In this article...

• The facts
• The decision
• What does it mean for me?
• Case update: Power v Regent Security Services Limited
• Stop press

When does an employee have to object the transfer of their employment in a TUPE transfer? Alec Bennett considers the case of New ISG Limited v Vernon and Others and also looks at the Court of Appeal’s recent decision in Regent Security Services Limited v Power, concerning an employer’s freedom (or otherwise) to change employees’ contracts in the context of a TUPE transfer.

When dealing with a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) and an individual employee’s right to object to the transfer, one would have thought that the right to object needs to be exercised before the transfer actually occurs. Not so said the High Court in New ISG Limited v Vernon and Others, where the employees did not know the identity of the transferee prior to the transfer

Where an employee transfers under TUPE, they do so with their existing terms and conditions protected, including any restrictive covenants. Employees also have the right to object to the transfer of their employment under Regulation 4(7) TUPE. If employees exercise that right, the buyer cannot benefit from the restrictive covenant, as the contracts of employment which contain those covenants will not transfer.

The facts

Mr Vernon was a member of the sales team at ISG. ISG went into administration in July 2007 and on 27 July the administrators sold some of the assets to a subsidiary of UKRS known as New ISG Limited. The sales team had contracts which contained various restrictive covenants. ISG’s employees were not informed of the identity of the purchaser before completion, nor that they had the right to object under TUPE to the transfer of their employment. On the morning of 27 July, a number of employees told the administrators that they hoped the buyer was not UKRS as they would not work for it. Later that afternoon, they were told that UKRS had bought ISG and therefore they were employees of UKRS.

The sales team resigned with immediate effect on 1 August and went to work for a competitor organisation, ESS. New ISG applied for interim injunctions against the sales team to prevent them acting in breach of their covenants. In the High Court, the sales team argued that an employee’s fundamental right to choose his employer would be undermined by a literal construction of Regulation 4(7), in circumstances where the identity of the new employer was not disclosed to the employees until after the transfer. Therefore, they should have been able to object to the transfer of their employment once the identity of the employer was known, even if this was after the transfer. If that was correct, and if they had objected by the time they resigned, the restrictive covenants could not be enforced by New ISG.

The decision

The High Court agreed. It decided that it was appropriate to adopt a purposive construction to Regulation 4(7), where the identity of the transferee was unknown before the date of the transfer. It also found that the employees’ letters of resignation could be construed as objections (because TUPE does not prescribe a method by which such objection should be notified), so that the contracts of employment did not transfer and therefore New ISG could not enforce the restrictive covenants.

What does this mean for me?

		It had been thought that an employee could only notify their objection to a transfer before the transfer took place, but the decision in this case has altered that position meaning that there is potential scope for an objection to be lodged after the transfer.
		However, the circumstances where this may apply are, perhaps, quite narrow and may be limited to situations where the employees in question do not know the full details which would allow them to make an informed decision as to whether to exercise their right to object or not (such as not knowing the identity of the transferee organisation, as in this case).

Case update

As you may recall, I looked at the Employment Appeal Tribunal’s decision in the case of Power v Regent Security Services Limited in the March 2007 edition of Employment Eye. This confirmed the general principle that changes to terms and conditions in the context of a TUPE transfer (and in the absence of an economic, technical or organisational reason) will be void. However, it created an exception to this if the parties do agree changes in connection with the transfer which are to the employee’s benefit; in those circumstances the employees can choose to enforce the changes and it will not be possible for the employer to argue that they are void.

At the time I remarked that it was somewhat rich for the employer to try to argue that its own changes were void, but they still appealed the decision. The Court of Appeal has now given a resounding confirmation of the approach taken by the EAT and confirmed that employees can choose between enforcing their transferred rights and any new rights that they have been granted by the transferee. Therefore, transferees will have to ensure that any new terms are granted so that the employees will not be able to ‘cherry pick’ those terms which are most favourable.

Stop press

As this month’s Employment Eye went to press, the EAT released its decision in Holis Metal Industries Limited v (1) GMB (2) Newell Limited which confirmed that it is possible for TUPE to apply to transfers where the transferee is outside of the United Kingdom / European Union. In this case, the transferor was a manufacturing company based in Tamworth which transferred part of its business to a company based in Israel, and all the employees of the part of the business that transferred were dismissed.

Although the practical application of this case may be limited, the EAT has confirmed a point that, until now, had been uncertain, i.e. whether the Transfer of Undertakings Regulations can apply to a transfer from the UK to a non-EU transferee, where the undertaking in question did not remain in the UK after the transfer had taken place. The EAT held that the wording of the Regulations in this regard is clear: there is no requirement for the transferee company to be based in the UK. The EAT noted that, whilst there may be practical difficulties in enforcing the Regulations in foreign jurisdictions, TUPE was clearly drafted to protect employees in modern outsourcing situations, regardless of whether they are outside or inside the EU. Undoubtedly, this case will attract much comment and is likely to be the starting point for the development of case law on this question, in relation to which we will keep you informed.