In our latest TUPE update, we look at the GB EAT decision on a transnational TUPE transfer involving a claim by an employee to transfer with the business in which he worked to Manila in the Philippines. We look at a British High Court case on TUPE and the transfer of a personal injury liability to a transferee. And finally, we look at an interesting decision on service provision change in the European Court. The approach of the European Court under the Acquired Rights Directive to service provision change is rather more limited in scope than under the service provision change (Protection of Employment) Regulations (Northern Ireland) 2006. But it is an interesting discussion about when a Service Provision Change can be a business transfer under European Law.

TUPE and transnational transfers

It is common ground that TUPE can apply even if the business or service being transferred is leaving the UK to go to another country, even if that country is outside the EU. That was established by the GB EAT in Holis Metal Industries Ltd v GMB [2008] IRLR 187. Often, there is no employment rights issue involved, as employees may simply not wish to transfer their place of work to another country. The focus is then usually on redundancies (although when there is a transnational transfer, the transferor employer must remember to inform and consult with employee representatives, as the employer failed to do in Holis itself). The issue arose again in Xerox Business Services Philippines Inc. Ltd (UK Ltd) v Zeb UK EAT/0121/16

In this case, Mr Zeb was employed as a commercial executive in a finance accounting team by Xerox UK Ltd (X UK) in Wakefield. His contract provided for his work location to be "Leeds or Wakefield" although at the material time, he was employed at a business park at Wakefield near junction 41 of the M1. It was decided to move some of the accounting team's work offshore. It chose to move the finance accounting team function from X UK in Wakefield to Xerox Business Services Philippines Inc. Ltd (X Philippines) in Manila in the Philippines.

The employer accepted that TUPE applied. It told employees that they had a choice. They could formally object to the transfer. If so, their employment would not transfer to X Philippines but they would be made redundant on more generous terms than the law required. If they did not signify objection, they could transfer for X Philippines but only on local Philippines terms and conditions and they would be paid a statutory minimum redundancy payment from X UK as it would have no requirement to carry out the transferring work in the UK after the transfer.

In this case, Mr Zeb wanted to go with the transfer and he wanted, under TUPE, to go under his present terms and conditions. His present terms and conditions were 10 times more favourable than local conditions in the Philippines. The employer would not agree to a transfer to the Philippines on UK terms and conditions. He was dismissed and given a statutory redundancy payment, a payment in lieu of notice and other payments due. He claimed unfair dismissal. He believed he was entitled to transfer to Manila on the same terms and conditions that he enjoyed in the UK and his dismissal was automatically unfair under TUPE. The Employment Judge found that there had been a variation of Mr Zeb's contract involving a change of workplace from Wakefield to Manila. As such, he was entitled to go, under TUPE, under UK terms and conditions and as he was prevented from doing so, he was automatically unfairly dismissed. Redundancy was not the true reason for dismissal as contended for by the employer, as there was a TUPE transfer. The employer appealed.

It was accepted by the parties that there was a TUPE transfer and that Holis applied. Although Holis was not in any way disapproved by the EAT in Xerox there was no need to discuss the merits of the Holis decision, given the concession by the parties in the case. The question was whether the Employment Judge had been right. The case raises the novel issues of whether, on a transnational transfer, an employee is automatically entitled to insist on moving under TUPE. The assumption has always been that the employee is entitled to insist on a move. But in Xerox, the EAT pointed out that this depends on the terms of the employment contract. The employee is entitled to transfer under TUPE to a new employer, but only on the employee's present terms and conditions. In this case, the employee was employed to work in Leeds/Wakefield and not in Manila. He could not, therefore, unilaterally insist on a change to his employment contract to allow for this change of location.

The employment judge had sought to resolve this issue by finding a variation of the employment contract entitling the employee to move to Manila. There was no evidence of such a variation. The employer was insistent that if the employee were to move, local Manila terms and conditions would apply. Nor did the employee have any unilateral contractual right to change his place of work. On that basis, the true reason for dismissal was redundancy, as the requirement for an employee was to carry out work of a particular kind in the place where the employee was employed, had ceased (see Employment Rights Act 1996, section 139 (1(b)).

