TUPE and the transfer of public administrative functions

The first was regulation 3(5) which states, among other things, that the transfer of administrative functions between public administrative authorities is not a transfer to which TUPE applies. The second was the requirement in regulation 4(1) of TUPE that a contract of employment “would otherwise be terminated by the transfer” for it to be subject to the automatic transfer principle.  

Facts of the case

The appeal was brought by 14 individuals who originally worked for Croydon Primary Care Trust in a team purchasing and commissioning health services. In 2013, their employment transferred to the London Borough of Croydon (“LBC”). By order of the Secretary of State under the Health and Social Care Act 2012, the transfer was implemented through a Staff Transfer Scheme (the “Scheme”).

The Scheme mirrored the provisions of TUPE in many respects, although importantly contained a limitation period on unfair dismissal claims where it was contended the reason for the dismissal was the transfer or a reason connected with the transfer that was not an economic, technical or organisational reason entailing changes in the workforce.

In 2015, LBC sought to vary the terms and conditions of the employees, initially by consent and subsequently by dismissal and re-engagement. All of the claimants alleged unfair dismissal (some having been expressly dismissed and others claiming to have been constructively dismissed).

As the dismissals occurred after expiry of the limitation period set out in the Scheme, it fell to be decided whether the claimants’ employment had, in parallel to the Scheme, also transferred to LBC under TUPE. That in turn required consideration of various underlying preliminary questions, the first being whether the public health team had been engaged in an “economic activity” or whether regulation 3(5) applied – those two possibilities being mutually exclusive. 

The EAT’s decision

LBC argued that there had not been a TUPE transfer because what transferred was not an “undertaking” or “economic entity”, and that this was a case instead to which regulation 3(5) applied. Following a comprehensive review of the case law on the requirements of carrying out an economic activity, the EAT said that it is relevant to consider:

• whether the activity consists of the provision of goods and services (as opposed to the mere acquisition of goods and services); and
• whether there is a market for the relevant goods and services.

If there is such a market, the EAT continued, then the provision of goods and services on that market is an economic activity even if provided free of charge and/or without a view to making profit. What matters is whether the activity is capable of being carried on, at least in principle, by a private undertaking with a view to profit. Being a public law entity, publicly funded, acting in the public interest or acting pursuant to statutory functions does not, however, preclude that entity carrying on an economic activity.

Notwithstanding this analysis, the EAT agreed with the Employment Tribunal (“ET”) that the commissioning of health services in this case was not of itself an economic activity. Having reviewed all the relevant authorities, the EAT concluded that the central concept of regulation 3(5) was the “exercise of public authority” or public powers. Having noted the ET’s findings that the public health team’s activities did involve the exercise of public authority, the EAT added that a transferred entity which carried on activities involving the exercise of public authority would not be treated as an economic entity merely because it carried on some ancillary activities of an economic nature. 

This was not, however, quite the end of the story. The EAT noted that  the ET had not reconciled its conclusion that this was not an economic activity and that regulation 3(5) applied with another of its factual findings that “all or almost all of the work done by the Public Health Team can be, and in fact is, offered by non-state actors operating in the same market”. On its face, this was a strong contrary indication that the public health team was carrying on an economic activity. The closest the ET came to addressing this was in observing that the public health team did not bid for contracts and was not trying to obtain business. The EAT decided that this aspect of the case should be sent back to the ET for reconsideration. 

In bringing unfair dismissal claims, the claimants relied on the assertion that LBC’s proposed changes to terms and conditions would have been void under regulation 4(4) of TUPE. However, regulation 4(4) would only apply of the claimants’ contracts of employment had automatically transferred under regulation 4(1). LBC argued that, as the Scheme effectively guaranteed the transfer of the claimants’ employment to it in law, the employment contracts would not have “otherwise been terminated by the transfer” as required by regulation 4(1). Accordingly, LBC contended that there was no transfer of employment under TUPE and regulation 4(4) was inapplicable.

The EAT gave this argument short shrift, noting that the EU Acquired Rights Directive does not contain any limitation on its application equivalent to the words “which would otherwise be terminated by the transfer”. It followed that it would be inconsistent with the Directive if reliance on these words prevented the claimants from otherwise establishing a transfer of employment under Regulation 4(1) and relying on the protection afforded to their terms and conditions under Regulation 4(4). In light of the EAT’s ruling on this point, it is difficult to see how those offending words could have any continuing application or relevance in future cases.

Nicholls and others v London Borough of Croydon – judgment available here