UNFAIR DISMISSAL AND THE TRANSFER OF UNDERTAKINGS (PROTECTION OF EMPLOYMENT) REGULATIONS 2006
NOTES PREPARED BY
THOMAS LINDEN QC, MATRIX CHAMBERS
FOR MATRIX TUPE CONFERENCE ON 15TH MARCH 2012
INTRODUCTION
1. This paper looks at the operation of the law of unfair dismissal in the context of a relevant transfer. The discussion will be based on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), but the position under the old 1981 Regulations will be addressed where relevant and, in particular, where it differed from the current position.
The Underlying Principle
2. An understanding of the principle which underpins the Acquired Rights Directive ("ARD"), which TUPE purports to implement, is helpful in seeking to chart a way through the thicket of case law which has arisen in relation to the application of TUPE. This principle is that the rights of employees under national law are to be safeguarded in the event of a transfer of an undertaking or part of an undertaking in which they are employed:
2.1. Emphasis is placed on the fact that existing rights under national law are safeguarded in order to highlight the point that the ARD does not prevent change in the workplace. Under UK employment protection legislation the employee has a certain degree of protection against change, but the law does not prevent the employer from introducing change altogether. The position is the same under the ARD/TUPE.
2.2. The fact that rights are safeguarded in the event of a relevant transfer is emphasised because the ARD requires no more than this. The position of the employee in law, as opposed to fact, must be the same as it would have been had no transfer taken place, but by the same token the employee should not gain greater rights than s/he would otherwise have had[1].
3. These points are encapsulated in the following passages from the speech of Lord Slynn in Wilson and others v St. Helens Borough Council[2]:
"In my opinion, the overriding emphasis in the European Court’s judgments is that the existing rights of employees are to be safeguarded if there is a transfer. That means no more and no less than that the employee can look to the transferee to perform those obligations which the employee could have enforced against the transferor. The employer, be he transferor or transferee, cannot use the transfer as a justification for dismissal, but if he does dismiss it is a question for national law as to what those rights are."
4. At paragraph 71 of his speech, Lord Slynn said this:
"The object and purpose of the Directive is to ensure in all Member States that on a transfer an employee has against the transferee the rights and remedies which he would have had against the original employer. To that extent it reduces the differences which may exist in the event of a change of employers as to the enforcement by employees of existing rights. They must all provide for enforcement against the transferee of rights existing against the transferor at the time of transfer. It seems to me that the Court has clearly recognised that the precise rights to be transferred depend on national law. But neither the Regulations nor the Directive nor the jurisprudence of the court create a Community law right to continue employment which does not exist under national law".
5. Lord Slynn’s remarks were based on, amongst other things, paragraph 17 of the ECJ's judgment in the Daddy's Dance Hall [3] case which, itself, was based on the judgment of the Court in the Mikkelsen[4] case and was endorsed in the Rask[5] and the Ny Molle Kro[6] cases:
"The Directive is intended to achieve only partial harmonisation, essentially by extending the protection guaranteed to workers independently by the laws of the individual Member States to cover the case where an undertaking is transferred. It is not intended to establish a uniform level of protection throughout the Community on the basis of common criteria. Thus, the Directive can be relied on only to ensure that the employee is protected in his relations with the transferee to the same extent as he was in his relations with the transferor under the legal rules of the Member State concerned". (emphasis added)
6. As will be seen below, although this principle has determined the outcome of various arguments which have been put before UK courts, in some cases it appears that it has not been applied. Arguably, nor has Parliament in enacting certain aspects of the 2006 Regulations.
Implementing the underlying principle: the 3 Key Rules
The First Rule: contracts of employment automatically preserved
7. The underlying principle is enacted in the form of three rules. Article 3.1 of the ARD and reg. 4 provide that contracts of employment existing at the time of the transfer are not terminated by the transfer. Rather, they are enforceable as if originally made between the employee and the transferee.
The Second Rule: no dismissal on grounds of the transfer
8. The second rule is enacted by Article 4.1 ARD and reg. 7. This is that the contracts of employment of protected employees shall not be terminated by reason of a relevant transfer. In other words, the first and second rules are two sides of the same coin. Existing contracts of employment are automatically preserved in the event of a relevant transfer, and this rule cannot be defeated by the expedient of terminating them if the reason for doing so is the transfer itself.
The Third Rule: no waiver of TUPE rights
9. The third rule has developed through the case law and seeks to underpin the first and second rules. This is that employees may not waive their rights under the ARD/TUPE although, of course, they are entitled to object to transfer. This rule is discussed in Daddy's Dance Hall and was considered by the Court of Appeal (“CA”) in Power v Regent Security Services [7]. Its object is to prevent employers from prevailing on employees to forego their right to automatic preservation of their contracts of employment in the event of a relevant transfer although the statutory statement of this rule under regs 4(4) and (5) of TUPE is wider in scope than this. This topic is covered by James Laddie QC.
UNFAIR DISMISSAL
The Relevant Legislative Provisions
10. The first sentence of Article 4.1 ARD provides as follows:
"The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee."
