Source: http://tupe.uk.net/recent-posts/page/2/
Timestamp: 2020-07-12 16:26:19
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Matched Legal Cases: ['art 2', '§26', '§45', '§42', '§48', '§49', '§50', '§51', '§52', '§55', '§62', '§63', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ']

Recent Posts | TUPE - Part 2 Recent Posts – Page 2 – TUPE
This case concerns the construction of a TUPE indemnity.
The transferor operated a hairdressing and beauty salon in Harrods pursuant to a licence agreement. The licence terminated in disputed circumstances and a settlement agreement was executed which resulted in the employees of the transferee transferring to Harrods, the transferor. Under the agreement Harrods were required to make payments to the transfer and in doing so it withheld a substantial sum in respect of payments for salaries and commission owed to employees. It claimed to be entitled to do s under the terms of an indemnity in the licence agreement, which both parties agreed was unaffected by the settlement agreement.
The indemnity provided that the transferor would indemnify the transferee against all employment liabilities, as defined, in connection with:
“(a) all salaries, emoluments or other sums payable … to or in respect of any member of staff … which fall due … prior to the date of termination … (b) any liability or obligation arising under or in connection with any member of staff … prior to the date of termination … (e) any other claim by a member of staff the responsibility for which passes to [the transferee] … and which has its cause … prior to the date of termination of this agreement.”
The salaries and commission payments were paid to employees in arrears. The transferee argued that this meant that as at the date of the transfer they were not due. Harrods, the transferee, argued that the commercial purpose of the clause was for the transferor to bear the employment costs of the staff up to the date of transfer, pointing out that it had the benefit of the employees up to that point and therefore should bear the costs.
The transferee’s argument was preferred. The payments came within sub paragraphs (a), (b) and (e) of the indemnity. As for (a), the expression “that which fall due” had to be interpreted as including where the obligation to pay had arisen even though the date for payment had not yet arrived. Furthermore, the sums were within (b) because the employee costs were also “any liability“, even if not yet payable. There was nothing to support the transferor’s argument that “any liability” meant “any other liability“. Finally the sums withheld would also be within (e), so that everything prior to the termination date was the transfer’s obligation through the indemnity even if not yet paid.
Link to Judgment: Urban Retreats v Harrods
Categories: Indemnities | Permalink
This case is a rare example of changes to terms and conditions which were made after a transfer not being held to be void under Reg 4(4).
The claimants were electricians who were paid a travel allowance (‘ETTA’). This had been paid by the local authority employer since 1958 and had continued through various transfers until the claimants transferred to M on 1 April 2008. ETTA was an obsolete allowance which bore no relation to the way in which the claimants currently worked. After M ceased to pay the allowance a group of electricians challenged this in a case brought in 2010. M defended the case on the basis there was no contractual entitlement to ETTA and lost. The case was appealed to the EAT (see Salt & Others v Mears) and M lost again.
After the Salt decision, in July 2012, M wrote to each of the electricians and unilaterally decided to vary their contracts to cease the entitlement to payment of ETTA. The rationale was that it was generally recognised that the entitlement (albeit held to be contractual) was outdated and obsolete and it made no business sense to continue it. The claimants challenged the variation on the basis that reason or principal reason for it was the transfer and was void. They pointed out that the payment ceased from the date of the transfer.
The ET dismissed the claims and held that M’s reason for varying the contract was both the adverse ET/EAT decisions in Salt and that it genuinely believed that the entitlement was outdated. It further held that the submission of a claim form was prerequisite for payment of ETTA which some claimants had not done.
The claimants raised the following issues on the appeal relevant to TUPE:
(1) That the decision of the ET ignored the fact that the subject matter of the Salt decision was the transfer and there was a clear and continuing link to the transfer.
(2) The interpretation of the ET rendered Reg 4(4) wholly ineffective and open to easy avoidance.
(3) The ET failed to recognise the harmonisation intent behind the decision.
(4) The decision failed to take account of the non payment of the ETTA from the date of transfer.
The EAT (HHJ Eady) restated that the question to be asked is: what is the reason? – What caused the employer to do what it did? (see Smith v Trustees of Brooklands College.) In applying this approach she went on to reject the claimants’ appeals for the following reasons:
(1) The decision in Salt provided the context for M’s decision not the reason for it.
(2) The decision was question of fact for the Tribunal.
(3) The concern about the outdated nature of the ETTA and that it made no sense, predated the transfer and had been expressed by previous employers.
(4) There was not an attempt to harmonise, simply a recognition of the unfairness that one group of employees received an outmoded allowance to which others were not entitled.
In its recent Agent Update on page 4 HMRC have announced:
Changes in how National Minimum Wage (NMW) penalties apply to employers who have staff transferred under Transfer of Undertakings (Protection of Employment) (TUPE) rules
HMRC has changed its approach to charging penalties when enforcing NMW where there has been a transfer of staff from one employer to another under TUPE Regulations 2006 provisions.
