European Court casts doubt on TUPE law

The TRANSFER of undertakings law has been thrown into confusion following a European Court opinion which suggests that the employment obligations binding on one contractor may not be passed on to a successor.

The recent opinion by Advocate General La Pergola at the European Court of Justice, that a changeover of contractors is not necessarily a transfer of an undertaking, has caused consternation among service providers and local councils.

The Advocate General suggested that a simple changeover of a contract would not fall under the remit of the Acquired Rights Directive and the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) unless it was backed by a transfer of assets or some kind of agreement between the two contractors.

The opinion has prompted some contractors to place a moratorium on tendering for local authority contracts because of the uncertainty it has caused.

If adopted, the opinion would mean that contractors losing out out in a retendering operation might not be able to pass their employment obligations to their successor and would have to pay out unbudgeted redundancy and termination costs.

Dr John McMullen, head of employment law at Pinsent Curtis, stressed the opinion was yet to be followed by the European Court of Justice.

But he warned that most of the Advocate General's opinions were followed, and if this did happen it would throw Tupe law "once more into uncertainty".

McMullen added: "One benefit of case law prior to this opinion was that of certainty, that is to say that TUPE almost inevitably applied to every aspect of contracting out."

Jan Middleton, contracting adviser for the royal Borough of Kensington & Chelsea, added: "Everyone is generally getting in a flap about this and clearly if it turns out to be the case that the court follows it through it will have a tremendous impact."