Does a 5 month cessation in activities prevent a transfer under TUPE?
As any outgoing HR team or commercial manager who has ever dealt with a particularly aggressive incoming employer will attest, the subject of who transfers under TUPE can be a greatly disputed point, and one which can lead to expensive litigation should the parties be unable to reach agreement as to which staff transfer.
In simple terms, there tend to be two types of transfers under TUPE:
- a business transfer where a relevant transfer is considered to be the “transfer of an economic entity that retains its identity” following the transfer; and
- a service provision change where, generally, a change in the provision of services for a client occurs.
One of the most common arguments we see from an incoming business is that the economic entity has not retained its identity owing to a cessation in work. This tends to be a common argument in the retail/hospitality sector where, for example, a pub or store may close for a number of months prior to reopening for a refurbishment. If the incoming business is successful in such an argument then the employees of the outgoing employer have no right to transfer. It is obvious why this is may be attractive and beneficial to an incoming business.
Background
In Colino Sigüenza v Ayuntamiento de Valladolid and others the European Court of Justice (“ECJ”) considered a Spanish case involving a cessation of services lasting 5 months. The claim was heard under Europe’s Acquired Rights Directive (which was implemented as TUPE here in the UK).
Mr Siguenza worked as a music teacher for a Spanish school. Over the years the school was put under the control of the local Municipal Administration who outsourced to a company called Musicos y Escuela. Musicos managed the school music premises and facilities but the Administration maintained ownership.
By April 2013, two months prior to the school breaking up for the summer holidays, Musicos were in dispute with the Administration regarding fees and the profitability of the contract. As a result of the decrease in the value of the contract, Musicos quickly dismissed their entire staff and ceased activities. Following a school shutdown for the summer, the Administration appointed a new company, In-Pulsa Musico, to manage the school music premises and facilities beginning in September 2013.
Mr Siguenza brought a claim in the Spanish courts claiming that the 5 months cessation of services did not stop a TUPE transfer from happening. Following appeals through the Spanish court system, the appellant court referred the matter to the ECJ seeking clarification on the following questions:
- Was there a transfer of the undertakings? and
- If so, were the dismissals by Musicos for an ETO reason or were they as a result of the transfer and therefore void?
In confirming its decision, the ECJ identified that the economic activity in question was the management of the Music School itself. Owing to the fact that the same instruments, facilities and premises were being used before and after the transfer, the economic activity had retained its economic entity on this point.
With regards to the cessation, the ECJ held that the five month period in this instance could class as a temporary cessation, and therefore this may not preclude the possibility that an economic entity has retained its identity. The ECJ did however take into account that the school holidays accounted for three of the five months of cessation and stated that every case would rest on its own facts. The matter was sent back to the Spanish courts to make a final decision on whether a TUPE had taken place based on the facts provided in this case.
The ECJ did however have some good news for employers. Given that the employees were dismissed two months prior to the transfer, owing to Musicos being unable to pay them, the ECJ noted that this may in effect count as a valid ETO reason for dismissal.
What should you be doing now?
Commercial Managers and HR should keep in mind cessation periods when taking over business entities or commercial contracts to provide services. The fact that no employees are employed at the time of purchase/taking over a contract may not necessarily mean that TUPE does not apply and no staff will be inherited.
What does this mean for your business?
This case does not make any great strides in TUPE here in the UK as we have existing caselaw from the EAT which has confirmed that a temporary cessation does not necessarily extinguish a TUPE transfer. However, the timescale of five months is interesting.
Although such cases in the UK would be considered differently owing to the fact that Europe’s Acquired Rights Directive does not specifically consider service provision changes, the headline points regarding cessation timelines should still be kept in mind for employers when taking over empty units or taking over contracts with a short cessation period.
Recommended Reading
An English language copy of the ECJ’s judgment can be read HERE
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.
