Some business owners choose to either ignore the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) or assume that the provisions will not apply in their set of circumstances. Recent TUPE cases highlight that complacency can result in expensive litigation and a payout to aggrieved employees.
Tamang & Anor v (1) ACT Security Ltd (2) Euro Storage UK Ltd UKEAT/0046/12/BA (31 August 2012) appears to be such a case. In this case, the Employment Appeal Tribunal (EAT) took the view that the existence of a compromise agreement with Reliance, the outgoing employer, did not bar the former employees from making the claim against the new owner. The claimants were complaining of failure to carry out the consultation and information provisions under sections 13-16 of the TUPE regulations. They also complained of unfair and wrongful dismissal.
The facts of the case
The two claimants worked as securityguards for Reliance (now known as Securitas Security Services (UK) Ltd) at a site in Wembley. On 1 April 2010, the owner of the site leased it to Euro. On 1 June 2010, the claimants were surprised to be informed that they were no longer employed by Reliance as ACT Security Ltd had taken over the site. A claim was made against the transferees, ACT and/or Euro, alleging that a service provision change had occurred, as described under section 3(1)(b) of the TUPE regulations. A claim was also made for a breach of the information and consultation regulations under regulations 13-16 against ACT and/or Reliance, as the claimants were not sure who to name as transferee. Euro was added later.
However, a compromise agreement was arranged through the help of ACAS to settle the claim. One of the claimants received a payment of £3,696 and the other £2,956. The wording of the settlement described the payments as ‘full and final settlement of the Proceedings and of any claim he has or may have against the Respondent and/or Group or any of their officers, staff or agents arising out of his employment or its termination or transfer to a third party..’ A letter written to the Tribunal by the solicitors for Reliance and the claimants requested a withdrawal of the tribunal proceedings, ‘The parties hereby request that the Employment Tribunal dismiss claim no 3303259/2010 (the Proceedings) against Securitas Security Services (UK) Limited only…’
The Employment Tribunal held that the release of Reliance ‘only‘ was a release of one of three joint and several debtors, so the release of one, released all three Respondents. The judge had carefully considered principles of contract law as set out in Chitty on Contracts: 30th Edition, which is the leading text on English Law contracts.
The claimants disagreed and argued at the EAT that the effect of both the wording of the settlement and the letter released Reliance alone from any proceedings, not the other two Respondents. The EAT allowed the claimants appeal.
What is a compromise agreement?
It is a contract regulated by statute between an employee and employer to settle a workplace dispute. Section 203(3) of the Employment Rights Act 1996 sets out the conditions for a valid compromise agreement:
(a) the agreement must be in writing,
(b) the agreement must relate to particular proceedings,
(c) the employee or worker must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement and, in particular, its effect on his ability to pursue his rights before an employment tribunal,
(d) there must be in force, when the adviser gives advice, a contract of insurance, or an indemnity provided for members of a profession or professional body, covering the risk of a claim by the employee or worker in respect of loss arising in consequence of the advice,
(e) the agreement must identify the adviser, and
(f) the agreement must state that the conditions regulating compromise agreements under this Act are satisfied.
The agreement can be made during the employment or after termination of the employment. In return for a negotiated financial sum, the employee waives the right to pursue a claim in the Employment Tribunal or a court. Compromise agreements are increasingly being used by employers to prevent future employment claims against them.
What is the law under TUPE?
Where there is a transfer of an undertaking, the TUPE regulations protect the contractual rights of employees. A transfer of an undertaking is where an economic entity (such as a business) is transferred or part of it is transferred from one business owner to another. There is another transfer under TUPE, known as a service provision change. This is where the activities of a contractor cease and is taken over by another contractor, on behalf of the client or the client itself takes over the activities. It also occurs where the activities of the contractor cease and it assigns the activities to another contractor to carry them out on behalf of the client.
Employees’ terms and conditions of employment continue undisturbed, except for occupational pension schemes which relate to benefits for old age, invalidity or survivors. The transferee (the new contractor or business owner) takes over the rights, powers, duties and liabilities under or in connection with the employment contracts, including any existing claims against the transferor.
Regulation 13 of TUPE states:
2) Long enough before a relevant transfer to enable the employer of any affected employees to consult the appropriate representatives of any affected employees, the employer shall inform those representatives of—
(d) if the employer is the transferor, the measures, in connection with the transfer, which he envisages the transferee will take in relation to any affected employees who will become employees of the transferee after the transfer by virtue of regulation 4 or, if he envisages that no measures will be so taken, that fact.
Contractors and business owners must ensure that the information and consultation process with affected employees process takes place, otherwise they may face an Employment Tribunal claim against them. Section 15(9) of TUPE regulations, imposes joint and several liability between the transferee and transferor for any compensation awarded by the Employment Tribunal for a failure to inform and consult.
In Tamang & Anor, Reliance, ACT Security Ltd and Euro Storage UK Ltd were all named as Respondents, jointly and severally liable for breach of regulations 13-16 of TUPE.
Why was the appeal allowed?
The EAT noted that the ET judge had concluded in his judgment that, ‘If there is a transfer, then liability of the transferor and transferee is joint and several’. However, under regulation 4 of TUPE , liability for claims for wrongful and unfair dismissal would transfer to the new owner (transferee) and he alone would be liable. There cannot be joint and several liability for dismissal, therefore the judge had erred in his approach. Furthermore, the EAT held that the ET judge had miscategorised the compromise agreement. It was actually a covenant not to sue Reliance alone and nothing more than that.
Lessons to be learnt from this case
The decision of the EAT will serve as a warning to both outgoing and incoming employers to obtain expert legal advice prior to any transfer so as to correctly assess whether there will be a service provision change or a business transfer under TUPE regulations. In addition, compromise agreements should be drafted carefully to cover the intentions of all the parties. If the intention is to protect all co-respondents from the threat of proceedings against them, this should be made clear. The EAT noted that difficulties arise after agreements have been made where the parties have overlooked the position of co-debtors.
Jumoke Adejimola is an employment lawyer and tribunal advocate in London. She is a contributor to the EELC Case Reports, the Official Journal of the European Employment Lawyer’s Association.