As the IPA ups its campaign to get marketing agencies exempted from laws potentially giving their staff the right to move with accounts, a recent case ups the ante by applying TUPE to services outsourced to offshore suppliers. Naomi Flynn looks at new travel prospects for employees.
Who: Holis Metal Industries Ltd v (1) GMB (2) Newell Ltd
Where: The Employment Appeals Tribunal ("EAT")
When: December 2007
Law stated as at: 31 January 2008
The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") operates to protect the rights of employees in the event of a business transfer (e.g. where the whole or part of their employer's business is sold) or a service provision change (such as an outsourcing situation or a change of contractor).
Using the example of a business transfer, the principal effect of TUPE is that all of the seller's employment liabilities automatically transfer to the purchaser on the sale, subject to certain conditions being satisfied. In these circumstances the purchaser will automatically inherit all of the seller's employees employed in the business, on their existing terms.
In addition, TUPE imposes requirements on the seller and buyer to inform and consult with affected employees about the transfer. This can have a substantial effect on the cost of the business. Many companies have tried to get around the application of TUPE and cut costs by off-shoring part of their business outside of the EU. The Holis case is significant because it is the first decision about whether TUPE applies to the transfer of a business which, following the transfer, is based outside the UK and outside of the EU.
Business sold to Israeli company
The case involved Newell Ltd, a business with a factory in Tamworth. Out of 180 of Newell's employees, 76 were represented by the GMB union. In early 2006, part of Newell's business was due to close down. However before this took place, the affected part of the business was purchased by a company based in Israel, Holis Metal Industries Limited.
Holis confirmed that all of Newell's employees who were affected by the purchase were able to transfer to Israel. The employees were told that if they did not transfer, they would be made redundant. Unsurprisingly, all staff refused to transfer and as a consequence they were all dismissed. Claims were subsequently brought by the GMB against Newell and Holis for alleged failures to consult with the affected employees as required by TUPE.
"Not applicable to ex UK transfer" argument
Holis argued that TUPE did not apply to its purchase of part of Newell's business, as TUPE did not apply to the transfer of a business which, following the transfer is based outside the UK and outside the EU. Holis also argued that, were TUPE to apply to the situation, it would leave workers seeking to make claims against a foreign employer in a jurisdiction which may not recognise UK employment rights. This would leave employees in a worse position than if their rights remained with the outgoing UK employer and that this undermined the intentions of the European Directive underpinning TUPE.
Whilst the EAT was unable to decide whether TUPE applied to this case (due to the limited facts it had to hand), it held that TUPE can apply to transfers of businesses outside the UK, especially outside the EU.
Why this matters:
This case brings certainty to the issue of whether TUPE applies to transfers of businesses and services outside the UK. A practical example could be where a company engages a UK advertising agency to provide advertising services in respect of an Australia-based product. If the business subsequently changes its service provider to an Australian advertising agency, according to the Holis case the UK agency staff who principally work on the account could TUPE transfer to the Australian agency. This would mean the Australian agency would inherit all employment liabilities for the transferring staff, and depending on the circumstances, could also share any liability for the UK agency's failure to inform and consult with employees about the transfer. However the UK based employees may find it difficult to enforce their rights in the Australian courts.
Impact on agency/client contract negotiations
In light of the Holis case, there can now be a degree of certainty for businesses when negotiating warranties and indemnities in commercial agreements regarding the apportionment of potential employment liabilities at the end of a contract or sale of a business. However a knock-on effect of the decision is that there may now be less incentive for a seller/outgoing contractor to give warranties or indemnities in respect of TUPE. This is because they can be safe in the knowledge that the liabilities will transfer to the purchaser/new service provider under TUPE, regardless of the country in which the purchaser/new service provider is based. In addition, employees are now potentially in a worse position as they may be left trying to enforce their employment rights in a country which does not recognise UK concepts of TUPE protection, unfair dismissal or trade union protection.