HMRC previously charged the former employers all, or part of the penalties where they were triggered by arrears that accrued before workers were transferred under TUPE provisions. Further information on TUPE can be found on the Acas website.
More on enforcement of the national minimum wage including penalties can be found on the GOV.UK website.
Link to Agent Update
The transfer scheme introduced in relation to the transfer in this case did not replicate TUPE. First the provision which dealt with unfair dismissal (i.e. the equivalent of Reg 7(1)) was limited in time and covered dismissals up to 31 March 2015. The Claimants were dismissed after this date and therefore could not rely on the transfer scheme. They therefore had to bring their cases under TUPE. Furthermore, there was no equivalent to Reg 4(4) which renders variation to Ts and Cs void if the sole or principal reason for the variation is the transfer.
Thirdly, it is necessary to consider the activities that are being undertaken by the state entity being transferred in the particular case; and then to determine whether those activities belong to the category of: (a) “exercising public powers”; or (b) carrying on an economic activity by offering goods and services on the market. (§26) and (§45).
Fourthly, the purchasing or commissioning of goods or services cannot in itself constitute an economic activity; but a body which supplies goods or services in a market is carrying on an economic activity, both in supplying those goods or services and in purchasing goods or services for the purpose of that supply (§42).
Fifthly, when considering the economic entity it is relevant to consider: (1) whether the activity consists of the provision of goods and services (as opposed, for example, to the mere acquisition of goods or services); and (2) whether there is a market for the relevant goods or services. (§48). There will be an economic activity even if goods or services are provided free of charge or without a view to making a profit provided the activity is in principle capable of being undertaken by a private undertaking with a view to profit (§49) and (§50). An entity undertaking such functions will be an undertaking even if: It is a public law entity; it is publicly funded; it acts in the public interest, and; it is pursuing statutory functions (§51).
Sixthly, the central concept underpinning Reg 3(5) is that the entity is exercising public functions which are not an economic activity (§52).
Seventhly, when considering this issue the court is to ask (see §55):
Eighthly, it is necessary to have regard to the function under consideration and not the entirety of the state entity’s activities (§62) and (§63)
In this case the closure of an undertaking for a period of 5 months did not have the effect of preventing a transfer under the Acquired Rights Directive.
CS was music teacher employed by a music school. The School was initially operated by a local authority but from 1997, after its operation was put out to tender, until 31 March 2013, it was operated by ME. ME managed the premises, the facilities and instruments and took on the staff. It operated the School on behalf of the local authority and was paid by them. There was a commercial dispute in 2013 which led to the local authority ceasing to pay ME in February 2013. As a consequence, on the 27 March 2013 ME dismissed all of the staff and closed the School with effect from the 31 March 2013. It returned the premises, instruments and facilities to the local authority. In August 2013 another contractor, In Pulso Musical, took over the school and commenced the operation of the School in September 2013 and continued to operate the School for the academic years 2013/14 to 2015/16.
CS claimed there was transfer of his employment from ME to In Pulso Musical. The Spanish High Court referred to the CJEU the question of whether there was a transfer where the activity ceased with effect from the 1 April 2013, two months before the end of the academic year 2012/13, and recommenced in in September 2013 at the start of the the new academic year 2013/14.
The CJEU held that there was a transfer. In doing so it restated the well-known principles for determining whether there is a transfer of an undertaking, in particular:
There is transfer when there is a change in the legal or natural person carrying out the undertaking; whether or not the ownership of tangible assets transfer.
The decisive criterion is whether the entity retains its identity as indicated by the fact that inter alia the operation is actually continued or resumed.
To determine whether that condition is met, it is necessary to consider all the facts characterising the transaction concerned, including the type of undertaking or business concerned, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. An overall assessment of all of the circumstances must be considered.
The degree of importance attached to each criterion will vary depending on the activity.
Where the activity is based essentially on manpower, the identity of an economic entity cannot be retained if the majority of its employees are not taken on by the alleged transferee.
However, in a sector where the activity is based essentially on equipment, the failure of the new contractor to take over the staff which its predecessor employed to perform the same activity is not sufficient to preclude the existence of a transfer of an entity which retains its identity
Applying those principles to this case the CJEU observed:
The local authority made available to the new contractor all the material resources which it had assigned to the former contractor.
As the activity was not an activity based essentially on manpower, the fact that they did not transfer was not determinative.
The fact that the ownership of assets did not transfer from one contractor to another was also not determinative.
Although the closure of the School for a temporary period was a factor to be taken into account, this was not determinative in a case where three months of the closure was during school holidays and the incoming contractor commenced the activity at the start of the new academic year.
Whether there was a transfer was matter for the national court to decide but it was not precluded by the 5 months cessation of activities in this case.
The underlying facts would have fulfilled a service provision change under TUPE. This does not exist in Spanish law nor under the Directive and that is why the CJEU looked at the matter from first principles. The central issue in the case (cessation of the operation of the undertaking or service for a period of time) is of importance to any kind of transfer
Link to CJEU judgment