administrations, TUPE and redundancies

Posted on January 26, 2012 by Martin Malone

It is an unfortunate fact of modern life that it seems that new administrations for high street retailers and other businesses seem to be announced almost every working day. A key concern in the context of employment law and, more importantly, for the employees concerned, is whether their employment automatically transfers to the new employer under TUPE or whether the new employer can "cherry pick" or perhaps even select none of the existing employees for the new business.

There has been conflicting case law in the last few years but it seems that we now have a clear statement from the Court of Appeal. Continue reading →

consultation on consultation

Posted on December 8, 2011 by Martin Malone

Two areas have been flagged for possible changes in the future. There are “calls for evidence” on both TUPE and redundancy consultation processes.

Under the current Regulations TUPE places an obligation on both the transferor and transferee to provide information to, and to consult with, the representatives of their respective employees who may be affected by the transfer.

This can include employees who are not part of the transfer, but who are affected by the transfer.

TUPE also has the effect of transferring trade union recognition agreements, as long as the transferring group of employees maintains a distinct identify from the rest of the transferee’s business.

The transferor and transferee must inform and consult the recognised trade union. If there is no recognised trade union, the employees must be given the opportunity to elect their own representatives. Continue reading →

more TUPE and variation of terms

Posted on November 22, 2011 by Martin Malone

The EAT has given further helpful guidance on determining whether a variation to terms and conditions after a services transfer pursuant to TUPE 2006 falls within the ambit of Regulation 4(4) and Regulation 7(1) (automatically unfair dismissal for a reason connected with the transfer) of TUPE 2006. The decision in Enterprise Managed Services Ltd v Dance is arguably of greater relevance in today’s work environment than that in Smith v Brooklands (also reported this month) since it concerns re-tendering between contracting businesses. However, the EAT in Dance follows the same approach as that in Brooklands (unsurprising since the leading judgment was given by HHJ McMullen in both cases).

In this case, Mr Dance and others were employed by Williams which, along with another contractor, Enterprise, provided services to MHS. From around October 2008 meetings were held between MHS and its contractors emphasising, amongst other concerns, budgeting constraints and the requirement that future services would have to be provided at reduced cost but achieve high service performance. Both Williams and Enterprise depended on MHS for the supply of work. In January 2009 Enterprise reviewed terms and conditions for its workers, introducing performance related pay and different hours. These altered terms were accepted by its staff. Williams made no changes but lost the contract and Mr Dance and others transferred by operation of TUPE to Enterprise in April 2009. Continue reading →

variation of terms after a TUPE transfer: when is it permissible?

Posted on November 22, 2011 by Martin Malone

One of the most difficult issues a transferee employer has to deal with after the transfer of a business to it is when it can make changes to the terms and conditions of staff in the transferred company. TUPE 2006 makes clear that any purported variation of an employment contract will be void if the sole or principal reason for the variation is the transfer itself or a reason connected with the transfer that is not an "economic, technical or organisational reason" (Regulation 4(4)).

This has led to a great deal of caution exercised by transferee employers and their advisors when intending to implement changes. However, the legislation is quite clear. There is no absolute prohibition on changes to terms and conditions in the context of a TUPE transfer unless such changes are solely or mainly by reason of the transfer, or are for a reason connected with the transfer (which is not an economic, technical or organisational reason). On occasion, it can be said that sight of the wood is lost for the trees.

The case of Smith & others v Trustees of Brooklands College illustrates this point succinctly. Continue reading →

TUPE and fact dependant appeals

Posted on August 14, 2011 by Martin Malone

An interesting “TUPE question” came before the EAT in July. The case is Nottinghamshire Healthcare NHS Trust v (1) Hamshaw & Ors (2) Perthyn (3) Choice Support, EAT on 19 July 2011.

Hillside House was a care home in Bassetlaw run by Nottinghamshire Healthcare NHS Trust. The seven residents were supported by healthcare assistants, who in turn were managed and supervised by qualified nursing staff. Residents were monitored and managed on a 24 hour basis with active night staff. All the staff, 18 in total, were employed by the Trust.
Continue reading →

red tape and gold plate

Posted on August 14, 2011 by Martin Malone

The government is pushing forward with its plans to reduce red-tape, recently inviting businesses and individuals to become more involved in its “Red Tape Challenge” by completing a series of questions about the enforcement of rules and regulations. A “Red Tape Challenge Enforcement” website has been set up at www.redtapechallenge.cabinetoffice.gov.uk until 31 August 2011.

The Health & Safety Executive appears to be following a similar “customer friendly theme”. Continue reading →

News of the World: stigma damages and TUPE protection?

