Domestic Law

A court sees through an employer’s attempt get round paying a TUPE debt

In Integral Law v Jason [2020] EWHC 3698 (Ch), a former employee of Integral Law was owed arrears of wages. He brought a winding up petition on the ground that the company was unable to pay its debts. A material fact was that he had recently transferred into Integral Law and there was money owing from the transferor (for which, of course Integral Law, as transferee, was liable). On the winding up application, the High Court reviewed his case. It dismissed the company’s application to restrain its former employee from presenting a winding up petition in relation to alleged unpaid salary. He declined to let the employer off the hook.

There is no issue between the parties that five sums totalling £25,302.44 were paid by the Company to Mr Jason on 6 June 2019. However, Mr Jason contended that these were payment of arrears of salary which he was owed in respect of the months of January, February, March and April 2019 by his previous employer ABJ Solicitors together with one month of salary owed to him by the Company in respect of his employment by it during the month of May.  The Respondent argued that the payments represented a loan. 

At first instance, a deputy judge had been entitled to find it incredible the company’s assertion that five payments made to the employee on one day were a personal loan which had to be set off against the unpaid salary, giving rise to a cross-claim for the outstanding amount. The district judge was right to hold that four of the payments related to outstanding salary from the employee’s previous employer, and paid under TUPE reg 4(2), as the company had acquired its business, and the fifth was a month’s salary from the company. Trower J’s view was that:

‘In my view the Judge was entitled to reach the conclusion that he did to the effect that the Company’s case in relation to a loan as it was advanced at the hearing before him, and based on the evidence he was shown, was manifestly incredible. In particular he was entitled to place weight on the complete absence of any documentary evidence in support of the Company’s contention that there had been a “loan”. He was entitled to rely on the way in which the Company accounted for the payments that were made and the form of Mr Jason’s payslips. He was entitled to be sceptical that the making of a series of payments in amounts which reflected with precision the outstanding arrears of salary was far more consistent with Mr Jason’s case than it was with the case advanced by the Company.’

European Law

Identity of Employer

Who is the employer for various rights? Although we have left the EU, this case is still of interest. In AFMB Ltd v Raad van bestuur van de Sociale v AFMB Ltd v Raad van bestuur van de Sociale verzekeringsbank (C-610/18), the CJEU has declared that the entity that was considered the employer for social security contribution purposes was the undertaking that had actual authority over the worker, bore the actual wage costs of the worker and had the actual power to dismiss the worker. That seems to make sense.

These proceedings were between AFMB, a company established in Cyprus, and international long-distance lorry drivers, on the one hand, and the Board of Management of the Social Insurance Bank, Netherlands, concerning decisions under which the board decided that the social security legislation of the Netherlands was applicable to those long-distance lorry drivers.

The truck drivers, who lived in the Netherlands, had concluded employment contracts with AFMB. Although formally employed by AFMB, the truck drivers performed their multi-state activities in the EEA on behalf of and under the supervision of several Netherlands transportation companies, which had all concluded fleet management agreements with AFMB.  Based on the provisions of Council Regulation 883/2004, those truck drivers who did not work at least a quarter of their total working time in their home country became subject to the social security legislation of the country where their sole employer was vested, ie Cyprus.

The Netherlands authorities challenged the application of the Cypriot social security legislation, finding that the drivers were in fact employed by the Netherlands companies and should therefore be subject to Netherlands social security legislation. They based their claim on the facts that the total labour cost was charged to the Netherlands companies by the Cypriot company, the employees received their instructions from the Netherlands companies, and they were under the control of those companies. Who was the employer in law?

The CJEU ruled that the law should be interpreted as meaning that the employer of an international long-distance lorry driver, for the purposes of that provision, was the undertaking which had actual authority over that long-distance lorry driver, which bore, in reality, the costs of paying his or her wages, and which had the actual power to dismiss him or her, and not the undertaking with which that long-distance lorry driver had concluded an employment contract and which was formally named in that contract as being the employer of that driver.

The CJEU concluded that the legal employment contract should only serve as an indication and that one had to look instead at the factual circumstances to assess who exercised the actual hierarchical control over the employees. AFMB did not meet the factual requirements to be considered as an employer. The fact that AFMB was the legal employing entity with which the truck drivers had concluded employment contracts was not decisive, as the existence of a hierarchical relationship was not sufficiently demonstrated, and the employment contracts could only serve as an indication thereof. In fact, it was Netherlands companies that played this part in the case at issue. Consequently, for the application of the European legislation on the coordination of social security systems, the Netherlands companies had to be considered as the truck drivers’ employers.

Though new CJEU decisions hold little sway now in the UK, this case may be of interest in international TUPE transfers