Transfers of Undertakings in Ireland

Eugenie Houston BL is the author of "Transfers of Undertakings in Ireland: Employment Rights". We asked her to explain some issues surrounding business transfers. She writes:

The same questions about Transfers of Undertakings (often referred to as 'TUPE' for short) come up time and again, and yet the answers vary. Why is that? Because the answer depends on the facts of the specific case.

Picture this: Egglet Ltd has held a maintenance contract for a local nursing home for about 10 years. It has recently lost the contract to Willflower Ltd following a tender process and has been informed by solicitors acting on behalf of the new contract holders that TUPE does not apply. Privately, the nursing home has told Willflower that Egglet’s employees were useless and that it does not want them to continue working there. Publicly, it has taken the view that any dispute about TUPE is a matter between Egglet and the new contract holder.


Q. So, does TUPE apply?

The Acquired Rights Directive, from which the Irish TUPE Regulations (and others' equivalent domestic legislation throughout the EU) and its attendant rights and obligations derive, applies by operation of law. This means that it is irrelevant if any of the transferor, the transferee, the end-user client or employees prefer that TUPE should not apply or were unaware that the transfer that has taken place is, as a matter of law, a TUPE-protected transfer. An employee’s employment relationship can be transferred without his knowledge.

Some time passes as Egglet and Willflower fight their corners, and yet the employees continue to work away at their jobs. Egglet takes advice from Counsel, whose advice is that, as a matter of law based on the facts, a transfer has arguably already taken place. Egglet Ltd is delighted and wants to rub it in. It wonders if, in fact, that transfer could be said to have taken place by degrees.


Q. Can a transfer take place by degrees?

This is a common misperception. A transfer cannot take place by degrees and takes place at a specific point in time. This was the subject of a very detailed analysis in the UK case of CELTEC Limited v Astley. The Court ruled that the meaning of the date of a transfer within Article 3(1) of the Directive is the date on which responsibility as employer for carrying on the business of the unit transferred moves from the transferor to the transferee. That date is a particular point in time, which cannot be postponed to another date at the will of the transferor or the transferee. Contracts of employment or employment relationships that exist on the date of transfer between the transferor and the workers assigned to the undertaking transferred are deemed to be handed over on that date from the transferor to the transferee, regardless of what has been agreed between the parties in that respect.

As a result of the qualified way in which the Court has interpreted the conditions for application of the Acquired Rights Directive, and its predecessor, the circumstances of the specific case are of great importance. While it is settled law that the Acquired Rights Directive can apply to business transfers, TUPE does not automatically apply to every transfer. There is no doubt that the Directive is applicable to service contracts. The ECJ recognised this in its judgment in Watson Rask and Christensen. That interpretation was later confirmed by the judgments in Schmidt and in Süzen.

In sharp contrast with the law in the UK, in considering whether in Ireland there is a transfer of an undertaking at the changeover of contractors, the Employment Appeals Tribunal in Ireland is bound to follow the decision of the ECJ in Süzen.

Süzen was a case about second-generation outsourcing. In Süzen the ECJ set down a two-limb test for second-generation transfers. The Directive does not apply to a change of contractor if there is no concomitant transfer from one undertaking to the other of significant tangible or intangible assets (the first limb of the test) or the taking-over by the new employer of the major part of the workforce in terms of their skills and numbers assigned by the transferor to the performance of the contract (the second limb).

The decisive criterion for establishing the existence of a transfer within the meaning of the Directive is whether the entity in question retains its identity. The term ‘entity’ refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective. In Süzen the Court reasoned that the mere fact that the service provided by the old and the new contractor is similar did not support the conclusion that an economic entity had been transferred. An entity cannot be reduced to the activity entrusted to it.

This means that the simple loss of a service contract to a competitor cannot by itself indicate the existence of a transfer within the meaning of the Directive. In order to determine whether the conditions for the transfer of an entity are met, it is necessary to consider all the facts characterising the transaction in question, including:

* the type of undertaking or business,
* whether or not its tangible assets such as buildings and movable property are transferred,
* the value of its intangible assets at the time of the transfer,
* whether or not the majority of its employees are taken over by the new employer,
* whether or not its customers are transferred,
* the degree of similarity between the activities carried on before and after the transfer and
* the period, if any, for which those activities were suspended.

The absence of a transfer of assets does not necessarily preclude the existence of a transfer of an undertaking. Where an economic entity is able to function without any significant or tangible assets, the maintenance of its identity following the transaction affecting it cannot depend on the transfer of such assets.

In labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, and such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part in terms of their numbers and skills of the employees specially assigned by his predecessor to that task. The maintenance contract at issue in this case is a labour-intensive economic entity and the new contractor has an arguable case that TUPE does not apply. That case generally is not the transferor’s to fight but is a matter for employees to take up with the new contractor.