Posted on July 25, 2011 by Martin Malone

An interesting discussion has emerged on the web about employment issues arising from the sudden closure by News International of the News of the World.

It is a central tenet of employment law that contract terms can be both express (i.e. written in to a contract) and implied. Some key duties, such as a duty of faithful service, are implied into all contracts of employment, whether or not a written contact exists. Continue reading →

TUPE

Posted on May 23, 2011 by Martin Malone

A key element of the TUPE Regulations provides that, where either the new or previous owner of a business dismisses an employee for a reason connected with its sale or transfer, then that dismissal will be automatically unfair. The only way the employer can avoid that result is if he can show that the dismissal is for an “economic, technical or organisation reason involving changes in the workforce”.

So far, so good. However, the owner of a business is quite likely to “tidy it up” with a view to putting it up for sale, and this might include dismissing an employee some time before the business is actually transferred – perhaps, indeed, before a new owner has even been identified. In that situation, is the dismissal really for a reason connected with the transfer and is the employee still protected? It appears that the EAT’s definitive answer to that question is now “yes”.

Two different – and conflicting – lines of authority have previously existed. One required an actual transfer to be in existence (albeit not yet actually taken place) before TUPE’s protection could arise; the other considered that a prospective transferee need not even be in place yet. In Spaceright Europe Ltd v Baillavoine & Anor, (EAT 1 February 2011) the EAT has ruled that the second – more generous – line of authority is the one that should be followed.

A Mr Baillavoine was Chief Executive Officer of Ultralon Holdings Ltd (UHL). Various consultants were appointed over time and reviews of the companies’ viability carried out. In due course, on 23 May 2008, UHL and its subsidiary Ultralon Ltd (UL) went into administration: Mr Baillavoine was dismissed by the administrator. On 25 June 2008 the businesses of UHL & UL were sold to Spaceright – a TUPE transfer. Spaceright was run and owned by those same consultants.

Mr Baillavoine had lost his job, and shares he had in UHL were worthless. He was understandably suspicious, and claimed unfair dismissal. An employment tribunal ruled in favour of Mr Baillavoine. It concluded that he had been dismissed so as to enable a purchaser of the business to acquire the business and assets without his continued employment (his salary of £120,000 might also have presented a problem for a prospective purchaser of the business). His dismissal was therefore automatically unfair unless it could be shown to have been for an “economic, technical or organisation reason involving changes in the workforce” – which it couldn’t.

Spaceright appealed to the EAT but lost. Faced with the conflicting authorities mentioned above, the EAT clearly preferred the latter. It agreed with the original tribunal that TUPE applied even though at the time of Mr Baillavoine’s dismissal the sale of the business which eventually took place had not been agreed. As there was no “economic, technical or organisation reason involving changes in the workforce” for dismissing Mr Baillavoine it therefore followed that his dismissal was automatically unfair.

TUPE avoidance blocked by the EAT

Posted on March 24, 2011 by Martin Malone

A leading article in the Times of 23 February 2011 was headed “The TUPE regulations are a barrier to open services that needs to be removed”. The Times was making the point that the TUPE regulations make it practically impossible for local councils to achieve efficiency savings by outsourcing functions but there are also serious implications for business.

A main effect of the TUPE regulations is that they automatically transfer contracts of employment of staff performing a particular function to any another enterprise which takes over that function. The regulations make it unlawful for the new operator to dismiss any of the transferred staff, to reduce their wages or otherwise impose less beneficial terms of employment (even if the staff agree, which they might well do if the alternative is redundancy). One effect is that it is practically impossible for a private enterprise taking on a staff intensive function from a local authority to do the job at lower cost. It is not hard to see that the end result of a well meaning attempt to protect employees can thus sometimes be to create even bigger problems than it solves.

Although not referred to, the Times article may have been prompted by a decision of the Employment Appeal Tribunal just a week earlier. That decision has effectively blocked what for a while appeared to be a loophole in the TUPE Regulations. The Regulations apply, of course, to commercial organisations as well as to local authorities and the possible loophole which has been blocked was one which could be relevant for them rather than for local authorities.

The new EAT decision is OTG Ltd v Barke and ors on 16 February 2011. The “loophole” which it has blocked was opened by a previous EAT decision (Oakland v Wellswood on 5 November 2008). The 2008 decision appeared to enable administrators of a company which was in difficulty to set up a “pre-pack administration” arrangement which would enable them to sell the business of the company as a going concern without TUPE being applicable. This was on the basis that use could be made of an exemption from TUPE designed to protect jobs when a company is put into liquidation. In 2008 the EAT had held that this exemption applied not only when a company is put into liquidation but also when administrators sell the business of a company as a going concern. For technical insolvency law reasons the point was a difficult one but the Court of Appeal later hinted that the 2008 EAT decision was probably a wrong interpretation of the law. The EAT has now, in February 2011, confirmed that.

