3. Who will transfer to the new employer

This part of the booklet looks at the question which employees transfer to the new employer on a business transfer or service provision change. The Regulations state that all employees who are: employed immediately before the transfer and assigned to the business (or part of the business) that transfers, will transfer to the new employer, unless they object.

The phrase “immediately before the transfer” includes all employees who would have been employed immediately before the transfer but who were dismissed because of the transfer.

In other words, all employees who are “assigned” to the organised grouping of resources or employees that are subject to the transfer will be transferred as a result of TUPE, unless they object.

Perhaps unsurprisingly, there has been case law on every aspect of this test. In practice, on large transfers it has led to detailed workforce planning by HR specialists whose aim is to ensure that the right groups of employees are “in scope” for the transfer, “redeploying” to different functions any employees who are not intended to transfer, by the time the transfer is ready to go ahead.

The automatic effect of TUPE means that an employee whose role puts him inside the group of employees who are subject to the transfer at the transfer date cannot be forced to remain with his old employer, and will transfer to the transferee (Royal Mail Group Limited v CWU UKEAT/0338/08).

“Employees” are defined as “Any individual who works for another person, whether under a contract of service or apprenticeship or otherwise, but does not include anyone who provides services under a contract for services.”

How do you identify the group of transferring employees?

Identifying the employees who are assigned to the business that transfers is not always straightforward. An employee may have more than one role, the section that transfers may be part of a large department, or the employee may work from time to time for different companies in the same group. The EAT has said that what is important is looking at where the employee is assigned to work in practice.

What if an employee has a contract of employment with one group company but works on a permanent basis for another?

This issue arose in the ECJ case of Albron Catering BV v FNV Bondgenoten and Roest [Case C-242/09). In this case, which involved the Heineken Group, the ECJ found a transfer under the Directive where employees had an employment contract with Group Company A but worked for Group Company B and the activities of Group Company B were transferred to an outside company. In the Heineken Group, all staff are employed by a Nederlands service company, HNB, that acts as central employer, permanently assigning staff to the various operating companies. Mr Roest had a catering role, working for the catering subsidiary (Heineken Netherlands) within the group, supplying catering services at various locations to Heineken employees. Heineken outsourced the catering activities of Heineken Netherlands to an outside company. Mr Roest argued that TUPE applied to transfer his employment to the outside company, so that the better terms he had enjoyed while working for Heineken should be honoured by his new employer.

The ECJ decided that an employee does not always need to have a contract of employment with the transferor in order to benefit from the Directive, and that if, within a group of companies, there are two “employers” — one (HNB) having a contractual relationship with the employee and the other (Heineken Netherlands) having a “non-contractual relationship” — the Directive will not prevent the non-contractual employer being the transferor.

There is an important difference between the wording of TUPE and the wording of the Directive. Article 3(1) of the Directive requires the transferring employee to have a “contract of employment or ... an employment relationship” with the transferor, whereas the equivalent Regulation 4 of TUPE requires the employee to be “employed by the transferor”. The ECJ decided that the words “employment relationship” in the Directive were wide enough to capture scenarios like that of the Heineken case.

Public sector employees will be able to rely on the Heineken decision, because the Directive has “direct effect” against public sector employers (North Wales Training and Enterprise Council Limited (t/a Celtec v Astley) [2006] UKHL29). In the private sector, UK employees in Mr Roest’s position would need to rely on TUPE itself. However, tribunals are obliged to read TUPE, insofar as they can, to give effect to decisions by the ECJ, even going as far as to read words into the legislation where necessary (Coleman v Attridge Law UKEAT/0417/06).

This case may be useful for employees whose employment has been transferred under outsourcing agreements on less favourable terms, in deals struck by employers who did not appreciate that TUPE applied to preserve their terms and conditions. This ruling covers existing as well as future outsourcing agreements.

What about employees on “secondment”?

Organisations frequently devise restructurings based on a “secondment” model. In other words, employees remain employed by their original employer, but are “seconded” to work for the transferee. However, it is very likely that the employment of employees operating under a straightforward “secondment arrangement” transfers automatically to the transferee at the date of transfer. This is illustrated by the case of Capita Health Solutions v BBC [2008] UKEAT 34/07.

