What is the position on TUPE generally?

The European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (as amended) (the TUPE Regulations) were introduced for the purpose of safeguarding employee rights during business transfers. The TUPE Regulations ensure that employee rights are preserved and that employees are protected from unfair treatment. 

The legal position on TUPE in Ireland is largely prescribed by case law that has developed at both a national and a European level. Generally, the TUPE Regulations apply to a transfer of an undertaking/business or part of an undertaking/business from one employer to another. However, it is now well-established in Irish law that outsourcing, insourcing and a change of service provider (also referred to as a second-generation outsourcing) can trigger TUPE, where certain conditions are met.

Is there a test to determine whether TUPE applies generally?

The traditional test used to determine whether TUPE is triggered in the context of a business transfer was set down by the CJEU in Spijkers. In this case, the CJEU stated that a transfer of an undertaking occurs where there is a transfer of an economic entity which retains its identity. When considering whether an entity has retained its identity, the following factors are relevant:

• the type of undertaking or business concerned
• whether assets (tangible or intangible) transfer
• whether employees are taken over
• whether customers are transferred
• the degree of similarity between the activities as carried on before the transfer and after and the period, if any, for which those activities are suspended

When does TUPE apply to a service provider change?

The test for whether TUPE applies in a second-generation outsourcing was set out by the CJEU in the Suzen case in 1997, which is frequently cited as the seminal case in this area. In this case the CJEU considered the cessation of a contract for cleaning services with one contractor and the grant of a new contract to a second contractor. The court held in this instance that a mere change of service provider will not trigger a TUPE transfer unless there is a "concomitant transfer of assets, or the taking over of a major part of the workforce", even in circumstances even where there is no contractual link between an old and incumbent contractor. From an Irish legal perspective it can be hard to be definitive at the outset as to whether or not TUPE applies in an outsourcing/in-sourcing context given the determination is heavily dependent on its individual facts and circumstances. 

The Suzen decision is of critical importance when determining whether a change of service provider gives rise to TUPE. The Suzen decision not only applied the aforementioned Spijkers criteria, it also distinguished between asset reliant and labour reliant activities, holding that:

• where the activity in question is asset reliant, TUPE will only apply in a second generation outsourcing where the assets (or a majority of the assets) have transferred to the new provider (or transferee)
• where the activity is labour reliant, TUPE will only apply in a second generation outsourcing where the majority of the workforce (in terms of numbers or skills) transfers to the transferee

Is this test still applicable currently?

These principles, which inform whether or not TUPE is triggered in the context of a change in service provider, were summarised in a recent Irish High Court case (Minister for Employment Affairs and Social Protection v Mary Dunne 2019 IEHC 634) as follows:  

1)      All circumstances must be looked at (but none can be considered in isolation) including:

• the type of undertaking or business in question
• whether or not its tangible assets, such as buildings and movable property, are transferred
• the value of its intangible assets at the time of the transfer
• whether or not the majority of its employees are taken over by the new employer
• whether or not its customers are transferred
• the degree of similarity between the activities carried on before and after the transfer
• the period, if any, for which those activities were suspended

2)      The degree of importance to be attached to any one criterion will necessarily vary according to the activity carried on, or the production or operating methods employed in the undertaking. The mere fact one economic entity takes over the economic activity of another is not a ground for concluding that the latter has retained its identity.

3)      The identity of such an entity cannot be reduced to the activity entrusted to it. Its identity emerges from several indissociable factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or the operational resources available to it.

4)      Where an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets.

5)      That tangible assets do not belong to a predecessor and are provided by the contracting authority does not preclude the existence of a transfer.

Is there a way to avoid the application of TUPE?

The Suzen principles comprise the test that the Irish courts and employment fora apply to second generation outsourcings. As a result (and somewhat perversely), in the case of the transfer of labour reliant activities, a new service provider can arguably avoid the application of TUPE by simply refusing to take on the employees of the incumbent provider.

What happens if no assets actually transfer?

The application of the Suzen principles to asset reliant services has also been considered by the European and Irish courts. It has been held that a transfer of ownership of assets is not required for a transfer under TUPE to occur and that a transfer in usage of assets between service providers may be sufficient to give rise to a TUPE transfer. In 2003, in the case of Abler v Sodexo MM Catering Gesellschaft the CJEU that, in a scenario where the activity in question was an asset reliant activity and the incoming service provider is provided with the right to use the core assets associated with the services, then TUPE will apply on the basis that the right to use the assets transfers, regardless of the fact that ownership of the assets does not transfer.

What are the key takeaways for employers?

Applying the above, it is clear that a multifactorial assessment is required in order to make a preliminary assessment of the likelihood of TUPE applying in the event of any function outsourcing, insourcing or a change of service provider. A good starting point in making a determination is to consider the following: How the services are being provided? Who is providing the services? What assets/equipment/tools are being used in the provision of services and who owns them? Once it has been identified who or what is transferring the next step will be to determine whether, in the case of a change of service provider, the activity is asset reliant or labour reliant. Where the activity is asset reliant, the next question to ask is whether the majority of the assets are transferring. For labour reliant activities, one must consider whether the majority of the workforce is transferring as a result of the change in service provider. 

For any further guidance in relation to TUPE, please contact Chris Ryan or a member of the Employment Practice Group.