The true employer has no place to hyde: EAT clarifies the effect of TUPE on joint employment relationships

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Practitioners will be familiar with the number of complex questions that can arise under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).

In Hyde Housing Association Ltd & Ors v. Layton, handed down this autumn, the EAT turned to one such question. It is a novel point with potentially far-reaching consequences. For that reason, the EAT (HHJ Eady QC) has given permission to appeal so we might not yet have the final word.

I will set out some of the relevant facts below but the essential question can be posed as follows: does TUPE apply where an employee moves from employment by a sole employer to employment by several employers, but one of which is the original employer?

The scenario was housing management, an area of practice which seems to generate no end of teasing TUPE scenarios (see Ottimo Property Services Limited v. Duncan as an example). Most commonly, however, these questions arise on the question of whether there has been an effective Service Provision Change.

The question in Hyde was rather more fundamental in employment terms: what happens when an employee has multiple employers?

 

Some facts

The factual background is relatively straightforward. Mr Layton was employed as a multi-skilled decorator by Martlet Homes Limited, a registered provider of social housing. In December 2007, he was told that Martlet would join the Hyde Group and would become a subsidiary of Hyde Housing Association Limited (“HHA”) but that his employment would remain with Martlet. The Hyde Group is not a separate legal entity but comprises a number of separate entities under an umbrella.

Marlet and HHA entered a stock management agreement under the trading name Hyde Marlet. The Hyde Group became responsible for the provision of centralised HR and payroll services to Martlet. Mr Layton’s payslip changed such that HHA was shown as his employer rather than Martlet.

In 2008, the Hyde Group commenced a restructure with the aim that those who were successful would be placed on HHA contractual terms and conditions but with several separate entities constituting their employer (to provide maximum flexibility).

The Property Services team in which Mr Layton worked was not reviewed until 2012 and in summer 2013, the Hyde Group offered the Claimant a role as “Repairs Specialist – Internal”. His employer would be the Hyde Group, meaning that he would be jointly and severally employed by all members of the Hyde Group at any time.

Mr Layton objected to the change in terms, particularly the loss of a bonus but he continued work in the same team as before and wore the same Hyde Marlet uniform as others. He refused to sign the new joint contract terms which came into effect from 1 August 2013.

By letter dated 21 August 2013, the Hyde Group gave notice to the Claimant and made an offer of re-engagement on the new terms. Mr Layton accepted the offer of re-engagement but maintained that the termination of his former contract was unfair and commenced proceedings.

 

So, was there a relevant transfer?

On the assumption that there was in place an economic entity within the meaning of regulation 3(2) of TUPE, namely the kitchen and bathroom section of the planned maintenance team, could there be a relevant transfer where the transfer was to more than one entity and where Marlet remained one of those entities?

Some law

The nub of this case is really regulation 3(1)(a) of TUPE which requires that there must be a transfer “to another person”. Need this be a single entity?

There are some pointers in European authority where the Acquired Rights Directives of 1977 and 2001 have been in question.

For example, in Celtec v. Astley (C-478/03) [2005] ICR 1409 ECJ, although really concerned with the date of transfer, the Court laid emphasis on “…the date on which responsibility as an employer for carrying on the business…moves from the transferor to transferee”.

In the context of a transfer or merger between two subsidiary companies in the same group, it has been emphasized that those bodies are two distinct legal entities each with specific employment relationships with employees, thus meaning that there is usually a legal change in the person of the employer: Allen & Ors v. Amalgamated Construction Co Ltd [2000] ICR 436 ECJ.

Long-standing authority appears to stress the requirement that following a legal transfer or merger there is an actual change in the natural or legal person who carries on the business and by virtue of that fact there is a change in the person who takes on the obligations of the employer in that relationship: Landsorganisationen i Danmark v. Ny Molle Kro [1989] ICR 330 ECJ.

Domestic courts have taken a similar approach and, as such, a change in the identity of the employer is usually necessary for a transfer to take place. For that reason, TUPE does not usually apply to a share sale because the identity of the employer remains the same: Brookes & Ors v. Borough Care Services Ltd [1998] ICR 1198. It is thought, however, that where there is no legal change of ownership, there may be a TUPE transfer where as a matter of fact day to day control of the employer’s business has been transferred: Print Factory (London) 1991 Ltd v. Millam [2007] ICR 1331, CA.

Finally, the ECJ has cautioned that there may not always be a formal contractual relationship. The ARD may apply to an employment relationship which is not governed by direct contract but which may have to be implied, in which the transferor is the party which by reason of the transfer had lost the capacity of employer: Albron Catering BV v. FNV Bondgenoten [2011] ICR 373 ECJ.

 

Some thoughts

The tribunal was unpersuaded that the phrase “another person” could not allow for a transfer to multiple transferees.

The tribunal concluded that TUPE assumes a difference in identity between the transferor and transferee. Here, Martlet still remained liable to its employees as a consequence of its several liability.

Albeit obiter, the tribunal considered that Mr Layton might have been able to make out a transfer if the economic entity in which he was employed had transferred from Martlet to the other members under the umbrella of the Hyde Group which had then employed him on a joint and several basis, presumably with Martlet no longer having any of the obligations of an employer and so long, of course, as the transfer did not result in fragmentation of the entity so as to mean that it lost its identity.

The tribunal also considered its conclusions in light of the purpose of the ARD. It acknowledged that the purpose of the ARD and TUPE is to protect employees and to safeguard their rights but this is subject to the requirement that there is a change of employer and a transfer from one natural or legal person to another of the obligations of the employer.

There was no relevant transfer here because TUPE does not apply to cases where there is a change of control by means of a change in shared ownership.

So where does this leave us?

Inevitably, this decision was informed by the findings of fact at first instance. In particular, the ET had found that there had been no actual transfer in the control of the employer. Martlet provided stock management services as before with the same control. The tribunal opined that a TUPE transfer might arise if at a later stage Martlet were to leave Hyde because there might be an argument that Mr Layton’s employment had transferred to the remaining Hyde entities but that was not the situation before it.

The honest answer is that it is hard to say how far reaching the impact of this case will be because this situation has not previously come before an appellant tribunal and may, therefore, be rare. Inevitably, a case such as this will depend on its facts but I suggest that given the increasing number of joint working and shared services arrangements particularly in local government this is a scenario which might crop up more frequently in future.

In any event, the application of TUPE to group mergers and takeovers always adds a level of complexity. Perhaps following this decision, tribunals will be more keen that previously to scrutinise the legal labels which the parties use in their contracts.

Practitioners need to be astute when they draft relevant documents and provide advice to the need to consider the actual situation on the ground and ask the key question: which entity (even if shared) retains the obligations of the employer in fact?