The result is that “pre-pack” sales by company administrators are caught by TUPE in the same way as other transfers of undertakings.

While not knowing whether this result has had any part in the recent failure by administrators of the Cheshire based company Auto Windscreens to find a buyer for the business as a going concern, the fact that the possible TUPE loophole has now been blocked cannot have helped. It is reported that as a result over 1,000 staff are being made redundant (see BBC News 25 February 2011).

It is important to note that the TUPE regulations are there to implement an EU Directive and in one form or another TUPE has been in place for many years. The latest 2006 version is a possibly unfortunate example of “gold-plating” by Britain of EU requirements. Notwithstanding that, and notwithstanding a recent Government promise not to “gold-plate” EU Directives when transposing them into British law, the Government indicated in November 2010 that it had no plans to make any changes to TUPE. Whether a combination of matters such as the recent EAT decision noted above, the Times leading article and the redundancies at Auto Windscreens may cause the Government to think again is an open question.

a possible loophole in unfair dismissal law

Posted on June 17, 2010 by Martin Malone

The case noted here was at employment tribunal level only. It is therefore not legally binding as a precedent and anyway may well be subject of an appeal. Nevertheless it is sufficiently interesting to merit a mention in this newsletter. At its simplest (and it must be said at once that this is a considerable over-simplification) the case suggests that in appropriate circumstances it may sometimes be possible for an employer to engineer an arrangement which enables him to dismiss employees who he thinks are overpaid without those employees being able to claim unfair dismissal.

The case suggests that this can sometimes be done by making deliberate use of an exemption in the TUPE rules which is designed to save jobs when a business is in danger of collapse. The TUPE rules (Transfer of Undertakings (Protection of Employment) Regulations 2006) ensure that, as a general rule, when a business is sold the purchaser automatically takes on all staff employed in the business together with all liabilities associated with their employment; dismissing any of them is automatically unfair dismissal. However there is an exemption when a business is in trouble, in order to promote the ‘rescue culture’ and because saving some jobs would be better than losing them all. The effect of the exemption, when it applies, is first that the purchaser does not automatically take on staff and second that dismissing them is not automatically unfair dismissal.

The exemption applies only in very limited circumstances. In essence it applies where the vendor is the subject of insolvency proceedings or “any analagous proceedings which have been instituted with a view to the liquidation of the assets of the [vendor] and are under the supervision of an insolvency practitioner”.

In the case in question a management buy-out of a business was proposed. The managers did not want to take on all the staff. This of course would have happened automatically under TUPE if the deal had gone ahead as a normal straightforward management buy-out. Deliberately, in an attempt to avoid this result, the deal was set up in a special way. Instead of there being a normal management buy out, the vendor company was put into liquidation, a liquidator was appointed to wind it up, its business and assets were sold to a new company owned by the managers and a much reduced number of staff was taken on from the old company.

Staff who were not taken on brought unfair dismissal claims, mainly on the basis that the arrangement was a sham. While the Leicester employment tribunal which heard their claims towards the end of April 2010 agreed with the staff that some “failure to consult aspects” of their claims should proceed to a full hearing, it dismissed their main argument. The tribunal held that the fact that the management buy-out had been set up in the somewhat cumbersome way it was in a deliberate attempt to avoid the effects of TUPE did not make it a sham. Accordingly, the main basis of the unfair dismissal claims failed.

As noted above, the case was at employment tribunal level only and is therefore not legally binding as a precedent and anyway may well be subject of an appeal. Also the factual background was considerably more complicated than is apparent from the outline above and no arguments were raised to the effect that the anti-tax avoidance principle (known as the “Ramsay principle” after the 1981 tax case in which it was first propounded) under which the authorities can sometimes look straight through ‘artificial’ arrangements might apply in an employment law context. Clearly it would therefore be foolish to go too far in reliance upon the decision in this case. That said, the decision may be of interest not only to professional advisers but also both to some employers and their employees – and it will be particularly interesting to see what the EAT decides if the employees appeal.

The case emphasises the uncomfortable overlap between employment, insolvency and tax law which has existed for many years and in many guises. The problem is that each area of law evolves with its own statutes and case law and, as a result, conflicts can emerge. One of the main benefits of CLB Employment Solutions is that, as a part of Canter Levin & Berg Solicitors, we are able to consider such issues from all relevant perspectives.