his CoE, so that overall, EE is not in worse position, this is still NOT allowed by the Directive! No waiver by EE.

ECJ formulated broad principle that any subsequent variation would be ineffective if the reason for it was the transfer itself.

cf Power v Regent Security, 2007: variation to EE's advantage will be effective.

Scope of this principle remains unclear.

Wilson/Baxendale and Meade cases, 1998: 2 conjoined cases, where EEs had been dismissed by ER1 before TUPE transfer, and then re-employed by ER2 on inferior T&Cs.

CA held that in Wilson, EEs had been dismissed for redundancy under potentially fair ETOR. In Baxendale and Meade, however, it held that there was no potentially fair reason, hence purported dismissal was nullity and former CoE remained in force, so that pre-existing T&Cs continued to apply post-transfer.

HOL reversed result in Baxendale and Meade, holding that dismissal which contravened Reg 7(1) is NOT ineffective (not a nullity), though EE could still claim wrongful and unfair dismissal.

**Lord Slynn explained that Directive/ECJ jurisprudence did NOT require creation of EC law right to continuity of employment, which did not exist under national law!
EC law does not require creation of new national rights. Implies that validly agreed variation should have effect, even if in a transfer situation (EE does not have right to maintenance of T&Cs, if there is valid agreement). Still, dictum in Daddy's Dance Hall seems to prevent this. But Lord Slynn, obiter, thought that there must be a time where the link with the transfer is broken - can't impede variations indefinitely.6

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