Editorial from IDS Brief 845, January 2008

Pushing the boundaries of TUPE protection

Few in the employment field find the Transfer of Undertakings (Protection of Employment) Regulations 2006 SI 2006/246 easy to understand, and fewer still have clear views on the complex issue of their application to transfers of undertakings from the UK to another country. The case reported on page 3, Holis Metal Industries Ltd v GMB and anor, which considers precisely that issue, is thus well worth a read. In a nutshell, the EAT there stated that although on the facts there was no cross-border TUPE transfer from the UK, in theory such a thing is possible – regardless of whether the ‘transferee’ is based inside or outside the European Union. Although His Honour Judge Ansell’s comments are strictly obiter – i.e. not binding – they are to our knowledge the first judicial consideration of the matter.

Cross-border transfers covered in theory

HHJ Ansell’s conclusion is instructive, but not particularly surprising. All the academic commentary to which he referred – including our consideration of this topic in IDS Employment Law Handbook ‘Transfer of Undertakings’ (2007) – took the view that the wording of the TUPE Regulations, and of the EC Acquired Rights Directive (No.2001/23) which the Regulations implement, clearly encompasses cross-border transfers. To establish why, we should take a closer look at Reg 3 of TUPE, which contains the definitions of a ‘relevant transfer’.

Regulation 3(1)(a) – the provision at issue in Holis – states that TUPE applies to ‘a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity’ (our emphasis). So, while the Regulations are clear on where a business must be situated before the transfer in order to be covered, they are silent as to where it needs to end up. In HHJ Ansell’s view, the upshot of this is that TUPE is capable of biting where a business is bought and moved to a foreign country.

Two important qualifications must be noted, however. First, the affected employees might have difficulty pursuing claims against a foreign transferee, as attempting to do so can raise complex juridictional questions. Secondly, while TUPE can theoretically apply to cross-border transfers, the definition of a ‘relevant transfer’ in Reg 3 must be satisfied if the transfer rules are to be triggered. The Reg 3(1)(a) requirement that an economic entity must retain its identity in order to be covered might prove difficult to satisfy when a business or part of one is moved abroad at the time of the transfer – although this will be a question of fact for the tribunal.

But what of the second definition of ‘relevant transfer’, contained in Reg 3(1)(b)? This extends TUPE’s coverage to service provision changes (SPCs) – such as outsourcing projects – where an organised grouping of employees situated in Great Britain, which has as its principal purpose the carrying out of activities on behalf of a client, ceases to carry out those activities and they are taken up by another person. Crucially, there is no requirement under Reg 3(1)(b) that the organised grouping of employees situated in Great Britain retain its identity after the purported transfer. Arguably, then, the increasingly common practice of ‘off- shoring’ jobs – for example, where a business shuts down its in-house call centre and buys in cheaper services from India – is likely to fall within this provision. In fact, HHJ Ansell suggested as much, stating that Reg 3(1)(b) ‘is clearly aimed at the modern outsourcing of service provision, particularly call centres, whether inside or outside the EU’.

Practical implications for employers…

The lack of case law on cross-border transfers suggests that, often, all parties are happy to assume that TUPE doesn’t apply when an undertaking, or part of one, moves abroad. Nevertheless, employers would be unwise to put their heads in the sand and ignore the Regulations in such situations. If TUPE does apply, the common practice of the transferor making the affected employees redundant becomes risky, as any dismissals effected in connection with the transfer are likely to be automatically unfair under Reg 7. Also, employers might fall foul of the additional information and consultation obligations that TUPE imposes. Simply put, employers should take specialist advice as to how to proceed where a cross-border transaction is on the cards, and should ensure that any warranties and indemnities are carefully negotiated.

… and for employees

As for transferring employees, they will rarely want to follow their jobs abroad and will be likely to take redundancy or a similar settlement where offered. However, if negotiations are not going well – perhaps because their current employer insists that TUPE applies – the employees might find themselves in a tricky situation. They are not, however, without options. If the Regulations do apply, as a last resort they could ‘object’ to the transfer under Reg 4(7), and argue that the forthcoming move abroad would amount to a fundamental breach of contract entitling them to resign and claim constructive dismissal; or to a substantial change in terms and conditions to their material detriment, entitling them to resign and claim dismissal under Reg 4(9). Case law suggests that, in such circumstances, employees can claim against the UK-based transferor, thus avoiding the tricky problem of enforcing UK law against the foreign transferee. See chapter 4 of our TUPE Handbook for details.