| Date | 6 January 1999 |
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| Judgment | Wilson and Others -v- St Helens Metropolitan Borough Council, House of Lords 29 October 1998 |
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| The Issue | Agreement of new terms and conditions with incoming employers following transfer of an undertaking. |
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| Implication |
If it can be established that dismissals for redundancy occurring immediately before a transfer of an undertaking are for economic, technical or organisational reasons, subsequent changes in terms and conditions agreed between the new employer and employee will be effective. |
printIn September 1997 I reported the Court of Appeal decision in the case of Wilson and Others -v- St Helens Metropolitan Borough Council. In October of this year this decision was reviewed in the House of Lords.The case concerns the EC Acquired Rights Directive and the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE). The regulations seek to protect the employment rights of an individual when the undertaking in which he or she is employed is transferred to another entity. This has had a substantial impact on the construction industry. In the terms of the regulations a "transfer of an undertaking" will occur when a local authority, for example, seeks to contract out activities of its works or maintenance departments. A construction firm bidding for these activities must carefully consider its position in respect of the staff already engaged to carry out the work. Under the TUPE regulations the contracts of employment of such staff may automatically transfer to the incoming contractor. These considerations equally apply when the contract comes up for renewal in future years. The background to this case is typical of cases where similar problems have been encountered. Lancashire County Council decided it could no longer afford to run the Redbank Controlled Community School. In 1990 it gave notice that because of the cost involved it could not continue to run the school after September 1992. St Helens Borough Council agreed to assume control of the school on 1 October 1992 on the basis that running the school would involve no additional costs. This meant that there would have to be a re-organisation entailing a change in the workforce. Some staff stayed with Lancashire County Council in different jobs, others were dismissed for redundancy. These latter individuals were permitted to apply for jobs with St Helens. The jobs they were to take up, however, were slightly different. Some were promoted, others demoted, and generally the terms and conditions were not as favourable as they had been used to. At the time of the dismissal and re-employment of all the people involved in the case, it was not realised that there had been a transfer of an undertaking within the meaning of the regulations and the directive. Before too long, however, the trades union began to take notice. When negotiations with St Helens failed to bring about improvement in the terms and conditions of the staff, the union applied to the industrial tribunal for a ruling that wrongful deductions from salaries had been made. It claimed that there had been a transfer of undertaking to St Helens such that the previous terms of employment continued to apply. The essence of St Helens' reply was that the new terms had been agreed with the relevant staff and that such agreement was lawful and binding. The industrial tribunal rejected the claim put forward by the trades union on the basis that the redundancies had properly been made on the basis of an "economic, technical or organisational reason". Accordingly the industrial tribunal found that the new contracts of employment agreed between the applicants and St Helens operated to vary the applicants terms and conditions of employment. This was not sufficient for the employees and their trades union organisers and the case was subsequently taken to the employment appeal tribunal. The appeal tribunal reversed the earlier decision. The contracts of employment with Lancashire were preserved by TUPE and even though the employees had entered into separate agreements with their new employers, this could not act in such a way as to vary the terms of their original employment with Lancashire. Accordingly, the variation was ineffective and the terms of the original contracts remained in force. The matter then came before the Court of Appeal. The Court of Appeal accepted that neither the former employer nor the succeeding employer could dismiss the employees simply because of the transfer, but they were not prohibited from terminating the contracts of employment on the occasion of the transfer if they did so on "economic, technical or organisational grounds". In the view of the Court of Appeal the principal reason why the contracts of employment were terminated was an economic or organisational reason. On that basis when the employees took up their new positions with St Helens they did so on the terms and conditions of the new contracts. Thus St Helens had not made unlawful deductions from employees wages. All of these matters were finally reviewed in the House of Lords. Lord Steyn considered that the overriding emphasis in the European Court's judgments related to these matters is that the existing rights of employees are to be safeguarded if there is a transfer. The employer, either before or after the transfer, cannot use the transfer as a justification for dismissal. If the employer does dismiss employees it is a question for national law as to what the rights of the employees are. As a rule the claim in English law would be for damages for wrongful dismissal or for statutory rights including re-instatement or re-engagement, where applicable. Other than those statutory rights in English law there would, as a general rule, be no order for specific performance of the contract of employment. However, the dismissals for redundancy prior to transfer were lawfully for economic or organisational reasons. In conclusion, the incoming employer was entitled to agree terms to bring his new employees into line with existing employees' standard terms and conditions. Accordingly, the appeal of Mr Wilson and Others against St Helens Borough Council was dismissed.
CJ-9901
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