A recent ECJ decision in ISS Facility Services v Govaerts has added another layer of complexity to TUPE transfer situations involving multiple transferees. We discuss the facts of this case and its impact for transferors and transferees alike.
The Acquired Rights Directive (ARD) safeguards the rights of employees where there is a transfer of a business, or part of a business, to another employer. In Great Britain, we have implemented the ARD through the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) (with similar, albeit not identical, Regulations implemented within Northern Ireland).
The effect of the ARD, and TUPE, is that the employment of any employees within the transferring business, along with the outgoing employer’s (transferor’s) rights and obligations arising from the contracts of employment with those employees, transfer across to the new employer (transferee).
Neither the ARD or TUPE confirm what should happen to an employment contract where there is a transfer to several transferees.
Facts of the case
ISS Facility Services NV (ISS) were responsible for the cleaning and maintenance of certain buildings in Ghent, Belgium. These were divided into three lots. Ms Govaerts was employed by ISS latterly as the project manager for all three lots. Following a tender process, ISS lost the contact to supply cleaning and maintenance services across all three lots. Lots one and three were awarded to Atalian NV and lot two was awarded to Cleaning Masters NV.
On the basis that the greater proportion of Ms Govaerts’ work was spent on lots one and three compared to lot two, ISS informed her that she would transfer to Atalian. Atalian disputed this and claimed they did not have a binding contract with her. As a result, Ms Govaerts brought claims against both ISS and Atalian for payment in lieu of notice, holiday pay and bonus pay. Initially, the Ghent Labour Court agreed with Atalian and found ISS liable for the payments. ISS appealed, stating that 85% of Ms Govaerts’ contract had transferred to Atalian and 15% to Cleaning Masters.
The Higher Labour Court agreed with ISS that there had been a transfer of Ms Govaerts’ employment. However, they referred to the European Court of Justice (ECJ) what this meant when there were multiple transferees. The ECJ considered the fact that the ARD is intended to safeguard the rights of employees on a change of employer by enabling them to continue to work for the new employer on the same terms and conditions of employment. However, it also recognised that in a situation where there were multiple transferees, if the employment contract was to transfer solely to the transferee for whom the employee is to perform the majority of their tasks, this would not protect that transferee who would inherit the full time employment contract even through the tasks transferred to them were only part-time.
The ECJ therefore considered that it was possible for an employment contract to transfer to each of the transferees proportionally to the work performed by the transferring employee. This would both safeguard the employee’s employment and would mean any one transferee would not have imposed on them greater obligations than that they inherited via the transfer of the business. It would be for the national courts to decide how any distribution of the contract of employment would take place, perhaps considering the economic value or time dedicated to each part of the contract.
However, the ECJ did recognise that it would not always be practicable to divide up an employment contract in this way, for example if it is simply not possible to do so or results in poorer working conditions or rights for the employee. In such situations it may be necessary to terminate the employment contract, although such termination would be automatically unfair unless there is an economic, technical or organisational reason for it that entails changes to the workforce. Liability for such termination would rest with the transferees (even where the employee initiates the termination).
Practical implications for transferors and transferees
Currently, UK case law on this issue does not support the division of employment contracts between multiple transferees but rather that the employment contracts should transfer to the transferee which takes on the greater part of the services carried out pre-transfer, which was the approach initially taken by ISS in the above case.
The ECJ decision is therefore potentially significant for UK employers. Transferees may see employment tribunals now taking a different approach and considering whether it is possible to divide an employment contract between different transferees. Equally, those transferees who are taking on the majority, but not all the services, may look to this case to reduce the employment-related obligations which they inherit.
However, it is important to remember that TUPE may not apply in the first place if the services being transferred no longer retain their identity following the transfer. This might occur, for example, because the services are being performed in such a different way that they are no longer fundamentally the same as the services carried out before the transfer. Similarly, the services may lose their identity where they are broken down into various component parts and transferred to several different contractors such that they are said to have become too fragmented to be fundamentally the same as the pre transfer services.
Anyone involved in a TUPE transfer where there are multiple transferees should therefore carefully consider the implications of this case and in particular:
- Consider whether TUPE will apply or whether the services will, in fact, lose their identity following the transfer;
- It the services will remain fundamentally the same, carry out careful due diligence to identity where employment contracts may be split between multiple transferees;
- Where such a split is identified, consider whether splitting the employment contract would, in fact, be practicable and discuss with the transferees on the approach to be taken;
- Consult with affected employees as to whether they are happy for their employment to be split across multiple employers or whether this would result in them being worse of in terms of their working conditions or rights;
- Consider whether additional warranties and indemnities are needed to protect the parties.