The EAT concluded with a reminder that notwithstanding the availability of redundancy as a reason for dismissal, in a case like this, an employment tribunal must always address the terms of Regulation 7 of TUPE. Regulation 7(1) provides that if the sole or principal reason for the dismissal is the transfer, the dismissal is automatically unfair unless the sole or principal reason for the transfer, under Regulation 7(2), is an economic, technical or organisational reason, entailing a change in the workforce. If the latter applies, the reason for dismissal will either be redundancy (as in the present case) or "some other substantial reason" and the employment tribunal may examine the fairness of such dismissal under the general principles of section 98(4) of the Employment Rights Act 1996.

TUPE and personal injury liability

Regulation 4 of TUPE transfers to a transferee all rights, powers, duties and liabilities under or in connection with a transferring employee's contract of employment. In Bernadone v Pall Mall Services Group Limited [2001] ICR 197 the Court of Appeal confirmed that a liability in connection with the employment contract included liability for the tort of negligence, that is to say for personal injury. This was illustrated in the recent GM High Court case of Baker v (1) British Gas Services (Commercial) Limited (2) J&L Electrics (Lye) Limited 2017 EWHC 2302. Mr Baker was an electrical engineer working for British Gas. In 2012 he was sent to a client's premises to do electrical repair work. Whilst working with a light, he was electrocuted, had a cardiac arrest and was thrown to the floor, thereby suffering serious personal injury.

Prior to October 2010 he had been employed by Connaught Compliance Electrical Services Limited (CCES). In October 2010 there was a TUPE transfer of that business to British Gas. In his claim for personal injury he sued not only British Gas, but also claimed that CCES was also responsible for personal injury because of the electrical work it had carried out on the lights concerned, and in particular, he alleged that periodic inspections undertaken by CCES before his employment with British Gas, and his accident, were a cause of the injury concerned. The case raises a fascinating issue of whether British Gas was liable for any breaches of duty by CCES occurring prior to the transfer, even though the personal injury concerned did not take place until after the transfer. The High Court held that liability for CCES' breach of duty, occurring before the TUPE transfer, did transfer under TUPE.

The employer argued that the transferee could not be liable for a breach of duty which occurred before the transfer when the injury was only sustained after the transfer date. This was rejected by the High Court: "the Regulations are not designed to protect the transferee from unknown liabilities". On the contrary, said the Court, where there has been a breach of an employer's duty before the transfer, but the injury occurs after the transfer, this squarely falls under TUPE. Regulation 4(2)(b) specifically provides that: "any act or omission before the transfer is completed, in relation to the transferor in respect of [the contract of employment] shall be deemed to be an act or omission in relation to the transferee".

Therefore, British Gas was liable to Mr Baker for the breach of duty which occurred in the failure to detect and remedy a defect in the wiring prior to the accident, and in particular during a 2010 period inspection. Amanda Yip QC, sitting as a deputy judge of the High Court stated: "it is quite clear from this that tortious liabilities transfer, whether they are fully accrued or contingent. To hold that an employee who is injured after the transfer, but as the result of a breach of duty committed before the transfer, cannot recover against the transferee would frustrate the whole purpose of the Regulations and the underlying Directive".

Service provision change and the European Court

In Securitas — Serviços e Tecnologia de Segurança SA v ICTS Portugal — Consultadoria de Aviação Comercial SA, Arthur George Resendes and Others (Case C-200/16) the European Court considered the application of the rules under the Acquired Rights Directive to a situation where a client terminated a security contract and awarded it to a new provider, but where the new provider declined to take on the old employer's employees.

In UK law, as we know, under Regulation 3(1)(b) of TUPE, and Regulation 3 of the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006, a service provision change TUPE transfer occurs simply when activities previously carried out by one legal person are taken over and are carried out, instead, by a different legal person. Thus, in UK Law, provided that there is, before this change-over, an organised grouping of employees, the principal purpose of which is to carry out the activities concerned on behalf of the client, the mere loss of a contract and the taking over of that contract by a new contractor amounts to a transfer of an undertaking. This is irrespective of whether assets are transferred from the old employer to the new employer and irrespective of whether the new employer wishes to take on the old employer's workforce. Under European Law, it is different. Under the principle in Ayse Süzen v Zehnacker Gebäudereinigung GmbH Krankenhausservice (Case C-13/95), there will only be a transfer of an undertaking for the purposes of the Acquired Rights Directive if there is a transfer of significant tangible or intangible assets from the old employer to the new employer or, failing that, a voluntary taking over by the new employer of a major part of the workforce in terms of numbers and skills. If the service is asset reliant, whether there is a transfer, under European Law, will depend on whether the assets used by the old employer are transferred to the new employer. Conversely, if the service is labour intensive, whether there will be a transfer will depend, largely, on a transfer of a major part of the workforce in terms of numbers and skills.

