In a surprise decision, with potentially wide-ranging ramifications, an Employment Tribunal (“ET”) has found that “workers”, as well as traditional “employees”, transfer under TUPE.

Background

More specifically, the ET’s decision concerns so-called “limb (b) workers”. This refers to the definition of worker in section 230(3)(b) of the Employment Rights Act 1996 (“ERA”) and other similar employment legislation. Limb (a) of the definition covers those working under a contract of employment (i.e. who are also “employees”). Limb (b) then provides that someone who undertakes to perform services personally for a third party, which is not a client or customer of a profession or business undertaking operated by them, also counts as a “worker”.

In the decision, the ET considered the question of who was protected under the Acquired Rights Directive (“ARD”), the EU law which is implemented in the UK by TUPE - the Transfer of Undertakings (Protection of Employment) Regulations 2006. The case concerned cycle couriers who claimed they automatically transferred from City Sprint to Revisecatch when the former lost and the latter won a contract with a client.

TUPE itself has a different definition of an “employee”: “any individual who works for another person whether under a contract of service…or otherwise but does not include anyone who provides services under a contract for services”.

Employment Tribunal’s decision

The ET noted that the ARD was intended to protect anyone in an “employment relationship” – it refers to a transfer of rights and obligations “arising from a contract of employment or from an employment relationship existing on the date of a transfer”. This implied that the protected class was not limited to those with a contract of employment, but how exactly should that be defined?

Referring extensively to case law from the European Court of Justice, the ET concluded that it was open to EU member states to have different types and levels of employment rights and protections, but the purpose of the ARD was to preserve these, whatever they may be.

The ET looked at some other areas of UK statutory employment law. It noted that limb (b) workers were also “employees” within the meaning of the Equality Act 2010, and that the Trade Union and Labour Relations (Consolidation) Act 1992 used the phrase “employer” when describing the person who provided work to a limb (b) worker. The ET also referred to a Supreme Court judgment (Bates van Winkelhof) which drew a distinction between:

  • self-employed persons who carry on a profession or business on their own account and enter into contracts with clients and customers, who are not protected as whistleblowers; and
  • those who provide their services as part of a profession or business undertaking carried on by someone else, who do have whistleblowing protection.

Relying on this, the ET concluded that the ARD should be construed as encompassing not just those with a “traditional” contract of employment, but also those in the “intermediate class” who are recognised as limb (b) workers, and whose rights substantially derive from EU law. “This class of working person” - the wider UK law concept of a “worker” under the ERA and Working Time Regulations 1998 - was covered by the ARD. 

How, then, to meet the challenge of interpreting the TUPE definition of an “employee” (above) consistently with the ARD? The ET noted the “broad and far reaching” obligation to interpret legislation in a manner consistent with EU law obligations, the only restriction being that the meaning must go with the grain of the legislation and be compatible with its underlying thrust.

The ET concluded that the words “or otherwise” in the TUPE definition were to be construed as embracing limb (b) workers (and Equality Act “employees”). The exclusion for those providing services under “contracts for services” was intended to catch only those independent contractors who were genuinely in business on their own account, who did not have any employment or labour law rights to be preserved in the event of a transfer.

Implications

The decision is only ET level, so has no binding precedent weight, and it may be appealed. It nonetheless raises some immediate practical considerations, while leaving some unanswered questions. 

Parties engaged in TUPE transfers, whether as transferor or transferee, often give “workers” considerably less thought than employees when undertaking due diligence and negotiating employment provisions in sale and purchase and services agreements - the assumption being that they will not transfer. That may now need to change.

The same is true of TUPE information and consultation obligations. If this decision is right, transferors now need to ensure that limb (b) workers are covered, for example by being included in elections for employee representatives. Otherwise, they may face claims for protective awards of up to 13 weeks’ pay (which is one of the claims being pursued in this case). Importantly, limb (b) workers are not necessarily just low-paid individuals: many highly paid consultants and contractors also potentially meet the definition. In their case, however, there may be more of a question as to whether they are in business in their own account, and the question of whether personal service is required (left unexplored by the ET in this case) may also be relevant.

What of the restrictions on making changes to terms and conditions and the sanction of automatic unfair dismissal, which form the core of the protection for employees under TUPE? That is not in issue in this case, which is about unpaid holiday and an alleged failure to inform and consult, but there must now be a question as to how (if at all) other TUPE rights should be applied in the “worker” context. Most worker contracts tend to be flexible and terminable on short notice, and often - to the extent that the transferee wishes to retain workers - the transferor will terminate their existing contract and the transferee will offer re-engagement on its standard terms. To do this in the context of a TUPE transfer could be automatic unfair dismissal for a “traditional” employee, but workers are outside the ambit of the unfair dismissal regime.

On the face of TUPE there is no problem, because the limitation on making changes to terms and conditions is expressly limited to those with “contracts of employment”, not those with a  wider “employment relationship”, and the protection against dismissal is also limited to “employees” as defined by the ERA. This raises a tantalising question, however, as to whether that is consistent with the ARD which makes no such distinction:

  • Article 3 of the ARD states that states that the transferor’s rights and obligations arising from a contract of employment “or from an employment relationship existing on the date of transfer” transfer to the transferee.
  • Article 4 of the ARD provides that if the contract of employment “or the employment relationship” is terminated because the transfer involves a substantial change in working conditions to the employee’s detriment, the employer shall be treated as responsible.

This is a story that could run and run...

Dewhurst and others v (1) Revisecatch Ltd t/a Ecourier; (2) City Sprint (UK) Ltd – ET decision available here

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