Factual and Procedural Background
The appeal concerns whether, under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), the Appellant company (formerly Building & Property Limited, now Unicorn Consultancy Services Limited) is liable to pay profit-related pay (PRP) to the Respondents (Employees) based on a scheme established prior to a relevant transfer. The Employees were originally employed by W.A. Atkins (Services) Ltd ("Atkins Services"), a subsidiary of W.S. Atkins Ltd and part of the Atkins Group, and participated in the Atkins PRP Scheme covering the profit year from 1 April 1996 to 31 March 1997.
The works contract between Atkins Services and Surrey County Council ended on 31 March 1997, and the Appellant company successfully tendered for the new contract, resulting in a TUPE transfer of 25 out of 47 Atkins Services employees to the Appellant company on 1 April 1997. All Employees worked for Atkins Services throughout the entire profit year relevant to the PRP Scheme.
The central dispute is whether the Appellant company, as transferee under TUPE, is liable to pay PRP under the Atkins PRP Scheme to the Employees who transferred.
Legal Issues Presented
- Whether the Appellant company has a liability under TUPE to pay profit-related pay to the Employees based on the Atkins PRP Scheme established prior to the transfer.
- How the Atkins PRP Scheme should be construed and applied in light of the TUPE transfer and its deeming provisions.
- Whether the Employees satisfied the eligibility criteria under the Atkins PRP Scheme at the date specified for payment, considering the change of employer.
Arguments of the Parties
Appellant's Arguments
- The Appellant company argued that as at the date of the TUPE transfer, the Employees had no rights under the Atkins PRP Scheme.
- It contended that eligibility for PRP was defined by Rule 4 of the Scheme, which imposes three conditions that must be met for entitlement, including employment by a company in the Atkins Group at the date specified in Rule 4.3.
- Reliance was placed on the Morris Angel & Son Ltd v Hollande case to support a construction that rights and obligations should not be extended beyond those originally contemplated, particularly concerning group membership and contractual obligations.
Employees' Arguments
- The Employees argued that the Appellant company remained bound to pay the PRP by reference to the Scheme, notwithstanding the transfer.
- They referenced the Whent and others v T Cartledge Ltd case to support the proposition that collective agreement terms and remuneration rights continue post-transfer, even if the transferee withdraws from the collective agreement.
- They contended that the deeming provisions in TUPE mean the Appellant company steps into the shoes of the transferor and is liable for the PRP earned during the profit period.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Knud Wendelboe & Others v L.J. Music ApS in liquidation (Case 19/83) |
Clarifies that “existing on the date of transfer” applies to contracts or employment relationships, not to rights and obligations; supports the purpose of TUPE to maintain employment relationships unchanged. |
The court accepted this interpretation and used it to affirm the purposive approach to TUPE, ensuring continuity of employment relationships post-transfer. |
| H.B.M Abels v The Administrative Board of the Bedrijfsvereniging (Case 135/83) |
Confirms that contingent rights or liabilities are not excluded from transfer under Article 3; emphasizes the protective purpose of the Directive for workers’ rights. |
The court accepted that contingent liabilities under the PRP scheme could transfer, supporting the Employees' claim that the Appellant company is liable. |
| Marshall v Kerr [1995] AC 148 |
Sets out the approach to interpreting deeming provisions: give ordinary meaning consistent with policy and purpose, limiting application to avoid injustice or absurdity. |
The court applied this approach to interpret TUPE’s deeming provisions in the context of the PRP Scheme, emphasizing purposive construction. |
| Morris Angel & Son Ltd v Hollande & another [1993] IRLR 168 |
Illustrates purposive application of TUPE, particularly that rights and obligations should not be extended beyond original intent; considers retrospective effect of transfer. |
The court relied on this case to balance literal contractual construction with TUPE’s purpose, applying a purposive approach to the PRP Scheme. |
| Whent and others v T Cartledge Ltd [1997] IRLR 153 |
Confirms that transferee remains bound by collective agreement terms post-transfer, even if it withdraws later; an implied term limiting TUPE application would be void. |
The court cited this case to support the principle that remuneration rights continue post-transfer and cannot be contracted out of, reinforcing the Employees' position. |
Court's Reasoning and Analysis
The court undertook a detailed construction of the Atkins PRP Scheme in light of TUPE and its deeming provisions. It rejected the Appellant company's argument that eligibility for PRP was strictly defined by Rule 4 of the Scheme, particularly the requirement in Rule 4.3 that an employee be employed by a company within the Atkins Group at the date specified for payment.
Instead, the court found that "Eligible Employee" is defined more broadly, and Rule 4.3 primarily addresses the timing of payment and administrative practicalities, not eligibility per se. The court emphasized that the Employees had worked in the Employment Unit (the whole undertaking of the Atkins Group) throughout the profit period and thus had "earned" their PRP by the date of transfer.
Applying the purposive approach mandated by TUPE and supported by the cited authorities, the court held that the Appellant company, as transferee, stepped into the shoes of the transferor employer and was liable to pay PRP under the Scheme. The deeming provisions of Regulation 5 of TUPE were critical, as they treat the contracts as if originally made between the Employees and the Appellant company, including all rights and liabilities.
The court acknowledged practical difficulties in other factual scenarios (e.g., transfers during a profit period) but found these did not apply here. It also noted that the Appellant company had indicated willingness to make gross payments if required, mitigating concerns about tax consequences.
Holding and Implications
The court DISMISSED THE APPEAL, holding that the Appellant company is liable under TUPE to pay the Employees profit-related pay pursuant to the Atkins PRP Scheme.
The direct effect is that the Appellant company must honor the PRP payments earned by the Employees during their employment with the transferor employer, notwithstanding the change in employer. No broader or new legal precedent was established beyond the application of existing TUPE principles to the contractual terms of the PRP Scheme in this factual context.