The ECJ has issued a very surprising TUPE decision in the case of ISS Facility Services v. Govaerts. This case considered the application of the EU Acquired Rights Directive in Belgium. The Directive is implemented in the UK as the TUPE Regulations. As a reminder, the UK is bound by ECJ decisions and UK courts are bound to interpret the TUPE Regulations in line with the EU Acquired Rights Directive, where possible. If not possible, the Regulations may need to be amended.
The established UK position is that, on a TUPE transfer, employees broadly follow the services/business to which they are wholly or mainly assigned. Where the services being transferred are split so that the assignment of an employee is unclear, they remain with their current employer. Employees are not split between two or more new employers on a pro rata basis. In the Govaerts case, the ECJ has decided that an employee's employment can be split between two or more new employers where TUPE applies. It was left to the national courts to determine how this would be assessed. The consequence is that an employee could move from having one employer to two, or indeed more. The case is contrary to the well-established position in the UK. The UK Employment Appeal Tribunal has decided that an employee's employment could not be split in the way proposed by the ECJ.
This is a real hot spot in practical terms. Working out who is assigned to an "economic entity" or "an organised grouping of employees carrying out activities", and who is not, can be challenging. Especially where services are being fragmented or where only part of a business is sold. Transferees are keen to avoid inheriting extra employees. Transferors are concerned about redundancy costs for employees who are left behind. Employees are concerned about being left in limbo. This decision muddies the water further for employees and employers where TUPE is triggered.
Until we have a UK court judgment applying this decision, we expect little will change in practice in the UK. However, clients will need to be alive to arguments being raised based on this case.
- Transferees should be more cautious about the situation where employees are left in limbo. Employers may be more likely to claim a transfer of employees on a pro rata basis among different transferees. In the UK, courts will seek to protect employees and this argument might therefore be successful. This could be a good reason for more collaboration between transferees. It may make sense to agree on a case-by-case basis where employees transfer, so employees move as a whole person. However, where this cuts across TUPE, employee consent will be required.
- Transferors may argue that all employees transfer, on a pro rata basis, as aligned with services or the part of the business transferring. The ECJ suggested this would be determined by the value of the different parts of the contract and the time the employee spent on each part. This approach will save transferors redundancy costs, which they would otherwise incur. We recommend that clients are proactive in working with their incumbent providers to ensure that there is clear/100% allocation of employees. This is already common in contracts and should be considered going forward.
- Employees can work with their current employer to agree a clearer approach to assignment, so they are not faced with future multiple employers.
- Contracts should be reviewed/amended going forward where it would be in clients' interests for there to be greater certainty on these issues. This would typically concern the allocation of employees to particular activities or a particular part of the business.
- In contracts, it would be sensible for clients to require, or at least ask, current providers and future providers to work collaboratively to ensure a smooth transition of services and employees.
Business transfers only?
One important technical point to note. There are two types of transfer in the UK: business transfers and outsourcing/consequent changes in service provider (service provision change (SPC)). SPC is a UK concept that is not in the EU Acquired Rights Directive. UK courts may well choose to distinguish this case from transfers, which only meet the requirements of an SPC. Employees have alternative recourse in an SPC where they may argue that being "split" among multiple employers is a material detriment to them and resign. That said, the ECJ stated in the Govaerts case that, where a division would be impossible or would adversely affect the rights of the employee, transferees will be considered liable for the termination of the employment contract, regardless of whether it was initiated by the worker.
It is to be hoped that UK courts will limit the impact of this decision to business transfers. However, remember that many changes in service provider can meet the requirements of both types of transfer. Do not just assume, because you are dealing with an insourcing or outsourcing situation, that only the SPC rules apply and there can be no pro rata split. A change of provider in the outsourcing context can be a business transfer and an SPC – indeed, this is often the case.