No TUPE transfer where transferor retained liability on joint and several basis

In Hyde Housing Association Ltd and ors v Layton the EAT has held that there was no transfer of employment under the Transfer of Employment (Protection of Employment) Regulations 2006 SI 2006/246 when an employer moved from having sole liability for the claimant’s employment to a situation where it had joint and several liability along with other companies in the same group. The EAT noted that TUPE will only apply in circumstances where there is a transfer to ‘another person’, and concluded that, in light of the purpose of the Regulations, and of the EU Acquired Rights Directive (No. 2001/23) which they implement, this must be read as referring to a separate legal person from the transferor. This did not exclude the possibility of a relevant transfer to multiple transferees. However, the fact that the original employer had at all times retained liability for the claimant’s employment meant that the identity of the employer had not changed in a way that was legally relevant for TUPE purposes.

L, a multi-skilled decorator, had been employed by MH Ltd from 2005 onwards. In 2007, MH Ltd – a provider of social housing – joined the H Group and became a subsidiary of HHA Ltd. In 2008, MH Ltd took over 4,500 of HHA Ltd’s properties, while HHA Ltd took over payroll and HR functions for all of the H Group. This resulted in L’s payslip and P60 listing HHA Ltd as his employer. In 2013, the H Group underwent a restructuring. L was offered new terms of employment under which his employer would be all companies in the group on a joint and several basis, but he refused to sign. He was eventually dismissed and offered re-engagement on the new terms, which he accepted. However, he brought a claim of unfair dismissal, in which a preliminary issue arose as to whether there had been a TUPE transfer within the meaning of Reg 3(1)(a) – i.e. ‘a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity’.

The employment tribunal held that the kitchen and bathroom maintenance team in which L worked was an economic entity within the meaning of Reg 3(2), and that it had retained its identity. Responsibility for carrying out the business of that entity had moved from MH Ltd to MH Ltd and other companies in the H Group. The tribunal considered that this amounted to a TUPE transfer: if MH Ltd dropped out of the group, the fact that L was employed by each member of the group on a joint and several basis would mean that his employment would remain with the remaining members of the group. HHA Ltd appealed, arguing that transfer ‘to another person’ means to a separate legal person distinct from the transferor; that rights and liabilities could not transfer if the transferor remains responsible; and that there had to be a complete transfer from one entity to another, not to several entities.

The EAT was not persuaded that the wording of TUPE precluded a transfer to multiple transferees, provided such a transfer does not result in such fragmentation of the entity as to mean it loses its identity. However, the unusual facts of the instant case were such that one of the purported multiple transferees was the same legal entity as the original employer and transferor. Control of the relevant part of the business, and L’s employment relationship, remained in the hands of MH Ltd – the earlier changes to pay arrangements merely amounted to another company in the H Group acting as agent for MH Ltd, and there was nothing to suggest that his employment relationship was subsequently altered other than by the contractual addition of joint and several liability with the other companies in the H Group. The EAT concluded that the language of TUPE, and of the EU Acquired Rights Directive (No. 2001/23) which it implements, requires a change in the natural or legal identity of the employer. Here, there was no such change – MH Ltd had always been L’s employer – so the EAT substituted a finding that there was no TUPE transfer.