TUPE transfer after 5 months’ suspension of business activity

The Transfer of Undertakings (Protection of Employment) Regulations – otherwise known as TUPE – and the TUPE transfer - have been known to strike fear into the heart of many a UK Employment lawyer, not to mention those business owners, directors and HR professionals who have to manage the practical consequences of the transfer of a business activity. Perhaps it’s because of the complexities of TUPE that employment law solicitors London are aware of a regular flow of case law on all aspects of the TUPE Regulations. In a recent case, the Court of Justice of the European Union has looked at the application of TUPE in a situation where the business activities had been suspended for a period of time – and has held that this does not necessarily preclude there being a TUPE transfer when the business activity is then resumed by a new contractor.

TUPE – a recap

UK employment lawyers will be familiar with TUPE - a set of regulations deriving from European law which are designed to protect employees when the ownership of a business changes, but, to all intents and purposes, the business activity or activities continues unchanged. The regulations require that employees employed in the business that transfers should continue to be employed by the new employer on the same terms and conditions of Employment. As Employment claim solicitors know, Dismissals ‘in connection with the transfer’ and changes to terms and conditions are not permitted. There are provisions for consultation in the run up to a TUPE transfer, and special rules which operate if an employee objects to the transfer.

It can be a defence to a breach of the TUPE regulations to argue that the dismissal is for an economic technical or organisational reason – and not because of transfer itself.

The TUPE regulations have been held to apply in a wide variety of situations, including, in the case of Colino Siguenza v Ayuntamiento de Valladolid in the education sector.

The facts in Colino Siguenza v Ayuntamiento de Valladolid

In this case, the Municipal Music School of Valladolid was managed initially directly by the municipality, and then, from 1997 until 31 August 2013, by a contractor Músicos y Escuela. A dispute over payments led to Músicos y Escuela requesting the termination of the service contract, and then ceasing to carry out the activities it was contracted to undertake on 31 March 2013. In the meantime, Músicos y Escuela had also commenced consultation with its staff, including the Claimant in the case, Mr Colino Siguenza, a music teacher who had been employed at the school since 1996. All staff were dismissed with effect from 8th April 2013.

Following this suspension of business activity, in September 2013, a new contractor, In-Pulso Musical was awarded the contract to run the music school, taking over premises, instruments and equipment. After winning the contract for 2013-2014, In-Pulso Musical was subsequently awarded the contract to run the music school for 2014-2015 and 2015-2016. It did not take on any of the staff employed by Músicos y Escuela and Mr Colino Siguenza challenged his dismissal in proceedings against both Músicos y Escuela and In-Pulso Musical.

The Questions for the Court of Justice of the European Union

The Spanish court, the Tribunal Superior de Justicia de Castilla y León, referred 3 questions to the CJEU, asking firstly whether there could be a transfer in these circumstances where there was a 5 month gap between the cessation of business activity by one contractor and the commencement of the same business activity in the same premises and using the same instruments and equipment by a new contractor. The second question related to the circumstances in which the contract between Músicos y Escuela had come to an end, and whether this could be considered to be an economic technical or organisational reason for the dismissal or Mr Colino Siguenza (and therefore not automatically unfair), or a reason connected with the transfer (and therefore automatically unfair). Finally, the CJEU was asked to consider whether national legislation could prevent the national court hearing an individual case when there had already been a ruling on the collective dismissal.

A 5 month gap in business activity does not preclude a transfer

Perhaps of most interest to UK employment lawyers is the response of the CJEU to the first question – whether the 5 month suspension in business activity precluded a TUPE transfer. The CJEU considered first that the nature of the service – the provision of music teaching – required a significant amount of equipment. The service could not be regarded as relying solely on ‘man power’. It was also irrelevant that the ownership of the assets concerned – the premises, instruments and equipment – did not transfer but remained with the municipality at all times. The Court felt that there was a very strong indication that there had been a transfer of an undertaking from Músicos y Escuela to In-Pulso Musical. Although there had been a temporary suspension of activity, 3 months of this was during the school holiday period. This suspension did not mean that the ‘economic entity’ had lost its identity. A transfer was indeed possible, despite the 5 month gap.

The case will be particularly interesting to those involved in the delivery of services where there is a changeover in service provider which coincides with a natural suspension in the deliver of those services – such as a school or university holiday period – but it may also have implications for other cases where there is a gap between the end of one contract and the start of a new contract with a new contractor to deliver substantially the same business activity.

TUPE is a complex area of law, and OTS Solicitors can help business owners and employees alike unravel the details and advise and support how the TUPE regulations may apply to the business transfer you are involved in. To talk to one of our London employment lawyers, please call 0203 959 9123 today.