The case provides a good example of the “automatic” effect of TUPE on employees who remain in post after a transfer. The employee told her employer she would not transfer, arguing that the pension under the new employer would represent a significant change for the worse. However, she agreed to work “on secondment” to Capita, for just six weeks following the transfer. The EAT held that the effect of continuing to work beyond the transfer date was to transfer the employment to Capita automatically, despite the employee’s objection and even though all the parties believed that she remained employed during this period by the BBC, who continued to pay her.

Generally speaking, a person whose role falls within the scope of the transfer but who simply remains in post after the date of transfer is likely to find that as a matter of law, his or her employment has transferred automatically to the new employer (see also Royal Mail v Communication Workers Union [2009] EWHC 1819). If an employee intends to remain with his or her old employer, it is sensible to clarify this issue in consultation and it may well be necessary to negotiate fresh terms and conditions.

Given the complexity of TUPE, its “automatic” nature and its potentially wide-ranging application, failure on the part of employers, representatives and employees to recognise that TUPE has transferred employment is not necessarily that uncommon. For example, in North West Training and Enterprise Council Limited (t/a Celtec) v Astley [2006] UKHL 29), three civil servants, the relevant government department and the new employer all believed that the three employees were employed by the government but on “secondment” to a private training company for three years. However, the House of Lords concluded that unbeknown to the parties and irrespective of their wishes or understanding, the employment had in fact transferred to the private company three years previously.

An employer’s failure to recognise that TUPE has transferred the employment until after the transfer has taken place will normally mean a breach of the information and consultation provisions discussed in Chapter 4 and the potential for a significant financial penalty, to be awarded to affected employees.

What if an employee is only temporarily assigned?

Under Regulation 2 of the TUPE Regulations, “assigned” means “assigned other than on a temporary basis”.

A worker who is working temporarily for the part of the business that transfers will not transfer. For example, in Securiplan v Bademosi UKEAT/1128/02, Mr Bademosi was temporarily transferred to another site following an injury. When that site transferred under TUPE, he did not have to transfer, but instead had the right to stay with his existing employer.

What is the position for full-time union reps?

Each case depends on its own facts, but in Birmingham City Council v Gaston (UKEAT/0508/03) a full-time shop steward did not transfer when the department he was paid to work in transferred. Mr Gaston, who was a full-time union rep at Birmingham City Council, continued to be paid as a plumber. However, the only plumbing work he did was on an out-of-hours rota. The EAT decided that he did not transfer because he was not “assigned” to the department that transferred.

What about employees reinstated under an interim relief order?

In Dowling v Ilic Haulage and Berkeley Logistics (UKEAT/0836/03), the EAT held, surprisingly, that an interim relief order does not preserve continuity of employment, and that therefore employment does not transfer under TUPE.

Mike Dowling, a shop steward, was dismissed by his employer. He believed that this was due to his trade union activities. He successfully claimed interim relief at an employment tribunal. The tribunal made a “continuation order” requiring his employer to continue paying him until the hearing of his victimisation claim by a tribunal.

In the meantime, Mr Dowling’s company was transferred to a new employer under TUPE. When his claim came to be heard, Mr Dowling attempted to claim against the new company, arguing that the continuation order meant he was still in employment and had therefore transferred under TUPE.

The EAT held that he had no right to claim against the new employer. The basis for this was that Mr Dowling was no longer an employee of the company at the time of the transfer. Instead he was an ex-employee but with financial protection as far as his rights to be paid were concerned. This decision is open to challenge.

The ruling imposes serious restrictions on the rights of union activists dismissed prior to a transfer. In many cases like this one, the employee will want to claim against the new company because it has assets that the old one does not have, but this EAT ruling forces the trade union activist to attempt to claim against an employer which may no longer even exist.

What if an employee is off sick at the time of the transfer?

An employee off sick when the transfer takes place will still transfer on the transfer date (Fairhurst Ward Abbotts v Botes Building [2004] IRLR 304).

What if an employee is on maternity or parental leave at the time of the transfer?

