We cover some interesting cases in this issue. The European Court has taken the view that a temporary suspension of activities of five months in duration did not prevent a transfer of an undertaking; the GB Employment Appeal Tribunal has given valuable guidance on Regulation 3(5) of TUPE, which excludes a transfer of administrative functions between public administrative authorities from TUPE protection; and in Hare Wines Ltd v Kaur the EAT has found that an employee was automatically unfairly dismissed because of a TUPE transfer.

Temporary Suspension of Activities for Five Months did not prevent a Transfer of an Undertaking

In the European Court case of Jorge Luís Colino Sigüenza v Ayuntamiento de Valladolid, In-Pulso Musical Sociedad Cooperativa, Administrador Concursal de Músicos y Escuela SL, Músicos y Escuela SL, FOGASA Case C-472/16, a contract for the provision of services at a Spanish Music School was terminated and services were not resumed by a new contractor until after a gap of five months. This was a premature termination in April 2013, before the end of the school year (and therefore longer than the usual seasonal summer break). The new contract did not begin until September 2013. This carried the risk of losing pupils to another school in the meantime.

Advocate General Tanchev, whilst accepting that a temporary cessation of activities did not necessarily prevent a transfer, concluded that, in this case, the gap was a factor to be taken into account by the national court in deciding there was a transfer.

However, in a rare example of the Court disagreeing with the Advocate General, the Court (Fifth Chamber) considered that a break of five months did not preclude the Directive from applying, considering prior case law which held that a break of a few months could be disregarded and although the undertaking’s activities ceased for five months in this case, that period included three months of school holidays. As the Court stated:

“...it is clear from the case-law of the Court that a temporary suspension, of only a few months, of the undertaking’s activities cannot preclude the possibility that the economic entity at issue in the main proceedings retained its identity and that there was therefore a transfer of undertaking within the meaning of that directive (see, to that effect, judgment of 9 September 2015, Ferreira da Silva e Brito and Others, C‑160/14, EU:C:2015:565, paragraph 31).

That conclusion applies particularly in a situation such as that at issue in the main proceedings, where, although the undertaking’s activities ceased for five months, that period included three months of school holidays.

Consequently, the temporary suspension of the undertaking’s activities and In-pulso Musical’s failure to take over Músicos y Escuela’s employees cannot preclude the possibility that the economic entity at issue in the main proceedings retained its identity and that there was, therefore, a transfer of undertaking within the meaning of that directive.”

The Scope of Regulation 3(5) of TUPE

In Nicholls (the BMA Appellants) & Anor v London Borough of Croydon & Ors UKEAT/0003/18/RN (“the BMA appellants”); UKEAT/0004/18/RN (“the UNITE Appellants”) Croydon Primary Care Trust transferred its public health team (which was concerned mainly with the commissioning of public health services) to the London Borough of Croydon.

In connection with the transfer, the Secretary of State made The Health and Social Care Act 2012 (Croydon Primary Care Trust) Staff Transfer Scheme 2013 (“the Staff Transfer Scheme”). This was done in exercise of the powers conferred by section 300 of the Health and Social Care Act 2012. Certain aspects of the TUPE Regulations (for example reg 4(4) (variation of employment void if the sole or principal reason for it was the transfer) were not contained in the Scheme, and the right to claim automatic unfair dismissal (TUPE Reg 7(1)) under the Scheme was time-barred. Thus the claimant employees sought to rely on the provisions of TUPE themselves.

A preliminary question arose as to whether this was the transfer of an economic entity or of a transfer of administrative functions between public administrative authorities and so excluded by Reg 3 (5) of TUPE. The judgment of Lavender J in the EAT contains a long discussion of cases in the field of transfer of undertakings and competition law on the meaning of “undertaking”, “economic activity” and the “exercise of public powers.” Lavender J stated:

“One thing is clear: “the exercise of public authority” does not include everything which a public authority does. The various decisions and dicta to which I have referred help to illustrate where the line should be drawn, and/or what factors may be relevant in considering a particular case, but I do not consider that any of them can be seen as laying down a single, definitive test.”

But he considered the following factors relevant:

1. whether the activity is necessarily carried out by public entities or is an essential function of the state
2. whether the activity is a core state activity
3. whether the activity has always been carried out by public entities
4. whether the activity involves the exercise of “prerogatives outside    the general law” or “privileges of official power”
5. whether the activity involves the exercise of rights and powers of coercion
6. whether the activity is “a public service to which any idea of commercial exploitation with a view to profit is alien”
7. whether the activity has “an exclusively social function”
8. whether the activity is typically that of a public authority
9. whether the activity is carried out in the public interest or intended to safeguard the general interests of the state or other public bodies; and
10. whether the activity involves providing services in competition with those offered by operators pursuing a profit motive

The employment tribunal at first instance had concluded that the public health team’s activities involved the exercise of public authority and so were caught by Reg 3(5).

