The European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 implement “TUPE” in Ireland. Appeals of decisions of the Workplace Relations Commission in this area are now within the remit of the Labour Court.  Barry Reynolds analyses key cases which have come before the Labour Court in 2017 and specifically the Court's consideration of whether or not businesses are asset reliant or labour intensive. This is key to the question of whether or not the business "retains its identity" so as to fall within TUPE.

TUPE - Summary

Where TUPE applies it ensures continuity of employment relationships and the protection of affected employees’ rights within a business, irrespective of the change of ownership or business transfer.

The basic test is whether or not an identifiable, stable and autonomous economic entity existed prior to the transfer and whether it retains its identity post-transfer.  In order to answer those questions, as laid out in well-known cases such as Spijkers, it is necessary to look at multiple factors such as:

(a)        The type of undertaking or business concerned.
(b)        Whether or not tangible or intangible assets are being transferred and, if so, their value.
(c)        Whether or not any employees are being offered employment by the replacement operator of the business.
(d)        Whether customers and contracts are being taken over or transferred.
(e)        The degree of similarity between the activities carried on before and after the transfer.
(f)         The period, if any, for which those activities are suspended.

Two recent TUPE cases, in particular, stand out:

• Department of Social Protection v Dunne [1]; and
• Overpass Limited t/a Ocean Property Management v O'Gorman [2]

These Determinations, by different divisions of the Court, culminated in different outcomes. However, each includes a clear consideration and application of the law in this area.

Summary and Background Facts

In the Department of Social Protection case, certain functions of the Department which had been outsourced were taken in-house as part of a consolidation exercise. The services previously provided by an external person were to continue but through a new office staffed by Departmental officials.

As is common in these scenarios, an employee of the outgoing employer was informed that this would not give rise to a redundancy situation but rather that her employment would transfer under TUPE to the Department.  The Department at the same time rejected the application of TUPE and refused to take on the employee.  Relevant files and records were physically removed and transferred to the new location and furthermore the geographical area which had been serviced continued to be so serviced, albeit from a different work location.  It was argued by the employee that a relevant transfer had occurred so as to entitle her to be employed by the Department.  The Department argued, amongst other things, that many aspects of the operations did not transfer, including buildings and employees, and furthermore that the activities formerly carried out by the contractor were subsumed in to a suite of services which were already being provided by the Department. The Court ruled that a transfer of undertaking had taken place because, among other things, there had been a “transfer of assets”, namely the files and data pertaining to the service users.

The Overpass case concerned a letting and property management business, responsibility for which moved from one company to another following a tender process.  In that case, the complainant was terminated by reason of redundancy and she alleged that this was in breach of her right to transfer to Overpass by reason of TUPE.  The position of Overpass, in this case, was that neither employees nor assets transferred. The reasoning of the Court, in finding that there was no TUPE, hinged mainly on an assessment of the nature of the business. It asked whether the activities relied primarily on assets or whether they were essentially based on the workforce.

Legal Analysis

The Department of Social Protection case in particular touches upon many difficult legal issues which frequently arise for practitioners and businesses in seeking to determine whether or not a transaction falls within TUPE.  Some of these arise more commonly in practice than others. The matters mentioned in that Determination include:

• files and data constituting "assets" (see further below);
• the significance, or, rather, lack of significance, of actual ownership of assets which are being used in the activity in question, as opposed to making use of those assets;
• integration of activities in to a broader suite of services;
• the application of TUPE to a public authority and specifically where there are activities of a special nature and which can be deemed to be independent functions of that authority;
• the importance of a transfer of a customer base; and
• considerations of substantial equivalence in relation to the terms and conditions of a "non-civil servant" transferring to an entity which does not already have any such non-civil service contracts.

The determination is quite detailed on some of these issues and appears to have been arrived at following an extensive hearing.  The Court considered a number of CJEU decisions [3]. The case is not the first in Ireland to seek to faithfully apply EU law by examining these authorities but its focus on the nature of the entity in question, as being one principally reliant on either assets or the workforce, provides useful guidance.

Retention of Identity - "Labour Intensive" or "Asset Reliant"

The Court (in both cases) considered in detail the question of whether or not the businesses under review were "labour intensive" or "asset reliant".  This is a key distinction.  It would be beneficial in this uncertain area of law to have a growing body of Irish precedents considering different business operations through this particular lens. This question will often be a determining factor, in the application, or not, of TUPE.

Many businesses, correctly, avoid the rigours of TUPE by refusing to take on any staff assigned to the business being acquired.  Doing so can often be high risk where there may be an ambiguity as to whether or not a business relies primarily on assets or primarily on labour.  If the former, then the transfer of assets is elevated in importance in determining whether or not a business retains its identity.  If the latter, then the key factor in determining whether or not the economic entity has retained its identity is whether or not a significant proportion of the workforce transferred to the new business.

The importance of this issue, together with its onerous implications, was highlighted in the 1998 decision of Cannon – v – Noonan Cleaning Services Limited of the Irish Employment Appeals Tribunal, a decision which is quoted in the Department case as follows:

There is no doubt that in a service undertaking the workforce and its expertise constitute a major part of the undertaking but it is difficult to understand how, where an employer refuses to take on the workers of the previous contractor, he can escape the rigours of [TUPE], while a contractor who takes on a major part of the workforce, perhaps out of magnanimity, will be caught by it.  It would seem that [TUPE], in the former instance, has not addressed the mischief in the law that it was intended to do"

In the Department of Social Protection case files and data were, significantly, determined to comprise "the significant operational assets" of the economic activity.  Those assets were physically transferred so as to enable the continuation of the activities in question.  They were the "key to the continuation….that data was the key operation asset".

The import of this conclusion was that failure to take on staff was of much-diminished importance in the assessment of whether or not TUPE applied.  The files and data were decisive.

In contrast, the finding in Overpass was that the business was not asset reliant but rather was labour intensive, as being essentially based on the workforce.  That characterisation of a letting and property business is likely to be relevant for many future cases.  By reason of this characterisation, the key determining factor became whether or not the staff transferred.  They did not.  That said, it was also the case here that no property or assets transferred between the outgoing contractor and the incoming contractor.  It was ruled by the Court that the business did not retain its identity and consequently there was no TUPE.

Conclusion

Businesses and practitioners will be aware that TUPE is a deceptively complex area of law.  Outcomes are often difficult to predict.  Well reasoned determinations, which canvass both Irish and CJEU determinations, and which apply the “asset reliant” and “labour intensive” tests, as well as the prevailing law in this area, are welcome. These cases provide valuable guidance on how transfer issues in Ireland will be addressed following our recent Workplace Relations reforms.