Takeover undertaking.

AuthorNickson, Sue
PositionBrief Article

If your business is taken over by another firm, is your new employer legally obliged to keep you on or not? Sue Nickson finds there is no easy answer, as controversial TUPE decisions continue to confuse

TUPE or not TUPE? That is the question. An old pun, but one which, sadly, remains valid 20 years after the EU acquired rights directive was first brought into English law. By 1997, it was difficult to think of a business transfer where the transfer of undertakings protection of employment regulations 1981(TUPE) would not apply.

But this was before the decision of the European Court of Justice (ECJ) in the case of Suzen. Controversially, the court held that the fact that an activity carried out before and after a change of contractors was similar, did not necessarily mean that there had been a transfer of an undertaking. Therefore, in a labour-intensive undertaking, there might be no transfer unless the new contractor took on most of the old contractor's staff. This was a new and narrow interpretation of the scope of the regulations that appeared to allow incoming contractors to avoid claims that TUPE applied, merely by refusing to employ any of the existing employees.

Must an incoming contractor employ its predecessor's staff? That depends on whether TUPE applies. Whether TUPE applies depends, according to Suzen, on whether the new contractor took the staff. It is a circular decision that the UK courts and tribunals still struggle over.

The case Cheesman & Others v Brewer Contracts concerned the transfer of a contract for building maintenance services. The incoming contractor took none of its predecessor's assets or employees. The employees claimed that TUPE applied. Their claim was dismissed by the tribunal. On appeal, the tribunal directed that the correct approach to identify a transfer is to ask two questions:

* Does the service/activity constitute an economic entity capable of being transferred?

* Has the entity been transferred?

To answer the first question, it is necessary to assess whether a stable economic entity exists. Usually, this takes the form of an organised group of people and assets involved in an economic activity. Some undertakings will not, by their nature, have significant assets (for example, cleaning businesses are labour-intensive), but they may still amount to an undertaking if there is a structured group of wage-earners carrying out a common or specific task.

The second question should be considered separately and...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT