TUPE or Not TUPE? - Transferring Tangible Assets
Does the transfer of tangible assets determine whether a TUPE transfer has taken place?
No - the key is to look at all the relevant factors before reaching a conclusion. This is illustrated by a case going through the court of justice of the European Union (CJEU) at the moment.
Background
Following a TUPE transfer of the operation of a German public bus service, two employees claimed that their employment had transferred to the new owner under the Acquired Rights Directive (the Directive). The new owner argued that the Directive did not apply since there was no transfer of the former owner's tangible assets - namely, the buses.
The question for the CJEU was whether there was a transfer of an undertaking for the purposes of the Directive, even where no tangible assets were transferred.
Opinion of the Advocate General
The Advocate General noted that in order to ensure that the Directive is applied in a uniform manner, the first question to be examined is whether the entity in question has retained its identity. This means that, all the facts and circumstances must be assessed, including the type of undertaking, whether tangible assets were transferred, whether the majority of employees are retained by the new employer, whether customers were transferred , the degree of similarity in activities pre and post transfer, and any period of suspension of those activities. No single factor can be considered in isolation.
The Advocate General stated further that the central objective of the Directive is to safeguard the rights of employees in the event of a change of employer. Therefore, the determination of whether the entity retains its identity, and the assessment of the surrounding facts and circumstances, is to be made in accordance with that central objective.
The Advocate General also pointed out that the new owner was unable to take over the former owner's buses because it was not able to use those buses to fulfil its new contractual and legal obligations because of the need to meet new technical and environmental standards.
The Advocate General concluded that where legal, technical and environmental constraints mean that it is not commercially viable for the new owner to take on tangible assets, the proper course is to disregard them and assess the other elements of the transaction.
What Can You Learn?
In the UK we rely on the Service Provision Change rules under Regulation 3(1)(b) TUPE, which surpasses the requirements of the Directive. Nevertheless, this case provides a useful reminder that when deciding whether or not there has been a transfer of an undertaking of an asset-focussed business, where no assets transfer, it is still necessary to look at all the elements of the transaction.