Mills & Reeve: HR Law Live

TUPE rulings triple up in time for Christmas

The past week has seen three important cases about the protection of employees on the transfer of undertakings come all in a rush. Taking them in reverse order of appearance:

• Yesterday's Court of Appeal decision confirms that the full insolvency exemptions from TUPE are not available in the case of administration proceedings. These exemptions remove the protection of TUPE from the employees of an insolvent business. Before this case reached the Court of Appeal it was thought arguable that the application of the exemptions could depend on the exact circumstances of the administration. This decision has removed that uncertainty, although it will not be universally welcomed by administrators.
• Last week we had another Court of Appeal judgment, dealing with a different aspect of TUPE in the context of administration proceedings. This time the question was whether a dismissal by an administrator could be for a reason connected with the transfer even if the buyer of the business had not been identified at that point. The Court of Appeal said there was no reason in principle why that should not be the case – it would depend on  the facts. This is an important issue because such a dismissal will normally be unfair, unless the administrator can establish the ETO defence (ie by showing that the dismissal was for an economic, technical or organisational reason entailing changes in the workforce).
• Slightly earlier last week we had an important EAT decision about service provision changes. This case held that TUPE did not apply in a second-generation outsourcing situation at the point where the original client went into receivership, since this resulted in the client as well as the contractor changing. Surprisingly this issue has not come up in the EAT before. But it may be questioned whether this decision establishes a broader principle that the service change provisions of TUPE will never apply if there is a change in the identity of the client as well as the contractor.

All these decisions establish important principles about TUPE, though probably only the first can be said to increase legal certainty in this difficult area of law.

Supreme Court sets limit on dismissal-related claims

Last week’s Supreme Court decision has set a limit to dismissal-related claims for damages based on breach of contractual disciplinary procedures. For some years it has been clear that, as a general principle, contractual claims for the manner of dismissal can not be used to circumvent the unfair dismissal regime, which sets a limit to the amount of compensation that can be awarded. But it had been unclear whether this principle extended to cases where the dismissal was in breach of an express provision of a contractual disciplinary procedure.

The Supreme Court has now decided (but only by a narrow majority) that even if the decision to dismiss is reached in breach of a contractual disciplinary procedure, it is not possible to claim compensation for this separately from a claim for unfair dismissal.  This ruling overturns the Court of Appeal’s decision in the same case last year, and appears to reinstate the firm rule that however the dismissal is effected, a claim for damages in the ordinary courts will be limited to what the employee would have earned during the contractual notice period.

This decision will be a relief to employers, but there are a number of caveats. The Supreme Court points out that this ruling does not apply to claims arising out of a breach of contract that did not lead to dismissal, for example a period of unlawful suspension. Nor does the decision prevent employees seeking an injunction to force an employer to comply with its own disciplinary procedure. Finally, in order for this principle to apply, the employee needs to have been dismissed: in some cases it is possible to argue that a breach of a disciplinary procedure is so fundamental that the purported dismissal is a nullity.

Atypical workers can be made to take holidays during down time

The Supreme Court has given the green light to employers who wish to allocate statutory holidays to weeks where their staff would not otherwise be working.  This week’s decision is about workers in the off-shore oil industry working a “two weeks on, two weeks off” shift pattern.  They argued that their employer was not complying with the Working Time Regulations by requiring them to take their statutory holidays at times when they would not be working anyway.  The Supreme Court has confirmed that there is nothing in the Regulations that prevents holidays being allocated in this way.

Although the claimants in this case were working in a highly specialised sector, the decision has much wider implications.  Had they succeeded, the way would have been open for large numbers of workers with non-standard working patterns like teachers to challenge their contractual terms.  Although attempts have been made in the past to challenge the universal practice of requiring teachers and other workers in the education sector to take their annual leave during school holidays, they have foundered at a lower level.  We now have authority from the highest court in the land that this practice is lawful.

No indefinite carry over of statutory annual leave

The Court of Justice of the European Union (in KHS AG v Schulte) has confirmed that EU law does not require the indefinite carry over of annual leave when a worker is off sick for several consecutive leave periods. The UK government will need to take this decision into consideration in finalising its proposals to amend the Working Time Regulations to allow a period of carry over. 

Although the European Court’s decision does not change the general rule – that a sick worker should have an opportunity to take their annual leave – this is now subject to qualification. There should not be indefinite accumulation of leave, without limit, over several consecutive leave periods. The Court stated that the purpose of annual leave is two-fold: firstly to provide the worker with rest from work; and secondly to enjoy a period of relaxation and leisure. However, after a certain period, it ceases to have the first benefit, and is only a period of relaxation and leisure. At that point it can be allowed to expire.

For how long should carry over be permitted? The Court stated that the carry-over period must ensure a worker can have rest periods which can be staggered, planned in advance and available in the longer term. The Court said the period must also be "substantially longer" than the reference period in respect of which it is granted. So, if holiday reference period is a calendar year then the period before expiry of accrued entitlement would need to be in excess of this. The Advocate General in her opinion gave 18 months as a guideline. The Court found that a carry over period of 15 months from the end of the relevant leave period was acceptable in this case.