Mind the gap: TUPE and gaps between contracts

The Advocate General of the European Court of Justice (“ECJ”) has confirmed that a 5-month gap in operations does not necessarily prevent TUPE applying. We look at practical guidance for employers where there is a gap in operations and TUPE may apply.

Mr Siguenza worked as a music teacher at the Municipal Music School of Valladolid. Initially, the School was run by the Municipality of Valladolid. However, in 1997, the Municipality invited tenders for the running of the School, which they awarded to a company called Musicos, which took over the facilities, premises and resources of the School, and some of the staff of the Municipality.

The Municipality retendered the contract on a number of occasions, and Musicos was successful each time. Following a decline in the number of pupils, a dispute arose between Musicos and the Municipality, which resulted in Musicos ceasing to run the school. Musicos decided to dismiss all of its staff and returned the instruments, resources and premises to the Municipality. Musicos stopped running the School on 1 April 2013 and dismissed its staff on 4 April 2013. 

The Municipality decided to terminate the contract in August 2013 and invited new tenders to run the School. The contract was won by In-Pulso, which took over the running of the School in September 2013, using the premises, instruments and resources previously used by Musicos but with entirely different staff. 

The staff of Musicos challenged their dismissal, arguing, amongst other things, that their employment had transferred to In-Pulso. The Social Court of Valladolid decided that there had not been a transfer because there had been a 5-month gap in operations. The case was then referred to the ECJ.  

The Advocate General decided that, as Musicos had only performed this one contract and had become insolvent on ceasing to run the contract, there was no entity that could transfer and so TUPE did not apply. However, he indicated that they might well have reached a different decision had Musicos held a number of different contracts. The Advocate General confirmed that a gap in operations is a factor in whether there is a transfer. He went on to say that a gap in operations will need to be considered in context. For example, where activities are seasonal, a time where operations are dormant will not prevent a transfer. In this situation, even where the gap lasted not just for the summer holiday but also one of the terms, this would not automatically mean that a transfer could not take place.

This opinion is consistent with domestic case law where the courts have held that a gap in operations will not necessarily mean that there is no transfer. An organised group of employees could still transfer even if they were not engaged in the activities immediately before the time of transfer. However, if there is no organised group of employees by the time of the transfer, this may mean that there is, in fact, no transfer. 

The purpose, nature and length of the gap will be relevant in deciding whether the organised group of employees has continued to exist. It will, however, be a case of looking at all the circumstances in determining whether the organised group has continued to exist. The reason why there is a gap will be relevant as domestic courts have commented that they would not allow the purpose of the TUPE regulations to be defeated by a gap in operations as this could result in employers engineering a gap in order to avoid the application of TUPE. 

Practically, the following points will be helpful in assessing whether there is a transfer:

• Where there is a gap, there is no set time after which TUPE will not apply;
• The longer the gap, the less likely it is that TUPE will apply;
• Courts have found that gaps of three and five months will not necessarily mean that TUPE does not apply;
• Where there has been a gap and staff have been assigned to other work in the meantime, it may be difficult to show that they were permanently assigned to the work transferring immediately before the transfer (which is the time when assignment is tested);
• The longer the gap, the more likely it is that staff will be assigned to other work because the out-going employer will not want to see the staff continuing to be paid but not doing any work;
• If staff are not assigned to other work, the fact that work has ceased for a period will not necessarily prevent them being assigned immediately before the transfer – this will depend on the purpose, nature and length of the gap;
• If the reason for the gap is to avoid the application of TUPE, that will tend to lead the courts to find that the gap does not prevent TUPE applying; and
• Where a cessation of work is intended to be temporary at the outset, this tends to lead to the conclusion that TUPE could still apply.

For more information

For help with determining whether TUPE applies, please contact Doug Mullen.

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