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Commercial Angles' Newsletter - February 2002

Transfer of undertakings protection of employment regulations

The EC Acquired Rights Directive requires some changes to the Transfer of Undertakings Protection of Employment (TUPE) regulations. Consequently the government put out a consultation document listing seven key proposals. Replies to the government's consultation document, received by DTI in December, will probably appear soon as amendments to TUPE.

The seven key proposals were:

Clarification of employee pension rights on transfer. One option is to provide that ongoing pension rights are not transferred to the transferee, subject to certain exceptions in the case of public sector employees. The second option is that some or all of the ongoing pension rights will be transferred to the transferee.
New provisions specifically protecting public sector employees affected by transfers.
Certain additional measures concerning the application of TUPE to service provision changes i.e. contracting-out, reassignment of contract and contracting-in.
New notification requirements on the transferor with regard to the rights and liabilities of employees to be transferred.
Clarification of the existing provisions relating to unfair dismissals under a TUPE transfer and the inter-relationship with the existing provisions relating to dismissals caused by Economic, Technical or Organisational (ETO) changes.
Clarification that TUPE regulations do not preclude transfer-related changes to employment terms and conditions made for ETO reasons.
Additional provisions dealing with those TUPE cases arising from transferor insolvency.

Several TUPE legal cases have been resolved recently and clarify aspects of the TUPE regulations.

ADI (UK) Ltd v. Firm Security Group Ltd

In this case the Court of Appeal decided that the change in contractor for the provision of security services to a shopping centre did not result in a TUPE transfer because neither significant assets nor the majority of the workforce had transferred. The court also considered the vexed case where a contractor, attempting to exclude himself from the TUPE regulations, deliberately refuses to accept the transfer of employees from the outgoing contractor. The court concluded that such attempts would be vain when the economic entity is labour-intensive and the existence of a transfer depends on whether the workforce transfers to the new contractor. When other factors such as significant assets or goodwill are concerned as well as labour, the court concluded that the non-transfer of labour would only be one of the factors to be considered.

Transport & General Workers Union v. James McKinnon, JR (Haulage) Ltd

The Employment Appeals Tribunal (EAT) held that where a transferor fails to comply with his duty to consult and inform employee representatives prior to a transfer, liability under TUPE remains with the transferor. This decision is in contrast to that made by EAT in Kerry Foods Ltd v. Creber where liability due to failure to consult on proposed redundancies did transfer to the transferee under TUPE. In summary, the liability to consult rests with the transferor in the case of TUPE transfers but with the transferee in the case of redundancies.

Pendragon v. Rossiter

Mr. Rossiter resigned when the transfer of the undertaking where he worked caused several changes to his working conditions. He claimed unfair dismissal on the ground that his constructive dismissal arose from a TUPE transfer. The employment tribunal held that there was no fundamental breach of contract on which to base his constructive dismissal claim. EAT overturned this decision and held that a fundamental breach of contract is not required for constructive dismissal under TUPE. Only a substantial and detrimental change in working conditions was required under the Acquired Rights Directive. The conclusion is that employees will now find it easier to prove unfair dismissal in cases where the transfer is the reason for the change.

Articles from previous newsletters