There are a number of tests that have been applied by the European Court of Justice to establish whether, and in what circumstances, the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) apply.

In Scottish Coal Co Ltd v McCormick and ors, the Court of Session has said that tribunals have to determine whether the essential elements of an operation were taken over by the transferee to know whether an undertaking has retained its identity, after a transfer.

 

What were the basic facts?

Scottish Coal had been subcontracting with Crouch Ltd to extract coal at an opencast mine in Ayrshire since 1988. The value of the plant used by Crouch was in excess of £2 million. It had also erected buildings on the site with a value of about £150,000.

In April 2001, Scottish Coal took over the work at the site, but did not buy any of the plant or equipment from Crouch. However, most of their site workers were retained (with the exception of the foreman, Mr McCormick), doing more or less the same job as they had before.

Some of the workforce, including Mr McCormick, brought a claim arguing that there had been a TUPE transfer between the two companies.

 

What did the tribunal decide?

Relying on the principles set out in Cheeseman v Brewer Contracts Ltd (2001, IRLR 144), the tribunal said that the activities of Crouch Ltd constituted a stable economic entity, prior to the transfer. The workforce was more or less permanently assigned to mining; the entity was autonomous; and it had significant tangible assets, such as the plant and equipment.

The tribunal then said that as operations continued at the site (following a short break), and as most of the workforce transferred over to Scottish Coal, the entity had retained its identity and there had, therefore, been a TUPE transfer.

 

What did the EAT decide?

The EAT agreed that the activities of Crouch constituted a stable economic entity, and that there had been a TUPE transfer, given that the main activity (the extraction of coal) had continued after the transfer. The only difference was that the equipment that was being used belonged to Scottish Coal, rather than Crouch.

The EAT said it was important to apply a "purposive approach" in order to give effect to the purpose behind the regulations - the protection of workers' rights. The tribunal was, therefore, right to decide there had been a TUPE transfer.

 

What did the court of session decide?

Scottish Coal appealed again, saying that both tribunals had failed to follow the guidance of the European Court of Justice in Oy Liijkenne Ab v Liskojarvi (2001, IRLR 171).

This said that courts have to characterise undertakings as either "asset reliant" or "labour intensive" to decide if there has been a transfer. Given that Crouch Ltd had been an "asset reliant" undertaking, there could not be a TUPE transfer as none of the assets had transferred.

The Court of Session (the Court of Appeal in Scotland) disagreed, however, saying that the decisive test is whether the entity has retained its identity, after the transfer. To do that, the ECJ made clear that it is for "the national court [to]...determine which are the essential and indispensable elements required in order for the economic entity to carry on operating and establish whether these elements have been taken over by the transferee."

The Court warned, however, that when examining the "essential and indispensable elements", tribunals must examine the whole of the transaction to find out whether one particular factor is decisive.

In this instance, it decided that the tribunal had not sufficiently analysed the relative importance of plant and labour in Crouch's activities. Nor had it made any findings of fact about whether Crouch's technical and managerial staff had transferred. It therefore allowed the appeal and remitted the case to the tribunal to be heard again.