11. As will be seen below, however, the protection under reg 7 may be wider. Reg. 7(1) provides, so far as material, as follows:-
"Where, either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the 1996 Act ... as unfairly dismissed if the sole or principal reason for dismissal is –
(a) the transfer itself; or
(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce." (emphasis added)
12. The words “or a reason connected with it” mean that reg 7(1) may be engaged not only where the ground for dismissal is the transfer itself, but also when it is merely connected to the transfer. To this extent the domestic law protection against transfer related dismissals may be wider than strictly required by Article 4.1[8].
13. Importantly, however, the second sentence of Article 4.1 also provides that the rule against dismissal on the grounds of a relevant transfer:
"shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce."
14. Similarly, regs. 7(2) and (3) provide, so far as material, that:
"(2) This paragraph applies where the sole or principal reason for the dismissal is a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer.
(3) Where paragraph (2) applies -
(a) paragraph (1) above shall not apply;
(b) without prejudice to the application of s.98(4) of the 1996 Act (test of fair dismissal), the dismissal shall for the purposes of s.98(1) and 135 of that Act (reason for dismissal), be regarded as having been for redundancy where section 98(2)(c) of that Act applies, or otherwise for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held."
15. The purpose of the ARD, which is intended to be reflected in reg. 7, is therefore arguably to prevent dismissal on the grounds of a relevant transfer but to permit dismissals on other grounds. The question which an Employment Tribunal (“ET”) arguably ought to be required to determine is whether the reason for dismissal was the transfer itself, in which case reg. 7(1) applies, or whether it was some other substantial reason, in which case reg. 7(2) applies. What ought to follow from this is that the concept of "an economic, technical or organisational reason entailing changes in the workforce" ("an ETO reason") ought not to be given an overly technical meaning. Under Article 4.1, at least, the statement that the reason for dismissal was an ETO reason is merely a way of saying that the reason was not the transfer itself. However, as will be seen below, because of the difference between the scope of Article 4.1 and the terms of old reg 8/new reg 7(1), this has not always been recognised by the courts.
The Relationship between Regulation 7 and Part X, Employment Rights Act 1996
16. TUPE does not provide the machinery for the enforcement of the underlying principle. The employee who wishes to complain that his or her contract of employment has not been preserved must do so in either the ET or the courts, through either the common law or existing employment protection legislation or both. Similarly, the employee who wishes to complain of dismissal on the grounds of a relevant transfer must bring his or her claim under Part X, Employment Rights Act 1996 i.e. existing unfair dismissal legislation.
17. Thus, reg. 7(1) merely creates an additional category of potentially automatic unfair dismissal under Part X of the 1996 Act.
17.1. If the reason for dismissal is misconduct or incompetence or redundancy etc, ie unconnected with the transfer, it may fall within s.98(2)(a)-(d) and reg 7 will normally have no application.
17.2. If the reason for dismissal is connected with the transfer, it is automatically unfair unless it is for an ETO reason and therefore falls within reg 7(2). If it is for an ETO reason, it is not automatically unfair and the employer’s reason for dismissal is treated as redundancy for the purposes of s98(2)(c) or "some other substantial reason" for the purposes of s.98(1)(b). It is then for the ET to determine whether the dismissal was fair for the purposes of s.98(4) of the 1996 Act.[9]
17.3. If the reason for the dismissal is the transfer itself, the dismissal is automatically unfair.
18. All of this is, of course, consistent with the principle that the ARD/TUPE merely preserve existing rights under national law.
Who has the right not to be unfairly dismissed in the context of a relevant transfer?
19. It is important to note that reg. 7 potentially applies to any dismissal in the context of a relevant transfer. It does not matter whether the dismissal is by the transferor or the transferee, whether it takes place before or after the transfer and whether the employee was or was not employed in the undertaking or part transferred or to be transferred. If the ground for dismissal was the transfer itself etc, the dismissal is automatically unfair. This is made explicit in reg 7(4).
20. Consistently with the underlying principle, anyone who has the right not to be unfairly dismissed under national law is also protected from unfair dismissal in the context of a relevant transfer. Subject to one point, individuals who do not have this right under national law do not acquire it by virtue of a relevant transfer.
21. Thus, only “employees” have the right not to be unfairly dismissed by reason of a relevant transfer. In the Mikkelsen[10] case the ECJ held that:
"The term "employee" within the meaning of [the ARD] must be interpreted as covering any person who, in the Member State concerned, is protected as an employee under national employment law. It is for the national court to establish whether that is the case in this instance."
22. However, new reg. 2(1) of TUPE provides that:
"”Employee" means any individual who works for another person whether under a contract of service or apprenticeship or otherwise but does not include anyone who provides services under a contract for services and references to a person's employer shall be construed accordingly."
23. Obviously, this contemplates a wider category of individual than the definition of “employee” under s.230, Employment Rights Act 1996. Indeed, the definition under reg. 2(1) is closer to the definition of "worker" under s.230(3)(b). An interesting question therefore arises as to whether reg. 2(1) overrides s.230 and confers a right not to be unfairly dismissed by reason of a relevant transfer on "workers", or whether an ET ought to decline jurisdiction in a case in which a worker brings a complaint of unfair dismissal contrary to reg 7(1) on the grounds that there is no such jurisdiction under Part X. Probably, the answer is that reg 2(1) identifies the category of employees who are entitled to transfer but the question of their rights on transfer then falls to be determined under national law ie they need to qualify under the 1996 Act as well if they are to bring an unfair dismissal claim.