Troubled transfers

When a business changes hands, its staff and owners are often thrown into a period of turmoil and worry. What happens to jobs and wages and what role should the new and old employers take in dealing with redundancies?

These questions should be answered by the Transfer of Undertakings (Protection of Employment) Regulations, which became UK law in 1981. TUPE, as it is known, was brought on board by the Government to implement the Brussels law, the Acquired Rights Directive of 1977.

A clear answer to these questions is in the interests of both employees and employers. Staff and bosses need to know which employer is responsible for paying the wages - or, if anything goes wrong, redundancy payments.

In broad terms, the European law and TUPE both say that, when a business is transferred, the responsibility for the employment contract should pass from the old owner of the business to the new. This should include all contractual responsibilities, including the payment of wages and other benefits.

Employees are supposed to be protected from dismissal because of the transfer, and if a trade union has been recognised by the old owner it should be recognised by the subsequent employer.

The purpose of both the European law and TUPE was said to be to protect employees from unscrupulous new employers who could try to slash terms and conditions - a subject of relevance when hotels, pubs and restaurants are up for sale and, in particular, when catering contracts in the public and private sectors are open to competitive tendering.

TUPE has never applied when businesses have changed hands by share sales, because in law the identity of the employer - in effect, the company - has not changed. But in all other cases where a business is sold, or where one contractor takes over from another, the crucial issue is whether the transfer comes within the scope of TUPE and whether employees should therefore benefit from the legislation's protection.

Working out whether TUPE applies has never been easy. For 16 years, UK courts and tribunals have been full of cases in which employees, who have lost their jobs because of a transfer, have tried to establish which employer was responsible for their redundancy payments.

A high-water mark occurred two years ago when the European Court of Justice decided that these principles applied when a German bank brought in a private cleaning firm to take over the job of an individual part-time cleaner it had employed.

This development was not popular with employers throughout the 15 European Union states, as they realised that the court meant business on employees' rights. But it did have the advantage of giving everyone some certainty. As one UK Government minister ruefully said at the time, the law was becoming a case of "if it moves, TUPE it". Contractors and employers were therefore able to negotiate with a fairly clear idea of how the law worked. Staff were also less likely to deal with old and new employers in conflict with each other.

But this status quo has just been destroyed by a new European Court of Justice ruling - leading to the reintroduction of much of the old uncertainty.

In March, the court decided that in the case of Ayse Süzen, another cleaner from Germany, she was not protected by transfer laws. Süzen was a cleaner at a school near Bonn but the school ended a cleaning contract with her employer, which then dismissed her. A new contract was subsequently made with another company. Süzen then brought proceedings challenging her dismissal.

But the court decided that, in the absence of a transfer of tangible assets such as buildings and property, or the taking over of a major part of the work-force, she could claim nothing from the new contractor and any redundancy should come from her old employer.

In its ruling, the court said that the decisive factor in determining the existence of a transfer is whether the business retains its identity after the sale. This in turn depends on a variety of factors including the nature of the business - whether assets are transferred, whether employees are taken over by the purchaser, whether customers are transferred, and the degree of similarity between the economic entities before and after the sale.

Those who may wonder which of these factors are most important will get little help from the court, which says that it will vary from case to case and according to the type of business.

In reaching this decision, the court has signalled a fresh period of uncertainty and has set a trap for outgoing contractors. They may now find themselves responsible for large redundancy bills although they had assumed that the new employer would be liable.

Employees are likely to find themselves once more waiting for the end of legal battles to determine which of two competing companies is responsible for their redundancy monies and notice pay.

Stephen Levinson is head of employment law at London solicitor Paisner & Co