Factual and Procedural Background
This opinion concerns two appeals raising the primary issue of whether, under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”), a liability of the transferor employer in tort to an employee, which accrued before the transfer, is transferred to the transferee employer. The first case involves the Claimant (referred to as "Plaintiff") who worked for the Defendant, Lancashire County Council ("the Council"), and alleged personal injuries suffered during his employment. The Council transferred its waste disposal services, including the business in which the Plaintiff worked, to an independent company ("Company A") pursuant to a transfer scheme. The Plaintiff commenced proceedings against the Council, which contended that under TUPE the liability had transferred to Company A.
In the second case, the Plaintiff was employed by a catering company ("Company B") at a hospital ("The Hospital"). After an injury at work, the hospital's healthcare trust ("The Trust") took over the relevant activities from Company B. The Plaintiff commenced proceedings against Company B and later included The Trust, alleging that liability transferred under TUPE. Company B admitted the transfer of liability to The Trust, but The Trust denied it. A preliminary issue was heard in the High Court, where the judge held that TUPE transferred both the tort liability and the insured employer’s right to indemnity under an employers’ liability insurance policy held by Company B. The parties appealed.
Legal Issues Presented
- Whether a liability of the transferor employer in tort to an employee, accrued before the transfer, is transferred by TUPE to the transferee employer.
- Whether the transferor employer’s rights under an employers’ liability insurance policy in respect of such liability are transferred by TUPE to the transferee.
Arguments of the Parties
Appellants' Arguments
- Representing the Council and Company B, the Appellants argued that tortious liabilities arising before the transfer do transfer to the transferee under TUPE.
- They contended that the transferor’s rights under the employers’ liability insurance policy also transfer to the transferee, ensuring continuity of employee protection.
Respondents' Arguments
- The Plaintiffs and The Trust argued that tortious liabilities do not transfer under TUPE, relying on the distinction between contractual and tortious liabilities.
- They contended that there is no implied term in employment contracts requiring transfer of insurance rights, and that the transferor’s rights under insurance contracts with third parties do not transfer under TUPE.
- One Respondent argued that TUPE’s provisions on transfer of rights and liabilities should not be construed to extend to rights and obligations under contracts with third parties such as insurers.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Berg v Besselsen [1990] I.C.R. 396 |
Transfer of employer’s obligations under employment contracts to transferee under Directive Article 3(1). |
Supported purposive construction of TUPE consistent with Directive, emphasizing automatic transfer of obligations. |
| Wilson v St Helens Borough Council [1999] 2 A.C. 52 |
Employee’s rights and remedies transfer to transferee to safeguard employee protection on transfer. |
Confirmed that employee can enforce rights against transferee as against original employer. |
| Angus Jowett & Co. Ltd. v National Union of Tailors [1985] I.C.R. 646 |
Distinction between liabilities arising under individual contracts and collective consultation obligations. |
Initially rejected transfer of all liabilities under TUPE; later clarified by subsequent cases. |
| Kerry Foods Ltd. v Creber [2000] I.R.L.R. 10 |
Employer’s duty to consult is connected to contract of employment and transfers under TUPE. |
Overruled aspects of Angus Jowett, broadening scope of transferred obligations. |
| Secretary of State for Employment v Spence [1987] Q.B. 189 |
Regulation 5(2) may transfer obligations arising in tort as well as contract. |
Supported interpretation of TUPE provisions as including tortious liabilities. |
| Morris Angel & Son Ltd. v Hollande [1993] I.C.R. 71 |
Transferee has standing to enforce certain contractual clauses post-transfer. |
Demonstrated broad scope of transferred rights and liabilities. |
| Wilson v West Cumbria Health Care NHS Trust [1995] P.I.Q.R. P38 |
Liability for personal injury claims transferred to transferee under NHS provisions analogous to TUPE. |
Supported transfer of tortious liabilities in employment context. |
| Allan v Stirling District Council [1995] I.C.R. 1082 |
Transfer of accrued and continuing liabilities under employment contracts to transferee. |
Confirmed transferor relieved of liabilities post-transfer. |
| DJM International Ltd. v Nicholas [1996] I.C.R. 214 |
Liabilities arising under employment relationship transfer to transferee including tortious liabilities. |
Confirmed wide interpretation of Regulation 5(2)(b) including non-contractual obligations. |
| Taylor v Serviceteam [1998] P.I.Q.R. P201 |
Liability in tort and breach of statutory duty transferred under TUPE. |
Supported transfer of tortious liabilities and breach of statutory duties connected with employment. |
| Cramer v Watts Blake Bearne & Co. plc (unreported, 31 Dec 1997) |
Held tortious liabilities do not transfer under TUPE, based on public policy and insurance concerns. |
Rejected by the Court in current judgment as inconsistent with Directive and TUPE. |
| Richardson v Pitt-Stanley [1995] Q.B. 123 |
Non-compliance with Employers’ Liability (Compulsory Insurance) Act 1969 does not create civil liability. |
Used to reject implied term of insurance protection in employment contracts. |
| Matthews v Kuwait Bechtel Corp. [1959] 2 Q.B. 57 |
Employer’s liability to employee may be enforced in contract or tort. |
Confirmed that tort and contract claims can co-exist and are connected. |
| Wilson & Clyde Coal Co. Ltd v English [1938] A.C. 57 |
Employer’s fundamental obligations include duty of care arising from contract of employment. |
Supported view that tortious duties arise from employment relationship. |
Court's Reasoning and Analysis
The Court began by identifying the two central issues relating to the transfer of liabilities and insurance rights under TUPE. It examined the purpose of the Acquired Rights Directive and its implementation in UK law via TUPE, emphasizing the Directive’s goal of safeguarding employee rights on transfer of an undertaking.
The Court noted the broad language of Article 3(1) of the Directive and Regulation 5(2) of TUPE, which transfer “rights, powers, duties and liabilities under or in connection with” employment contracts. The Court rejected a narrow interpretation limiting transfer to contractual liabilities only, reasoning that tortious liabilities arise from or in connection with the contract of employment and thus fall within the scope of TUPE.
The Court considered relevant case law, including decisions supporting the transfer of tortious liabilities and those suggesting otherwise, ultimately siding with the former. It highlighted the practical consequences of excluding tortious liabilities, such as employees being unable to recover damages if the transferee is insolvent or uninsured, which would frustrate the Directive’s protective purpose.
Regarding the transferor’s rights under employers’ liability insurance policies, the Court reasoned that these rights, although contractual with insurers (third parties), arise in connection with the employer’s liability to employees under the employment contract. Therefore, these rights also transfer under TUPE to ensure employees retain protection post-transfer.
The Court dismissed arguments that such a construction would exceed the Directive’s scope or that domestic considerations should not influence its interpretation, emphasizing the purposive approach mandated by EU law and the need to avoid unjust outcomes such as insurers retaining premiums without liability.
Holding and Implications
The Court’s final decision was as follows:
- On the first issue, the Court held that the liability in tort of an employer to an employee, accrued before the transfer, is transferred by TUPE to the transferee employer.
- On the second issue, the Court held that the transferor’s rights under any employers’ liability insurance policy in respect of such liability are also transferred by TUPE to the transferee.
The direct effect of this decision is that employees retain their rights to pursue claims against the transferee employer for liabilities arising before the transfer, including tort claims. Furthermore, the transferee inherits the transferor’s rights to indemnity under relevant insurance policies, ensuring continuity of protection for employees.
No new precedent was established beyond clarifying the scope of TUPE consistent with the Directive. The decision resolves conflicting lower court rulings and emphasizes a purposive construction to protect employees’ interests in transfers of undertakings.