Transfer of Undertakings Regulation 2006
In the recent case of Colino Sigüenza v Ayuntamiento de Valladolid and Others, the Court of Justice of the European Union (CJEU) was asked to consider whether a five-month halt in business between contracts could preclude the possibility of a transfer under the Transfer of Undertakings (Protection of Employment) Regulation 2006 (TUPE).
What is TUPE?
TUPE serves to protect employees where businesses change hands, through sales or transfers. The effect of TUPE is that where there is a transfer of an economic entity which otherwise retains its identity, employees and any associated liabilities are also transferred.
Employees, therefore, have a legal right to be transferred to the new owner of the business who thereby becomes the new employer, on their existing terms and conditions of employment and with their existing employment rights. This goes so far to include contracting out and insourcing, otherwise recognised as a Service Provision Change.
Colino Sigüenza v Ayuntamiento de Valladolid
This case concerned a Service Provision Change in the management of a music school, which had been outsourced by the Local Authority. Following a reduction in the number of students and a dispute between the Local Authority and the management of the school, the contract was terminated and the school ceased its activities a few months before the end of the academic year. Five months later, the Local Authority reassigned the management of the school and permitted the use of the premises, instruments and equipment necessary – without employing any of the previous staff.
CJEU Decision - Terms on Which the Contract Ended
The CJEU found that an Undertaking had in fact occurred. Their decision was significantly influenced by the nature of the economic entity and the specific circumstances upon which the contracted ended.
Great consideration was afforded to the nature of the economic entity as a school and that two of the five months of ceased activity were due to annual summer breaks. This suggests routine breaks in economic activity are unlikely to be included in periods of temporary closure that are often relied upon to avoid TUPEs. Therefore, as a result of the decision, it is likely to see UK Courts and tribunals more readily accepting that a suspension of activities alone does not preclude a transfer for the purposes of TUPE.
The CJEU also took into account that the material resources, facilities and premises that were originally made available to the music school, were also made available to the new contractor. The only assets that were not transferred were the employees, incoming contractors must, therefore, take steps to ensure that the reality of the situation is appropriately reflected and transfer of other assets is indicative of the economic entity maintain its identity and is, therefore, not outside the realm of TUPEs.
The original music school closed and dismissed the employees because it was claiming financial troubles from litigation with the Local Authority which had originally issued its contract and was a genuine reason for closure, highlighting the broad interpretation of the circumstances in which the TUPE Regulations apply.
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