Nicholas Underhill ponders the effect of the latest Tupe ruling.

Nicholas Underhill QC is a member of Fountain Court Chambers.

Employment practitioners have been treated over the past few years to a series of supposed landmark decisions on the meaning of the Acquired Rights Directive and the Transfer of Undertakings Regulations (Tupe). Some of the landmarks have, in retrospect, been distinctly obscure. Does last week's decision by the European Court in Suzen v Zehnacker Gebaudereinigung GmbH really deserve the chorus of excited commentary which it has provoked?

The answer is yes. Suzen was employed by a firm which held the cleaning contract at a school in Bonn. When it lost the contract to another firm she was dismissed. The conventional wisdom has been that in all such cases there was a transfer of an undertaking – within the meaning of Tupe and the Directive – between the old contractor and the new.

The result was that the new contractor prima facie inherited the existing workforce, on the same terms, leaving the old contractor without redundancy liabilities. It made no difference that there was no transfer of assets or (it seemed) that the new contractor did not wish to retain all or any of the old workforce. Contracting companies in a number of fields have had to adapt themselves to this awkward reality.

The court has now made clear that there is no such rule. The judgment is, as usual, opaque; but it now appears that the replacement of one contractor by another will not by itself constitute the transfer of an undertaking.

It may do so if there is a significant transfer of assets or if the new contractor "takes over a major part, in terms of their number and skills, of the employees, specially assigned by his predecessor to that task". It would seem, therefore, that new contractors will, in many cases, be able to avoid being landed with their predecessor's workforce simply by making it clear that they do not want it.

In due course, employers and contractors will adjust to the Suzen decision and negotiate their respective liabilities accordingly. But the court's change of stance seems likely to give rise to litigation.

Questions that may arise include how "a major part of the workforce, in terms of number and skills" is to be recognised; whether tribunals will remain bound by the decision of the Court of Appeal in Dines, which embodies the previous orthodoxy; and whether contracts entered into between employer and contractor on the basis of the previous understanding of the law can be set aside as mistakes (assuming that a mistake of law may now be a ground for rescission).