The Case Files – TUPE or not TUPE?

For the fourth episode of our podcast series, 'The Case Files', Niall McLean and Brian Campbell from our Advocacy by Brodies set take a look back at a ground breaking case which demonstrated how UK courts would give effect to European law, following our joining of what was then the EEC.

In the case of Litster and others v Forth Dry Dock & Engineering Co Ltd (in receivership) and another [1990] 1AC 546 the House of Lords was given one of its earliest opportunities to put into practice a requirement placed on it by the entry of the UK to the EEC (as it then was) in 1973 – namely to apply national laws to best give effect to European Directives. In the process it also clarified a problematic issue relating to the protection of employee rights during a business transfer.

The case itself started in 1984 as a set of claims made by 12 dismissed employees in a Scottish employment tribunal (back then 'industrial' tribunal). Through a series of appeals it made its way to the Court of Session in Edinburgh and then the House of Lords – before its rebranding as the Supreme Court.

The employees had worked for the Forth Dry Dock company, which went into receivership. As is common the receiver sought a buyer for the business. It took a few months, but one was found - Forth Estuary Engineering Ltd - and an agreement was entered into for the sale of the assets.

One hour before the sale was completed the employees were handed letters by the receivers saying that their employer was being wound up due to lack of funds and they were being dismissed with immediate effect. There was no money to pay them for their wages, their accrued holidays or their notice entitlement. All of this had been agreed with the new owners as a condition of the sale.

As the new owner of the business would not employ any of them, their claims centred around whether they were entitled to the protection of the original Transfer of Undertakings (Protection of Employment) Regulations 1981 ('TUPE'). They of course argued that they were, and the receivers and directors of Forth Dry Dock, and also the new owners, all argued that they had not been.

The TUPE Regulations were created to give direct effect to an EEC Directive from 1977, commonly referred to as the 'Acquired Rights Directive' (or ARD). Its aim was to safeguard employees' rights on the transfer of a business. Those Regulations and the rules they contain are so familiar now, but before that time there was nothing to protect employees from losing their jobs when the business where they worked changed hands.

A key provision of TUPE was Regulation 5 which said that a relevant transfer of a business should not bring the contracts of its employees to an end, but rather that they should transfer to the new owner with their terms and conditions largely intact. That it would apply to anyone employed 'immediately before the transfer'.

Part of the Lords' decision dealt with the question of timing – how close to the precise moment of a TUPE transfer must an employee remain engaged to be able to say that they were employed 'immediately before' it? This is the first occasion that they turned to the ARD for assistance in interpreting the Regulations. Lord Oliver noted that the smallest unit of time used in the Directive was a day. He took from this that 'immediately' should apply if an employee was still in their job on the day of the transfer.

The Lords went on to make a more far reaching ruling. They decided that some additional wording should be read into Regulation 5 to give proper effect to the ARD. In doing that their Lordships recognised that there was an obligation on EEC member states, including their courts, to apply their national laws in a way that best achieved the purpose of the Directive. They therefore concluded that when deciding who was employed immediately before a transfer, that should also include people who would have been employees at that time if they had not been unfairly dismissed for a reason connected to the transfer. That language was expressly added to the updated Regulations issued in 2006.

The effect of the judgment was to protect employees against being dismissed an hour, or a day, or even sometimes longer before a transfer. When the original employer is insolvent that is especially important as it can make the difference between keeping one's job, or recovering payments due on termination of employment, and not getting a penny.

Click below to listen to 'The Case Files - TUPE or not TUPE' or find us on Apple Podcasts, Spotify or wherever you usually listen to your podcasts by searching for "Podcasts by Brodies."