Splitting liability between transferees: McTear & Mitie v Amey & Others

by Tom Coghlin QC

Introduction

In McTear & Mitie v Amey & Others the Employment Appeal Tribunal held that the controversial decision of the CJEU in Govaerts applies in domestic law – including to Service Provision Changes (‘SPCs’) under TUPE. This means that the contract of employment of a given employee who transfers pursuant to a SPC may as a matter of law be split between multiple transferees. Daniel Dyal acted for Mitie, the successful appellant. 

Background

In Kimberley v Hambley and others [2008] IRLR 1030, the EAT (Langstaff J sitting with members) reversed the employment tribunal’s decision that the liability for a group of employees should be split between two transferees who between them took over the activities previously performed by the (singular) transferor. Indeed the EAT was surprised that the tribunal had even given this possibility serious consideration. It held that each employee transferred to one or other of the transferees. In order to determine which transferee it was necessary to apply the ‘assignment’ tests described in Botzen v Rotterdamsche Droogdok Maatschappij [1986] 2 CMLR 50 and Duncan Web Offset (Maidstone) Ltd v Cooper [1995] IRLR 633. For twelve years Kimberley was the leading authority with little if any concern that it had been wrongly decided.

In March 2020, the CJEU gave judgment in Iss Facility Services NV v Govaerts [2020] ICR 1115. It held that where there were multiple transferees upon the transfer of an undertaking the contract of employment of transferring employees could be split between the transferees. It envisaged the employees having multiple part-time contracts with different employers following the transfer. Essentially the rationale for this was to avoid the injustice (actual or perceived depending on your point of view) of a transferee becoming liable for all of a given employee’s contract of employment when only part of that employee’s work transfers to the transferee. However, it recognised that in some cases, at least, splitting the contract of employment would be detrimental to the transferring employee and as such it would be open to the employee to terminate the contract fixing the transferees with liability for compensation in appropriate shares.

Govaerts was an unexpected, controversial and in some quarters unwelcome decision. It creates layers of new complexity and uncertainty in multi-transferee situations. As such there was a good deal of interest in whether and if so how it would be applied in domestic law. There was no real doubt that Govaerts would apply to the parts of TUPE that give effect to the Acquired Rights Directive. That would clearly be necessary to give effect to the supremacy of (retained) EC law. However, SPCs are a purely domestic concept. The really interesting issue, then, was whether Govaerts would be applied to SPCs.

McTear Contracts Limited & Mitie Property Services Limited v Amey Services Limited

The Claimants were all employed by Amey. They all spent almost all of their time working on a contract Amey had with North Lanarkshire Council refurbishing kitchens in social housing. Pre-transfer the Claimants were split into two teams. The teams were not assigned to any particular part of North Lanarkshire and both teams worked in all parts of it. However, an after the event analysis conducted by Amey shortly before the transfer, showed that one of the teams spent a little more time working in the north of the local authority and the other team a little more of its time working in the south.

When the contract for refurbishing the kitchen was retendered the local authority decided to split it in half along north/south lines. It awarded one half to Mitie and the other to McTear. The parties disputed whether there was a transfer and if so whether any employees transferred and if so to whom. Amey considered that there was a transfer and that the team of employees who had worked more in the south transferred to the transferee that one the south contract and the team that had worked more in the north transferred to the transferee that won the north contract. Two employees that had worked on the North Lanarkshire contract had not been assigned to either team but had overarching roles working with both teams. In respect of those employees Amey essentially allocated one of them to each transferee on an essentially arbitrary basis to keep the allocation to each transferee more or less even.

The employment tribunal found that there had been SPCs from Amey to McTear and Mitie respectively. It also found that all of the claimant employees transferred and did so in accordance with Amey’s allocation of them. In reaching this decision, the tribunal applied Kimberley, directing itself that any given transferring employee had to transfer to one or other transferee. It ruled out the possibility of any given employee transferring to both transferees.

Appeal to the EAT

The employment tribunal’s decision was given before Govaerts was decided. However, Mitie and McTear appealed on grounds unrelated to Govaerts. Once Govaerts was decided Mitie amended its grounds of appeal to add a ground averring that the tribunal had erred by directing itself that transferring employees could only transfer to one transferee not both.

The appeal was allowed. In essence the EAT reasoned that although Govaerts does not directly apply to SPCs since they are creatures of purely domestic law it nonetheless must apply. Regulation 4 of TUPE, which deals with the consequences of a transfer is in materially the same terms whether the transfer in issue is the transfer of an entity which retains its identity or is a SPC. This implies that the same principles must apply regardless of the type of transfer in issue. Moreover, many transfers will amount to both the transfer of an entity which retains its identity and a SPC. In such cases the statutory scheme would lose coherence if regulation 4 were construed differently for each type of transfer.

Further, the statutory authority for the SPC provisions is section 38(2) of the Employment Relations Act 1999 which provides that “(2) The Secretary of State may by regulations make the same or similar provision in relation to the treatment of employees in circumstances other than those to which the European Union obligation applies (including circumstances in which there is no transfer, or no transfer to which the European Union obligation applies) [emphasis added].” This again suggests that the consequences of a transfer must be materially the same regardless of which type of transfer it is.

Finally, the EAT also considered the principled objection raised in Kimberly to an employee transferring to multiple transferees: at common law an employee cannot have two employers. The short answer to that objection is that the common law principle applies to single employment: an employee cannot have two employers in respect of the same contract. However, there is no difficulty at common law in an employee having two contracts of employment each one with a different employer. Indeed in the modern economy this is not at all unusual.

Implications

There is now authority that Govaerts applies to SPCs. It seems likely that this case will be followed for so long as Govaerts forms part of the retained EC law because of the difficulties involved in construing the consequences of a transfer differently depending upon the type of transfer.

However, this is unlikely to be the final word on the matter. In light of the United Kingdom’s exit from the European Union, there is always the possibility of the domestic courts departing from Govaerts altogether. Under the terms of the Withdrawal Act 2018 this could only be done at Court of Appeal level or higher. This particular litigation appears unlikely to go any further but other litigation in the future might.

Further, if Govaerts proves unpopular or problematic in practice there is always the possibility of legislative intervention. Whether this will be necessary remains to be seen. One of the great unknowns is how Goaverts will be applied in practice. For example it remains unclear:

  • In what circumstances tribunals find that contracts of employment split between transferees?
  • Whether tribunals must make such findings in every case in which there are multiple transferees and if not what will be the determining factors?
  • Where contracts of employment and/or the liabilities thereunder are split in what proportion will they be split and in accordance with what principles?
  • Can the parties affected by a transfer agree in a given situation that contracts of employment that would otherwise be split will not split because nobody wants them to?

In short, a great deal of uncertainly remains and a great deal remains to be worked out in practice.