The EAT agreed that the public health team’s activity in purchasing or commissioning health services was not an economic activity. But the employment tribunal found that all, or almost all, of the work done by the public health team could be, and in fact was, offered by “non-state actors operating in the same market”. That would normally be a strong indication that the public health team was carrying on an “economic” activity. Having made that finding the tribunal should have explained its reasons for not drawing from that finding the conclusion that the team was carrying on an economic activity. Therefore the case had to be remitted for reconsideration.

TUPE and Automatically Unfair Dismissals

Under TUPE as amended, where the sole or principal reason for an employee's dismissal is the transfer of an undertaking, the dismissal is automatically unfair (TUPE, Reg 7(1) (in Northern Ireland a dismissal is automatically unfair if simply for a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce).

In Hare Wines Ltd v Kaur UKEAT/0131/17 the EAT had to consider a case where an employee was dismissed shortly before the transfer, but the motive of the new employer in encouraging the dismissal of the employee was to avoid employing the employee because she had ongoing difficulties in her working relationship with a Mr Chatha, another employee in scope for transfer, who would be her supervisor going forward.

Was this a case where the sole or principal reason for the dismissal was the transfer, or should the employment tribunal have found that the dismissal was really about the anticipation of ongoing difficulties in the working relationship and therefore reasons which were purely personal to the employee concerned?

The facts were that the claimant was employed as a cashier by H&W Wholesale Limited (a wine and beer wholesale business). It got into financial difficulties and Hare Wines Ltd agreed to purchase it and take on any employees under TUPE. However, this was to the exclusion of the claimant whose employment was terminated by the transferor two days before the transfer. The claimant brought a claim for automatic unfair dismissal.

An employment tribunal found that the transferee did not want to employ the claimant because of ongoing difficulties in her working relationship with Mr Chatha, a transferring employee, and for that reason was told that she was not wanted. However, the tribunal found that the claimant would have been employed immediately before the transfer but for her dismissal two days earlier, and the real reason for the dismissal was therefore the transfer, and so automatically unfair.

Hare Wines appealed. The basis of its appeal was that the existence of purely personal reasons precluded the transfer from being the reason for the dismissal. The EAT rejected this and upheld the employment tribunal decision. It was influenced in particular by three things.

First, the TUPE Regulations are designed to protect workers' rights and according to Choudhury J: "one needs to be very careful in expanding or introducing what might appear to be new categories of defence and which may undermine the protection afforded to employees in this situation".

Second, it was clear from the European Court case of P Bork International v Foreningen AF Arbejdsledere I Danmark [1989] IRL 41 that an important factor that may be taken into account in deciding the reason for dismissal is its proximity to the transfer. In the words of the Court:

"In order to determine whether the only reason for dismissal was the transfer itself, account must be taken of the objective circumstances in which the dismissal occurred, and in particular, in a case like the present one, the fact that it took place on a date close to that of the transfer and that the workers concerned were re-engaged by the transferee".

Third, although it was true to say that the ongoing work relationship difficulties could be described as "personal" to the claimant, the EAT was influenced by the fact that the difficulties were long-standing and ongoing. In the words of the EAT:

"that is to say, they did not arise just on the point of transfer and were not going to end just afterwards. They had been in existence, it would seem, before the transfer and were likely to continue thereafter. It seems to me that in a situation where an employer had not taken action to resolve an ongoing relationship difficulty prior to the transfer, but does so only at the point of transfer by dismissing one of the parties in that difficult relationship, it is open to the tribunal to conclude that the reason for the dismissal was the transfer".

So even if an issue affecting an employee's conduct or capability (which would not normally be transfer related) was suddenly acted upon on the point of transfer, the transfer might well be the sole or principal reason for the dismissal.

Taking all of these factors into consideration, the employment tribunal decision was upheld.

The practical advice arising from this case is that potential new employers under TUPE are not permitted to "cherry-pick" or decide not to take over employees who are clearly assigned to the transferring organisation. An employer cannot pick and choose which employees are “desirable” and insist the “troublesome” colleagues are left behind or dismissed. Any perceived difficulties with transferring employees must be ironed out by the new employer following appropriate and fair employment procedures.