In Securitas the facts were that ICTS was a contractor performing security guard services on behalf of its client, Portos Dos Açores (located in Ponta Delgada in Portugal). The security services required, were to look after the facilities in the port, including its dock and marina. The services included monitoring the entry and exit of persons and goods by means of radio surveillance devices. The security personnel employed by ICTS were also provided with uniforms and radio equipment. In January 2013 Portos Dos Açores decided to retender the security services and, in April, awarded the contract to Securitas in place of ICTS. The employees of ICTS were informed that they would be transferring to Securitas. A material fact was that one of the employees of ICTS surrendered the radio equipment used by ICTS in the port facilities having received instructions from ICTS to do so. Apparently Securitas then surrendered that equipment to the client. Securitas then began performing security guard services but it informed the ICTS employees, including Mr Resendes, that they were not required, and that they were still employees of ICTS. The employees brought an action before the local labour tribunal asking for clarification. The tribunal held there had been a transfer of a business between the two contractors and the employment contracts of the ICTS employees had been transferred to Securitas. Accordingly, they were successful in achieving a financial claim for their wrongful dismissal. Securitas appealed, first to the Court of Appeal in Lisbon and, secondly, to the Supreme Court in Portugal, which referred the issue of whether there had been a transfer to the European Court for an opinion.

Another issue for consideration is that the national collective agreement in the security industry purported to reject the idea of a transfer of an undertaking on the loss by a contractor of a contract in favour of a new contractor. Thus, clause 13(2) of the collective agreement, concluded by the Association of Private Security Undertakings, the National Association of Security Undertakings and various trade unions stated that: "the loss of a customer by an operator following the award of a service contract to another operator shall not fall within the concept of a transfer of an undertaking or business".

Was this provision in breach of European Law?

In considering the transfer of undertakings point, the Court confirmed that the directive does not rule out a transfer of an undertaking on a service provision change, since there need be no direct contractual relationship between a transferor and a transferee. But whether there is a transfer of an undertaking in all the circumstances depends on the usual factors relied upon by the Court and will depend on the type of undertaking or business concerned. Where, for example, the activity being carried out is essentially based on manpower, the identity of the economic entity cannot be retained if the majority of its employees are not taken over by the putative transferee. But where the activity is based essentially on equipment, the fact that former employees of the undertaking are not taken over by the new contractor (as was the case here) does not preclude a transfer of an undertaking where assets, or use of those assets, are transferred from the transferor to the transferee.

In this case, therefore, it would be for the national court in Portugal whether ICTS did transfer to Securitas, directly or indirectly, equipment or tangible or intangible assets for the purposes of carrying out the security guard activities in question. If they were, and they were taken over, directly or indirectly by the new provider, a transfer of an undertaking would occur. The Court pointed out however, that it would only be the equipment that was actually used in order to provide the security guard services that would be relevant in this regard and that would exclude the facilities themselves that were the subject of the security services. In other words, if a new contractor comes in to replace a former contractor in a building, the fact that the contractor is now "using" and protecting the building will not be the deciding factor. It is a question of whether there is equipment necessary to carry out those security services which has been transferred from the former provider to the new provider. If therefore, in this case, the national court determined that equipment necessary to carry out security services was transferred directly or indirectly from the old provider to the new provider, a transfer of an undertaking would occur, irrespective of whether the staff were taken over.

On the question of whether the provision of the national collective agreement excluded such a possibility, the Court ruled that it could not. It is true that the mere loss by the contractor of a customer, to another customer did not of itself fall within the concept of a transfer of an undertaking. However, as the Court explained in this case, all of the facts characterising the transaction in question have to be taken into consideration, including whether the service is asset reliant. In such circumstances there could be a transfer of an undertaking on the loss of a contract. Therefore, the provision in the collective agreement which purported to exclude the transfer provisions in all cases of loss of a contract was not permissible and the terms of the directive could not be excluded by such a provision.