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03 October 2018
In a case about whether Transfer of Undertakings (Protection of Employment) (TUPE) Regulations applied to the transfer of a public health team commissioning services, the Employment Appeal Tribunal (EAT) considered points of appeal in relation to two seldom litigated provisions of TUPE.
The first provision was Regulation 3(5), which states, among other things, that the transfer of administrative functions between public administrative authorities is not a transfer to which TUPE applies. The second provision was the requirement in Regulation 4(1) that a contract of employment "would otherwise be terminated by the transfer" for it to be subject to the automatic transfer principle.
The appeal in Nicholls v London Borough of Croydon (LBC) was brought by 14 individuals who originally worked for Croydon Primary Care Trust in a team purchasing and commissioning health services. In 2013 their employment transferred to LBC. By order of the secretary of state under the Health and Social Care Act 2012, the transfer was implemented through a staff transfer scheme.
The scheme mirrored the provisions of TUPE in many respects, although crucially contained a limitation period on unfair dismissal claims where it was contended that the reason for the dismissal was the transfer or was connected with the transfer and was not an economic, technical or organisational reason entailing changes in the workforce.
In 2015 LBC sought to vary the terms and conditions of the employees, initially by consent and subsequently by dismissal and re-engagement. All the claimants argued that this constituted unfair dismissal (some having been expressly dismissed and others claiming to have been constructively dismissed).
As the dismissals occurred after the expiry of the limitation period set out in the staff transfer scheme, it fell to the tribunal to decide whether the claimants' employment had, in parallel to the scheme, also transferred to LBC under TUPE. This in turn required consideration of various underlying preliminary questions, including whether the public health team had been engaged in an economic activity or whether Regulation 3(5) applied – the two possibilities being mutually exclusive.
LBC argued that there had been no TUPE transfer because it was not an undertaking or economic entity that transferred, and that this was a case to which Regulation 3(5) applied instead.
Following a review of the case law on the requirements of carrying out an economic activity, the EAT stated that it is relevant to consider:
If there is such a market, then the provision of goods and services on that market is an economic activity, even if provided free of charge or without aiming to make a profit. What matters is whether the activity can be carried on, at least in principle, by a private undertaking with a view to profit. However, being a public law entity, publicly funded, acting in the public interest or acting pursuant to statutory functions does not preclude that entity from carrying on an economic activity.
Notwithstanding this analysis, the EAT agreed with the employment tribunal that the commissioning of health services in the case was not of itself an economic activity. Having reviewed all the relevant authorities, the EAT concluded that the central concept of Regulation 3(5) was the exercise of public authority or public powers. Having noted the employment tribunal's findings that the public health team's activities involved the exercise of public authority, the EAT added that a transferred entity, which carried on activities involving the exercise of public authority, would not be treated as an economic entity merely because it carried on ancillary activities of an economic nature.
However, this was not the end of the story. The EAT noted that the employment tribunal had failed to reconcile its conclusion that this was not an economic activity and Regulation 3(5) applied with the factual finding that "all or almost all of the work done by the Public Health Team can be, and in fact is, offered by non-state actors operating in the same market". On its face, this was a strong indication that the public health team was carrying on an economic activity. The closest that the employment tribunal came to addressing this was in observing that the public health team did not bid for contracts and was not trying to obtain business. The EAT decided that this aspect of the case should be sent back to the employment tribunal for reconsideration.
In bringing unfair dismissal claims, the claimants relied on the assertion that LBC's proposed changes to terms and conditions would have been void under Regulation 4(4) of TUPE. However, Regulation 4(4) would apply only if the claimants' contracts of employment had automatically transferred under Regulation 4(1). LBC argued that, as the staff transfer scheme effectively guaranteed the transfer of the claimants' employment to LBC in law, the employment contracts would not have "otherwise been terminated by the transfer" as required by Regulation 4(1). Accordingly, LBC contended that there was no transfer of employment under TUPE and Regulation 4(4) did not apply.
The EAT gave this argument short shrift, noting that the EU Acquired Rights Directive contains no limitation on its application equivalent to the words "which would otherwise be terminated by the transfer". Therefore, it would be inconsistent with the directive if reliance on these words prevented the claimants from otherwise establishing a transfer of employment under Regulation 4(1) and relying on the protection afforded to their terms and conditions under Regulation 4(4). In light of the EAT's ruling on this point, it is difficult to see how the offending words could have any continuing application or relevance in future cases.
For further information on this topic please contact Jonathan Carr at Lewis Silkin by telephone (+44 20 7074 8000) or email (firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkin.com.
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