TUPE: Five month gap does not prevent transfer

The Transfer of Undertakings (Protection of Employment) Regulations 2006, known colloquially as TUPE, are the UK's implementation of the European Union Business Transfers Directive. It is an important part of UK labour law, protecting employees when the business in which they are employed changes hands. Its effect is to move employees and any liabilities associated with them from the old employer to the new employer by operation of law.

What does TUPE mean legally?

Employees who are employed in the undertaking which is being transferred, have their employment transferred to the new employer.

Employees can refuse to transfer, but depending on the circumstances of the case, they can lose valuable legal rights if they do.

TUPE states that "all the transferor's rights, powers, duties and liabilities under or in connection with the transferring employees' contracts of employment are transferred to the transferee". This all-embracing concept encompasses rights under the contract of employment, statutory rights and continuity of employment and includes employees' rights to bring a claim against their employer for unfair dismissal, redundancy or discrimination, unpaid wages, bonuses or holidays and personal injury claims etc.

Employees therefore have the legal right to transfer to the new employer on their existing terms and conditions of employment and with all their existing employment rights and liabilities intact (however, there are special provisions dealing with old age pensions under occupational pension schemes).

Effectively, the new employer steps into the shoes of the old employer and it is as though the employee's contract of employment was always made with the new employer.

Knowing about the employees the company will inherit

It is essential that employers know all about the employees that they might inherit if they are planning to take over a contract or buy a business. They must also make sure that the contract protects them from any employment liabilities which arose before they became the employer. This is helped by the fact that the old employer is required to provide to the new employer written details of all employee rights and liabilities that will transfer.

Suspension of undertakings

The TUPE regulations have been held to apply in a wide variety of situations, including, in the case of Colino Siguenza v Ayuntamiento de Valladolid in the education sector.

In this case, the Municipal Music School of Valladolid was managed initially directly by the municipality, and then, from 1997 until 31 August 2013, by a contractor Músicos y Escuela. A dispute over payments led to Músicos y Escuela requesting the termination of the service contract, and then ceasing to carry out the activities it was contracted to undertake on 31 March 2013.

In the meantime, Músicos y Escuela had also commenced consultation with its staff, including the Claimant in the case, Mr Colino Siguenza, a music teacher who had been employed at the school since 1996. All staff were dismissed with effect from 8th April 2013.

Following this suspension of business activity, in September 2013, a new contractor, In-Pulso Musical was awarded the contract to run the music school, taking over premises, instruments and equipment. After winning the contract for 2013-2014, In-Pulso Musical was subsequently awarded the contract to run the music school for 2014-2015 and 2015-2016. It did not take on any of the staff employed by Músicos y Escuela and Mr Colino Siguenza challenged his dismissal in proceedings against both Músicos y Escuela and In-Pulso Musical.

What did the Court of Justice of the European Union have to consider?

The Spanish court, the Tribunal Superior de Justicia de Castilla y León, referred three questions to the Court of Justice of the European Union:

  1. Could there be a transfer in these circumstances where there was a 5 month gap between the cessation of business activity by one contractor and the commencement of the same business activity in the same premises and using the same instruments and equipment by a new contractor?
  2. Whether the circumstances in which the contract between Músicos y Escuela had come to an end, could be considered to be an economic, technical or organisational reason for the dismissal of Mr Colino Siguenza (and therefore not automatically unfair), or a reason connected with the transfer (and therefore automatically unfair).
  3. Whether national legislation could prevent the national court hearing an individual case when there had already been a ruling on the collective dismissal.

The response of the Court of Justice of the European Union to the first question – whether the 5 month suspension in business activity precluded a TUPE transfer - is of most interest to UK employment lawyers and employers.

5 month gap in business activity does not preclude a transfer

The Court of Justice of the European Union highlighted that although the school's activities had ceased for five months, three months of that period included school holidays.

This suspension did not mean that the ‘economic entity’ had lost its identity. A transfer was indeed possible, despite the 5 month gap. 

The Court of Justice of the European Union concluded that the temporary suspension of activities and the new contractor's failure to engage the dismissed employees could not preclude the possibility of a TUPE transfer. Whether there had been such a transfer was for the referring court to decide.

Service providers with natural suspension in activities

Kate Fretten, a Partner in our Employment Team, says "The case is of interest to HR Professionals involved in the delivery of services which have a natural suspension in the delivery of their services, such as a holiday period, when there is an imminent changeover in service provider. It may also have implications for other cases where there is a gap between the end of one contract and the start of a new contract with a new contractor to deliver substantially the same business activity."

 

At Frettens, all of our solicitors offer a free initial meeting or chat on the phone to answer your questions. If this article raises issues for you or your business, please call us on 01202 499255 and Kate or Paul will be happy to discuss it with you.