25 October 2010

Use of service companies does not prevent TUPE applying

Christina Morton
Professional support lawyer | UK

A growing number of businesses use service companies to employ their staff. Legally the employees’ contracts of employment are with the service company not with the operational business, but those employees may then be assigned to the relevant part of the operational business. This structure has a number of advantages, but difficulties can arise when all or part of the operational business is transferred to a third party and TUPE applies to the transfer. The rights of employees employed directly by the transferring operational business are of course protected under TUPE, but what of the employees of the service company – are they left in limbo?

In the absence of any cases dealing with the point, advisers have until now taken the view that the rights of those employees assigned to the transferring part of the operational business should be protected under TUPE, even though their contracts of employment are technically with another legal entity. The European Court of Justice (‘ECJ’) has now confirmed that this is correct in the case of Albron Catering BV v FNV Bondgenoten and John Roest. The ECJ also confirmed that under the European Acquired Rights Directive (implemented in England and Wales as the TUPE Regulations) they will ‘lift the corporate veil’ and look through the operational business, so as to protect the rights of the affected employees of the service company.

The lesson for businesses

This case confirms yet again that the ECJ is prepared to take a purposive approach in order to confer protection on employees. Even a business with no contractual relationship with the relevant employees can be a transferor for the purposes of TUPE, where it is responsible for running the business in which those employees work. The case also reiterates that the important question is where the employees are assigned, and the courts will look behind corporate structures that are an attempt to avoid, or undermine, the effects of TUPE.

Christina Morton Professional support lawyer | London

Category: Article