An employee on statutory leave such as maternity leave when the transfer takes place will transfer automatically on the transfer date. Remember that an employee on maternity leave whose role becomes at risk of redundancy is entitled to be offered any suitable available vacancy (Regulation 10, Maternity and Parental Leave Regulations 1999). The meaning of this Regulation was considered in detail in the recent case of Simpson v Endsleigh Insurance Services Limited (UKEAT/0544/09). Reps should ensure that adequate arrangements are made for employees on maternity leave to be included in TUPE consultation.

What if an employee is dismissed pre-transfer and reinstated post-transfer?

An employee who is dismissed by a transferor for gross misconduct, who exercises his right of appeal and is reinstated after the transfer, is likely to transfer under TUPE (G4S Justice Services (UK) Limited v Anstey 0698/05/LA). In this case, employees of the old employer, Company A, were dismissed for gross misconduct and summarily dismissed. They appealed, but before the appeal could be heard, Company A lost the contract to provide prison services. Company B, the new provider, refused to hear the appeal. Instead, it was carried out by the old employer, Company A, who reinstated the staff. Company B then refused to re-employ the employees who applied to the tribunal. The tribunal confirmed that if a post-transfer appeal is successful, the employment transfers to the transferee, who must reinstate the employees.

Objecting to the transfer

An employee cannot be forced to transfer against his or her will. An employee who does not want to transfer can “object” to the transfer by informing either the old or the new employer.

The objection must be lodged before the transfer. Otherwise, the transfer will happen automatically. It is not possible to transfer “under protest”. (See Capita Health Solutions v BBC ([2008] UKEAT 34/07) discussed above).

There is an exception to the requirement to object before the transfer where employees do not know the transferee’s identity until after the transfer date. In New ISG Limited v Vernon ([2007] EWHC 2665), five employees of the transferor were included within the scope of a transfer. However, they were not told the transferee’s identity until after the transfer date, at which point they objected to the transfer. The Court held that where an employee does not know the identity of the transferee until after the transfer, the employee can object as soon as that information is revealed. Any other conclusion would be a breach of an employee’s fundamental freedom to choose his own employer.

Consequences of objection

The consequences of objection are serious. If an employee objects to the transfer, the contract of employment will terminate and s/he will not be treated for any purposes as having been dismissed (Regulation 4(8)). This means that s/he will not be entitled to redundancy and will not be entitled to claim unfair dismissal.

However, transferred employees who find that there has been or will be a “substantial change” for the worse in their working conditions as a result of the transfer (for example, a significant change of location) have the right under Regulation 4(9) to terminate the contract and claim unfair dismissal.

A person who relies on this right to resign cannot claim payment in lieu of a notice period to which s/he was entitled under the contract. This statutory right is independent from an employee’s common law right to claim constructive dismissal for the employer’s repudiatory breach of contract. These issues are looked at further in Chapter 6: Unfair dismissal rights.

It is important that representatives inform members of the effects of refusing to transfer and make them aware of their rights following the transfer to challenge any proposed changes of contract terms (see Chapter 5 on void terms and Chapter 6 on constructive dismissal and unfair dismissal).

As already indicated above, TUPE does not prevent employees negotiating to remain with their existing employer. In these circumstances, they may have to agree new contract terms to replace the old contract of employment.

TUPE and migrant workers

Under the new points-based immigration system, TUPE may present problems for migrant workers requiring sponsorship. Where migrant workers transfer under TUPE, the transferee must either already be a licensed sponsor, or must apply to become a licensed sponsor within 28 days of the transfer. Transferees also have a statutory duty to check the documentation of all employees within 28 days of a transfer to ensure all employees have the right to work in the UK.

Checklist for representatives

• Check who is in-scope for the transfer.

• Consider the position for any migrant workers.

• Well in advance of the transfer date, address issues of those who do not want to transfer:

• explain implications of “objecting”;

• explore whether the transfer would involve a substantial worsening in working conditions;

• examine existing contract terms; and

• staff who remain with the old employer may need to negotiate new contract terms.

• Remember absent staff, including employees on sick leave and maternity leave.