Preston and Others v Wolverhampton Healthcare NHS Trust and Others: Judgement of the House of Lords; 8 February 2001

The European Court seems determined to cause maximum confusion in the case law on the Acquired Rights Directive. Its conclusions are increasingly unpredictable and difficult to reconcile with previous cases.

The latest case of Liskovarji is a shocking decision: shocking in its outcome and its reasoning.

The case concerned the operation of seven bus routes in Helsinki. The Council ran a tendering exercise. The existing contractor was unsuccessful and a new contractor was appointed to operate the routes for three years.

The routes had been operated with 45 drivers and 26 buses. Thirty three of the drivers applied for jobs with the new contractor and all 33 were appointed, but on worse terms and conditions. The new contractor bought some of the uniforms for the existing drivers but did not use the same buses.

The first question the Court had to answer was whether the Acquired Rights Directive applied to a contract awarded following a tendering exercise under the Public Procurement Directives. The Court reached the sensible conclusion that the Public Procurement Directives are not intended to exempt contracting authorities and service providers from laws and regulations in the social sphere: they must still comply with those laws and when bidding must take into account the possible applicability of the Acquired Rights Directive.

Equally, the award of a public service contract in this instance did not fall outside the Acquired Rights Directive as the operation of passenger transport by bus does not involve the exercise of public authority. The absence of a direct contractual link between the two contractors did not prevent the Directive applying.

So far, so good. One would then have expected the Court to accept the arguments of the workers, supported by the Commission and by an intervention from the UK government, and decide that the Directive applied. Not so.

The Court recited the previous cases. The Court said that "bus transport cannot be regarded as an activity based essentially on manpower, as it requires substantial plant and equipment". The Court decided that there was no transfer in the absence of a transfer to a significant extent of assets necessary for the proper functioning of the entity.

This is an extraordinary conclusion when the majority of staff transfer and the activity carries on in the same way following the transfer.

In particular, the Court failed to take on board that the right to operate the bus services on those routes for a period of time is a valuable intangible asset, akin to goodwill. The Court discounted this approach. It asserted that the value of the contract fell to nil on the expiry of the contract and that there was no "transfer of customers" because the new contractor did not take over the existing contracts with customers and the customers were not "captive".

This is a very narrow approach. It fails to take account of the fact that the grant of an exclusive right to operate certain bus routes is a valuable commodity and that if passengers want to travel by bus on those routes, they will now have to do so on the new contractor's buses. The fact that the contract is for a finite period does not negate this, any more than it would if someone purchases a shop with the goodwill of its customers but with a lease for a finite period.

The decision is poorly reasoned and inconsistent with the approach in earlier cases. It causes further confusion and undermines the efforts of UK courts to reconcile previous cases and achieve a stable and understandable position.

Particular sympathy on this point must be given to the Employment Appeal Tribunal in Cheesman which attempted to pull together all the principles from the previous ECJ and UK cases. The EAT correctly emphasised the need to consider separately whether there was an undertaking and whether it had been transferred and carefully set out the factors identified in previous cases, in doing so it attempted to reconcile Suzen with the previous cases and concluded that there was a relevant transfer of a local authority housing maintenance contract when none of the existing staff were taken on by the new contractor and no assets were transferred, only the contract itself.

The latest ECJ decision leaves the situation in a mess. It encourages employers to resurrect old issues and attempt to find ways around TUPE. We have waited long enough for the government's draft regulations to reform and simplify TUPE. The government should act now.