TUPE – Identifying the date of the transfer

A recent EAT decision has provided welcome clarity about how to determine when a TUPE transfer took place, explains Jeffrey Jupp.

Jeffrey Jupp is an employment barrister at 7 Bedford Row and the author of a blog dedicated to TUPE (tupe.uk.net).

The precise date of a business transfer can be an issue of great significance. In Housing Maintenance Solutions Ltd (HMS) v McAteer [2014], the employment tribunal had held that a transfer occurred on 9 June 2011 and not, as the transferee, HMS, had contended, on 1 July. This exposed HMS to very substantial claims for unlawful deductions from wages and protective awards for approximately 200 employees. Some of these claims would have been avoided and others reduced if the later date was the correct date of the transfer.

HMS recently came before the Employment Appeal Tribunal (EAT), which gave guidance on when a transfer will be deemed to have occurred under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Such a transfer may occur when no employees are working and none of the transferred activities are being carried out.

Why The Transfer Date Matters

Identifying the date of a TUPE transfer can be crucial in some cases. For example, claims under Regulation 12 (failure to notify employee liability information) and Regulation 15 (failure to inform and consult) must be commenced within three months of the relevant TUPE transfer. In such cases, the transferee or transferor (or both) may argue for an early date if this would result in the claim being time barred.

Conversely, it may be in the transferee’s interests to argue for a later date. For example, in HMS the transferor went into administration and the claimant employees were made redundant on 9 June 2011. HMS employed the employees from 1 July 2011. If the transfer occurred on the earlier date, then it was liable for unfair dismissal on 9 June, unlawful deduction of wages from 9 June to 1 July and claims for failure to consult. These claims would be avoided or reduced if the date of the transfer was 1 July because in that case the employees’ dismissals on the 9 June were not because of the transfer nor (as the law then was) for a reason related to the transfer.

Facts Of The Case

LMH is a housing association managing 15,000 homes. It engaged Kinetic to undertake the repair and maintenance of its housing stock. By 2011, LMH was becoming concerned that Kinetic was in financial difficulty and might be unable to perform the contract. Therefore, it drew up a plan to create a wholly owned subsidiary, HMS, to take over the work undertaken by Kinetic. The target date for HMS to be in a position to do so was 1 July 2011.

On 8 June 2011, LMH served notice on Kinetic under the provisions of the contract. The following day, Kinetic went into administration and the administrators sent the employees home as there was no money to pay them their wages. HMS was not yet operational but it needed the Kinetic staff to undertake the work once it was up and running. It consulted with the unions and reassured the Kinetic employees that it would employ them from 1 July.

A small management team commenced working for HMS on 15 June and cleaning staff transferred on 20 June. However, HMS did not employ the remaining repair and maintenance employees until 1 July 2011.

At a pre-hearing review, an employment judge held that there was a transfer of the repair and maintenance employees that occurred on 9 June 2011. Central to the tribunal’s reasoning was that, by promising on 9 June to employ the employees, HMS had assumed responsibility for them and this dictated the transfer date.

On appeal, the employees sought to uphold the tribunal’s reasoning whereas HMS sought to argue that the date of transfer was the date when it started undertaking the transferred activities (ie operating the relevant part of Kinetic’s business), which was in early July.

EAT Decision

The EAT held that the date of transfer is the date on which the transferee assumes responsibility for the transferred entity. It noted that this is not necessarily the same date as the date on which the transferee assumes responsibility for the transferred employees. In this respect, the tribunal had fallen into error as it had focused on the wrong aspect of the transaction. The EAT observed that assuming responsibility for the transferred business means that the transferee assumes responsibility for employees who then transfer, not vice versa. It remitted the case to the employment tribunal to reconsider the date of the transfer.

Celtec v Astley

In reaching its decision in HMS, the EAT applied Celtec Ltd v Astley [2005], in which the European Court of Justice held that the date of transfer was:

…the date on which responsibility as an employer for carrying on the business unit in question moves from the transferor to the transferee.

The employees in question believed themselves to be on secondment from the Department of Employment in September 1990. However, when Celtec returned to the House of Lords, it found that this was when their employment transferred because it was then that Celtec took on the responsibility for the transferred business unit.

The EAT also rejected HMS’s argument that the transfer took place when it started operating the relevant part of the Kinetic business. It pointed out that if the transferor suspends its activities, the date of transfer is not postponed until the transferee recommences the activities. Rather, the date of transfer may occur during the period of suspension if, during that period, there is the necessary assumption of responsibility (see, for example, Wood v Caledon Social Club [2010]). It is well established that a temporary closure of an undertaking or cessation of transferred activities does not of itself preclude the possibility that there has been a transfer. There may be a transfer of a business at a time when no employees are working and no activities are carried out.

Impact Of The Ruling

HMS provides some much needed clarity about how to determine the date of a TUPE transfer. Of course, in many cases this will not be an issue as there will be an agreement that gives the date that the economic entity will transfer.

However, in complex cases where there is an issue about the date of the transfer, then all of the facts and circumstances have to be weighed in the balance just as they do when determining whether there has been a transfer at all. A transfer may be effected by two or more transactions but this does not alter the focus when determining when the transfer occurs. The focus should be on when the transferee assumes responsibility for the transferred entity, in other words when it assumes responsibility for the business or part of the business that is transferred.

What weighs heavily in one case may not weigh heavily in another. For example, in a labour- intensive industry, while the date that the transferee takes on the employees will not determine the date of the transfer, it will be a weighty factor. In another case, there may be only a few employees but a substantial transfer of assets to the transferee before it formally engages the employees. That may indicate that it assumed responsibility for the transferred business before the engagement of the employees. The effect would be that the employees would, as a matter of law, transfer earlier than the date on which they were formally engaged, even though this may not be what the transferor and transferee intended.

The article first appeared in the September 2014 issue of Employment Law Journal, published by Legalease.

Category: Articles | Author: Jeffrey Jupp |

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