Jessica Ross on the obligations of transferring employers.

Jessica Ross is a partner at Veitch Penny.

The 1981 Tupe Regulations provide continuity of service for employees. Under Regulation 5, the transferee of a business inherits the rights and obligations of the previous employer.

The regulations are designed to protect employees' rights, but little thought appears to have been given to the effect of transfer on personal injury actions and the impact for insurers.

Two issues arise: Who is the defendant if the accident arose prior to transfer or spanned two or more periods of employment? And what is the insurance position?

Although most insurers have arrangements in these circumstances, that is not the position for local authorities.

Recent case law has highlighted the need for transfer documentation to specify the respective parties' liabilities. If the documentation is silent, then under Regulation 5(2) any negligence or breach of statutory duty arising in connection with any such contract is transferred under Regulation 5(2)(a). The transferee is then deemed to take on the liability.

In Taylor v Service Team Limited and London Borough of Waltham Forest, the claimant, a refuse collector, was injured at work on 20 May 1994, while employed by the council. On 1 August 1994 the Refuse Collection Service was transferred to the first defendant, Service Team. It was decided that the council's liability to him was passed to Service Team and his claim was against only Service Team.

That decision leaves a number of vital issues for insurers. If the liability in respect of such claims passes to the transferee, its insurance policy is unlikely to cover acquired risks.

Complicated situations may also arise in industrial disease cases. Exposure may span two or more periods of employment and the injury may not be apparent until long after the transfer.

The contracting out legislation is a similar issue. Many services were contracted out to the private sector, but the contracts are coming up for renewal. Local authorities may, therefore, find themselves liable for accidents which happened in the interim.

Insurers have generally been alive to these issues, but it is not clear to what extent local authorities have. Therefore, local authorities need to consider indemnity clauses on transfer to deal with the apportionment of liability to employees.