Wilson & Ors v St Helens Borough Council

Factual and Procedural Background

The dispute concerns claims under the Wages Act 1986 ("the 1986 Act") brought by employees against a local council ("the Council") following a transfer of control of a community home ("the School") from a County Council ("the County Council") to the Council. The School provided education and care for boys with behavioural problems. The County Council withdrew from managing the School, giving two years' notice, and the Trustees invited the Council to assume control on the condition that running the School would not cost the Council resources. Staff employed by the County Council were dismissed by reason of redundancy on 30th September 1992, and some applied for and accepted posts offered by the Council under new contracts with varied terms and conditions. Notably, certain allowances previously paid by the County Council were not continued by the Council.

The employees' union requested restoration of previous terms and conditions, contending that the transfer precluded alteration of employment terms. The Council disputed the application of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("the 1981 Regulations"). The employees commenced proceedings in the Industrial Tribunal alleging unlawful deductions from wages under the 1986 Act due to reduced pay following the transfer. The Industrial Tribunal dismissed their claims, finding that the contracts had been effectively varied or affirmed by conduct, and the Council had not breached the 1986 Act. The employees appealed the Tribunal's decision.

Legal Issues Presented

1. Whether parties to an employment relationship are entitled to alter the terms of that relationship if the reason for the alteration is the transfer of an undertaking under the 1981 Regulations and the Acquired Rights Directive 77/187 ("the Directive").
2. Whether the Industrial Tribunal erred in holding that the employees had effectively varied or affirmed their contracts of employment despite the transfer.
3. Whether the Council unlawfully deducted wages contrary to S.1 of the 1986 Act by paying employees less than under their original contracts with the County Council.

Arguments of the Parties

Appellants' Arguments

• The parties to an employment relationship cannot alter terms if the reason for alteration is the transfer of an undertaking.
• Any alteration resulting in detriment to the employee is prohibited by the 1981 Regulations and the Directive.
• The employees were entitled to be paid according to their original contracts with the County Council, and the Council’s failure to do so constituted unlawful deductions.

Respondent's Arguments

• The variations in terms were not by reason of the transfer but for economic, technical, or organisational reasons entailing workforce changes, permitted under Regulation 8(2) of the 1981 Regulations.
• New contracts were agreed and affirmed by the employees' conduct post-transfer, effectively varying the terms.
• Even if variations were ineffective at transfer, subsequent agreement or conduct could validly vary terms under general contract law.
• The employees applied for and accepted posts in the new structure, working under altered terms with knowledge of changes.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by identifying the key legal question: whether the transfer of an undertaking permits alteration of employment terms. The 1981 Regulations, aligned with the Directive as interpreted by the European Court of Justice in Daddy's Dance Hall, provide mandatory protection to employees by preserving their existing contracts upon transfer.

The court analysed the Industrial Tribunal’s findings that the contracts had been varied or affirmed by conduct. It found this reasoning erroneous because the variations were directly caused by the transfer, which the Directive and Regulations prohibit. The Tribunal had incorrectly relied on Regulation 8(2), which addresses dismissals for economic, technical, or organisational reasons, whereas the employees were not dismissed but continued under new contracts.

The court emphasized that the public policy underlying the Directive forbids any waiver or variation of terms if the transfer is the operative cause. Subsequent conduct by employees accepting new terms cannot validate an otherwise prohibited variation stemming from the transfer. The court rejected the Tribunal’s analogy to dismissal provisions and the suggestion that affirmation of contracts post-transfer could cure an initially ineffective variation.

Accordingly, the court held that the original contracts with the County Council remained effective, and the Council’s payment of reduced wages constituted unlawful deductions under the 1986 Act.

Holding and Implications

The appeal is allowed.

The court overturned the Industrial Tribunal’s decision and remitted the claims to the Tribunal for determination of individual entitlements under the 1986 Act based on the original contracts of employment with the County Council. The ruling clarifies that employment terms cannot be altered by reason of a transfer of an undertaking, reinforcing the mandatory protection afforded by the 1981 Regulations and the Directive. No new precedent beyond the application of existing EU and domestic law principles was established. The direct consequence is that the Council must pay employees according to their original contract terms unless a lawful variation unrelated to the transfer is proven.