Fragmentation on TUPE business transfers

Splitting the difference

A recent case heard by the Court of Justice of the European Union (CJEU) - ISS Facilities Services NV v Sonia Govaerts & Atalian NV - has looked at what happens when a transfer takes place under the Acquired Rights Directive (ARD) where there is a transfer from a single business to multiple incoming businesses, i.e. post-transfer ‘fragmentation’. 

Is it possible to split the employment contract in the same way in which the transferring undertaking has been divided?

The factual background

Ms Govaerts was employed by ISS Facilities Services. ISS held cleaning contracts with the City of Ghent which were divided into three lots, each relating to different types of buildings. Ms Govaerts was the project manager for all three lots with 85% of her work relating to Lots 1 and 3 and 15% relating to Lot 2.

Following a re-tender, Lots 1 and 3 were awarded to one contractor, Atalian, and Lot 2 was awarded to a different contractor, Cleaning Masters. ISS informed Ms Govaerts that she would transfer to Atalian pursuant to the ARD, as that was where the majority of her work had transferred.

After a dispute over whether the ARD applied, the Belgian courts ruled that there had been a transfer of an undertaking under the ARD but asked the CJEU to rule on whether Ms Govearts’ employment should be split between the new contractors or whether it should transfer only to Atalian.

The decision

The CJEU held that the ARD did apply and, where a transfer of undertaking involves more than one transferee, the rights and obligations arising from a contract of employment will transfer to each of the transferees, in proportion to the tasks performed by the worker.

In making its decision, the CJEU reminded itself of the purpose of workers’ protections on a transfer: to ensure, as far as possible, that the contract of employment or employment relationship continues unchanged with the transferee, in order to prevent the workers concerned from being disadvantaged solely as a result of the transfer (although a balance also must be struck with the needs of the employer).

With this in mind, the CJEU held that such division will only occur if it does not cause the worsening of the working conditions of the individual or have an adverse effect on their rights. They held that this will be a matter for national courts/tribunals to decide using factors such as the amount of time a worker devotes to each undertaking. The economic value of the “lots” to which the employee is assigned, will also be relevant.

In addition, the CJEU also held that if division of the contracts is impossible or if it leads to an adverse effect on the worker as described above, the incoming employer (the transferee(s)) will be responsible for any resulting dismissal, even if this was initiated by the worker themselves.

What does this mean for you?

This is the first time that the CJEU has ruled on the application of the ARD in the context of business transfers to multiple transferees and it is a surprising and potentially very difficult result.

The ruling may lead to a change of approach in the UK, where current case law does not support the splitting of an individual’s employment across multiple transferees. Instead, current UK case law suggests that if it is determined that there are multiple transfers, employees will in effect transfer to whichever business they are more closely linked with. This “close link” may be determined by reference to the amount of work an employee receives from that part of the business but it is not necessarily the deciding factor.  Alternatively, under UK law, if there is a high degree of fragmentation it may be decided there is no qualifying transfer at all.

If this new ruling is followed in the UK, there will clearly be practical implications as it will often be difficult to “split” a contract of employment across different transferees in a way that will not be detrimental to the worker in question – for example, if the split involves two different geographical locations, or the work is task orientated and cannot easily be divided between transferees. Equally, there may be commercial difficulties for employers if the transferees are competitors.

As the CJEU has confirmed that a transferee will be liable if an employee resigns because a split would be detrimental to them, there is a risk that transferees may be liable for notice payments, unfair dismissal claims and redundancy payments.  It is questionable whether any such termination could be viewed as being for an ETO reason, i.e. an economic, technical or organisational reason entailing changes in the numbers and functions of employees, although it is not impossible.

Given the uncertainty it will be ever more important for employers to ensure they have indemnity protection against any liabilities they may occur as a result, and contractual wording may need to be reviewed to accommodate the possibility of TUPE liability being split.

Contributors: Laura Jackson and Sarah Maddock

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