TUPE or DUPED?

March 1, 2004

TUPE or DUPED?

Esther Smith, Associate Solicitor at Thomas Eggar, considers how employers and employees can be protected under forthcoming business transfer reforms.

Business transfers are a significant feature of modern business, with mergers and acquisitions and contracting out of services a frequent occurrence. For any such transfer to be successful, the parties need to know where they stand when businesses change hands.

Employees are entitled to be protected from dismissals resulting from the change in ownership and from any possible damaging effects on their terms and conditions of employment. A myriad of factors need to be taken into account including company culture, organisational processes and company policies.

The Transfer of Undertakings (Protection of Employment) Regulations 1981, commonly known as the TUPE Regulations, are designed to safeguard employees’ existing rights whilst enabling businesses to succeed in a competitive world.

Reforms to these regulations are due to come into force in 2004, and these reforms are eagerly awaited as the existing TUPE regulations are widely regarded by all groups affected by them as operating less satisfactorily than they might.

Clear statutory guidelines are required

One of the main areas where changes to the TUPE regulations are needed is in relation to the outsourcing of services. In the past there has been uncertainty where a party has entered into an ongoing arrangement with an outside party to provide services.

Problems become even more complex where one external contractor providing a service is replaced, following a competitive tendering process, with another external contractor.

It is vital that the reforms clarify exactly how TUPE will work in outsourcing by providing clear statutory guidelines. At the moment, the case law on this area is so diverse that authority can usually be found to support any argument, from any point of view, leaving everyone confused.

Information sharing

In contracting situations, the sharing of information is vital. Currently, when an undertaking is transferred as a result of a change of contractor, there is no obligation on the incoming and outgoing contractors to exchange information relating the employees potentially affected by the transfer.

Potential contractors need to find out as much information as they can about the liabilities before they take that contract on. The employment contracts of the employees, along with all the rights, powers, duties and liabilities of the transferor (current employer) will pass automatically to the new employer on the transfer of an undertaking under the TUPE regulations.

In addition, there is a duty on both the incoming and outgoing contractor to inform employees, through elected representatives, about the proposed transfer and to inform them of the legal, economic and social implications that the transfer may have and any measures envisaged that might affect the employees.

Employees’ rights

All employees have the right to be consulted by their current and new employer so that they are fully informed. They are also given statutory protection against an unfair dismissal resulting from a transfer and from having their terms and conditions of employment varied.

Significant costs award in TUPE tribunal case

Thomas Eggar recently acted for a catering company, Morton’s Fork Limited, in a tribunal case relating to TUPE and outsourcing.

Morton’s Fork took over the catering function, under a TUPE transfer, for The Goodwood Golf Club in 2002. At this time, under the operation of TUPE, they inherited an employee, who we shall call Mr P.

Mr P was the Club Steward and also enjoyed the additional benefit of accommodation at the Club. In 2003, Mr P was subject to disciplinary action by his employers, Morton’s Fork, as a result of some alleged misconduct. The initial sanction imposed on Mr P was dismissal on notice, but he appealed against this decision.

Mr P’s dismissal was rescinded and he was given a final written warning. However, the Club refused to allow him to return to his duties, despite the efforts of Tim Morton, the Managing Director of Morton’s Fork.

Eventually Morton’s Fork gave notice to terminate the catering contract with the Club as they were so concerned about the Club’s behaviour in relation to Mr P and did not want to continue a business relationship with them. However, before the notice expired, the Club brought the contract with Morton’s Fork to an end with immediate effect.

On termination of the contract, the Club took the catering function back in-house and took over all of Morton’s Fork’s employees under TUPE, with the exclusion of Mr P. The Club refused to take Mr P on the basis that he was not employed in the undertaking that transferred to the Club, that is the catering function, as they had refused to allow him to return to his duties.

The Club also suggested at tribunal that Mr Morton’s reasons for upholding Mr P’s appeal against dismissal, and retracting the original decision to dismiss, had been “dishonest” and that Mr Morton had only taken this action to avoid Mr P bringing a claim for unfair dismissal against Morton’s Fork and to “off load” him back to the Club on termination of the contract.

The tribunal hearing the case came to a unanimous decision that Mr P was employed in the undertaking that transferred to the Club at the time of the transfer. They agreed that there was no shred of evidence to suggest that Mr Morton had acted dishonestly as alleged by the Club.

They also agreed with the submission that the Club’s argument that they were able to determine who was and who was not employed by refusing access to the premises to those not employed at the time of transfer would drive “a coach and horses” through the principles of TUPE. TUPE is there to protect the employees in a transfer situation and it has been long established that neither a transferor nor a transferee is able to “cherry pick” which employees it wishes to be protected by the legislation.

Besides achieving the correct outcome for Morton’s Fork, the legal costs were recovered from the Club.

Whilst there has always been a system within the tribunal’s jurisdiction to award costs against a party, these rules have been strengthened in recent years and the maximum cost award has been increased from £500 to £10,000.

The tribunal found that the two arguments relied upon by the Club in defending this claim were not supported by any evidence or case law and therefore it should have been apparent to the Club, and their legal advisors, that their position was not a defendable one. To proceed with the claim and take the matter to a full two day hearing in the absence of any such evidence or legal support for their argument was unreasonable. As such the tribunal had no hesitation in awarding just under £7000 costs against the Club.

This decision shows how tribunals are becoming increasingly prepared to penalise a party who unreasonably defends a claim against them. However, the fact that the tribunal chairman in this case had to be told by the advocates that the maximum award of costs had increased from £500 to £10,000 shows that the decision to award costs is not made that often!