Sarah Lamont reports on a decision which causes for pause for thought for any organisation which has in place arrangements for employees to be ‘hosted’ by a third party on a long term basis – for example, long term secondees or agency workers.  It is possible that such ‘non contractual employees’ are now covered by the Directive from which TUPE is derived and, although set in a group company context, this case may have a wider application.

In this article…

The background

The Acquired Rights Directive (‘the Directive’) seeks to protect employees’ rights on the transfer of an undertaking.  The Directive has been implemented in the UK by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Under TUPE, where an organisation is transferred from one owner (the ‘transferor’) to another (the ‘transferee’), or a service is transferred to a different provider, the employees of the transferor will automatically become employees of the transferee.  As a result, the transferee will inherit all the transferor’s rights, liabilities and obligations in relation to the transferred employees.

Traditionally, it had been thought that TUPE could only apply to employees actually employed by the transferor.  This was on the grounds that regulation 4 of TUPE states that the automatic transfer of rights will only arise in connection with “any person employed by the transferor”.

This orthodoxy has been thrown into some doubt by the decision of the European Court of Justice (ECJ) in Albron Catering BV v FNV Bondgenoten and another in which it was decided that the Directive can apply to ‘non contractual employees’.

The facts

The Heineken group employs its staff through a service company, Heineken Nederlands Beheer BV (HNB).  HNB performed the function of central employer which assigned its staff to various operating companies in the Heineken group. 

The Claimant, Mr Roest, was employed by HNB and assigned to Heineken Nederland BV, a company that provided catering services to employees in the Heineken group.  In 2005, Heineken’s catering services were transferred to an outside company, Albron Catering BV (Albron).  Mr Roest and his colleagues were taken on by Albron, but Albron failed to pay them a salary increase which had previously been agreed with HNB.  Mr Roest claimed that his employment had transferred automatically under Dutch laws implementing the Acquired Rights Directive and, therefore, Albron were legally obliged to honour the salary increase. 

The Dutch Court of Appeal stayed the proceedings and asked the ECJ the following questions.

  1. Should the Directive be interpreted so that the rules providing for automatic transfer of rights apply only where the transferor is the formal or ‘contractual’ employer of the employees concerned, or, if the transferor is a member of a group of companies, should the rules also apply where the employees are in law employed by a separate company for the same group which operates as a ‘central employer’ for the whole group?
  2. Should the answer to the second part of the first question be different if the employees are in law employed by a separate company in the same group that does not operate as ‘central employer’?

The ECJ decision

The ECJ dealt with both questions together and made the following observations.

  • The prerequisite for protection under Article 3(1) of the Directive was either a contract of employment or an employment relationship.  An ‘employment relationship’ points away from a requirement that there must be a contractual link with the transferor.
  • There was nothing in the Directive to say that, where there was more than one employer, the ‘contractual employer’ must take precedence over the employer with whom employees have an employment relationship.

Accordingly, the ECJ ruled that, when the business of a company within a group is transferred to an undertaking outside that group, that company should be regarded as the transferor in respect of employees who were permanently assigned to it, even if those employees are technically employed by another company in the group.

In reaching its conclusion, the ECJ took into account the fact that the Directive provides that the automatic transfer principle can apply even where there is no contractual link between the transferor and the employees concerned, so long as an employment relationship exists. 

Unlike the Directive, regulation 4 of TUPE does not deal with the possibility of a non-contractual employment relationship.  On a literal reading, therefore, TUPE does not apply to ‘non-contractual employees’, but it is possible that a tribunal could read words into TUPE, if it felt obliged to do so in order to give proper effect to the Directive.

The Directive has ‘direct effect’, which means that an individual employee can by-pass the TUPE regulations and bring a claim against a public body based on the Directive itself.   Public sector employees would not need to rely on a tribunal interpreting the TUPE regulations to give effect to the ECJ’s decision; they could rely on the wording of the Directive itself (and, by extension, the ECJ’s interpretation of its scope).

What does this mean for me?

The ECJ has decided that, in the circumstances set out above, both the employing company and the company to which employees are assigned can be regarded as a transferor.  So, on the transfer of employees either within or outside of a group company structure, the Directive may apply.

It remains to be seen whether UK courts or tribunals would read the TUPE regulations to give effect to the ECJ’s decision. 
Either way, public sector employees can rely on the wording of the Directive itself and are, therefore, more likely to come within this extension to the Directive’s scope.

Time will tell how this decision will be applied by the UK courts.  In the meantime, both public and private sector employers should, where staff are being transferred from a ‘host’ organisation to another organisation, be alive to the possibility of this wider application of TUPE and the Directive.  Examples of when this could arise include outsourcing, joint working, joint ventures or partnership arrangements. 

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