| Date | 23 April 1997 |
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| Judgment | Betts and Others -v- Brintell and KLM Court of Appeal, 26 March 1997 (unreported) |
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| The Issue | Transfer of employee rights on re-tendered contracts. |
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| Implication |
Contractors should not assume that employee rights may be automatically off loaded to an incoming contractor in the event that a contract is lost following re-tendering. |
printIn Contract Journal on 9 April 1997 I reported the case of Ayse Suzen -v- Zehnacker in which the European Court had given an important decision concerning whether second generation contracts would be caught by the Acquired Rights Directive. The case of Betts -v- Brintell, decided in the Court of Appeal on 26 March 1997, applied the Ayse Suzen principles and is now the leading UK authority on the application of TUPE to contracting out situations. It is therefore a decision of the highest importance in this area. I reported the Betts case back in February 1996 when it had first been heard in the High Court. The issue surrounds the TUPE regulations which seek to preserve the employed status of an employee when there has been a transfer of an undertaking between businesses. The history of the Betts case is quite interesting. For about 10 years Brintell had provided helicopter services to Shell to provide transport to and from oil rigs in the North Sea. They had operated under three separate contracts and as each contract approached their expiry date Shell put new ones out for tender. Brintell were themselves successful in obtaining two of those but the contract for the third sector was awarded to a competitor, KLM Helicopters. Proceedings were brought by seven employees of Brintell who claimed that by operation of law they should become employees of KLM. They argued that the works being won by KLM under this so-called "second generation" contract amounted to a transfer of undertaking. What had been particularly interesting was that KLM had indeed been looking for certain staff but had decided not to recruit any from Brintell as it clearly perceived that taking on Brintell employees might prejudice its case with regard to TUPE regulations. Apparently, regulations designed to protect the employment of individuals had in fact acted to the opposite effect. In the event the High Court held that there had been a transfer of undertaking between these two companies notwithstanding that there was obviously no contract between them, and that the former employees were entitled to seek redress through the Industrial Tribunal. Now before the Court of Appeal the position has been reversed and the appeal allowed. The Court of Appeal held that whilst the helicopter operation was an undertaking or economic entity, upon the facts of this case there had been no transfer. The decision was essentially based upon the fact that no employees went over to KLM and there was little by way of assets transferred. A number of principles emerged from this decision. Firstly, the Court expressed the view that there can be no distinction between the principles applicable to first and to second generation contracting out. Each case will be looked upon its own merits to determine whether there has been a relevant transfer. Secondly, it was said that labour intensive undertakings might well be considered differently. Where an activity was continued or resumed with substantially the same staff after the alleged transfer, the Court might well hold that the undertaking had been transferred so as to retain its identity in the hands of the new company. Other types of undertakings such as, for example, a helicopter transport service, which could not be said to be labour intensive, would require a more wide ranging enquiry before a decision could be taken. Another factor considered was the motive for the non transfer of employees. The Respondents had relied on the fact that though no employees had gone over to KLM the reason was that KLM had deliberately chosen not to take on any employees in order to minimise the risk that TUPE would apply. This, they said, was a factor pointing towards there being a transfer. Unfortunately the Court side stepped this question by holding that in any event the transfer of employees in this situation would not have been sufficient to establish a relevant transfer. They did not therefore need to decide the issue of principle concerning the reason for non recruitment. Here then established into English law is the TUPE trap. Contractors must be particularly sensitive to the risk that whilst they might win contracted out public services where TUPE is applicable, if at a later stage that contract is lost to a competitor they may find that TUPE is held not to be applicable. They will thus be unable to off load to the incoming contractor the burdens of employees taken on specifically for the project itself.
CJ-9716
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