London United Busways Ltd v Marchi & Anor

Factual and Procedural Background

This appeal arises from a transfer of undertakings under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("the 2006 Regulations"). The Appellant, Company A, lost a contract to operate a bus route to Company B. The employee, Plaintiff, who was employed by Company A as a bus driver, objected to transferring to Company B due to substantial changes in his working conditions, notably a longer commute. Company A offered the Plaintiff alternative employment or transfer under TUPE, but the Plaintiff rejected these options and sought redundancy, which was not available. Company A treated the Plaintiff’s employment as terminated on the transfer date, 8 November 2019, while Company B treated the Plaintiff as an employee post-transfer. The Plaintiff maintained he had not resigned and did not accept the transfer. The Employment Tribunal found that the Plaintiff was dismissed by Company A on 8 November 2019 and that the employment contract did not transfer to Company B. Both Company A and the Plaintiff appealed aspects of this finding.

Legal Issues Presented

1. Whether an employee who objects to becoming employed by the transferee but does not treat the contract as terminated under regulation 4(9) of the 2006 Regulations remains employed by the transferor until dismissal or election to terminate.
2. The legal effect of an employee’s objection under regulation 4(7) on the transfer of the employment contract and related rights.
3. The proper construction and application of regulations 4(7), 4(8), and 4(9) of the 2006 Regulations in the context of a TUPE transfer involving substantial detrimental changes to working conditions.
4. Whether the Employment Tribunal erred in finding that the Plaintiff was dismissed by the transferor and that the contract did not transfer to the transferee.

Arguments of the Parties

Appellant's Arguments

• Under regulation 4(7) and 4(8), the Plaintiff’s objection to transfer terminated his employment by operation of law without dismissal.
• Regulations 4(9) and (11) require the employee to treat the contract as terminated to claim dismissal; the Plaintiff did not do so.
• The employment and liabilities transferred to the transferee by operation of regulation 4(1).
• The Employment Tribunal erred in holding that an employee may object to transfer yet remain employed by the transferor.
• The Tribunal’s finding of termination by dismissal was inconsistent with the Plaintiff’s conduct, including seeking sick pay post-transfer.

Plaintiff's Arguments

• The 2006 Regulations implement the Acquired Rights Directive, which protects employees in the event of transfers involving substantial detrimental changes.
• Regulation 4(9) confers a choice to treat the contract as terminated; if the employee does not exercise this right, he does not lose protection.
• The Tribunal was correct to find that the Plaintiff did not treat the contract as terminated and so remained employed by the transferor.
• The employer bears the risk of whether the change is substantial and materially detrimental; the employee should not be forced to elect termination.
• The Tribunal erred in concluding the Plaintiff had not treated the contract as terminated; the Plaintiff’s conduct indicated an election to terminate by redundancy.

Second Respondent's Arguments

• The Plaintiff’s objection under regulation 4(7) precluded transfer of the contract and related rights to the transferee.
• The Tribunal’s finding that the Plaintiff was dismissed by the transferor was not appealed and stands.
• The Plaintiff’s employment did not transfer to the transferee, and any claim must be against the transferor.
• The transferee accepts the position under regulations 4(9) and 4(11) but submits it cannot be liable regardless of the cross-appeal.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Merckx and anor v Ford Motors Co (Belgium) SA [1997] ICR 352, ECJ	Interpretation of Article 4(2) of the Acquired Rights Directive regarding termination due to substantial detrimental change.	Supported the interpretation that employees may treat contract as terminated and be deemed dismissed by employer where transfer involves substantial detrimental change.
Katsikas v Konstantinidis [1993] IRLR 179, ECJ	Employee’s right to object to transfer and the effect on transfer of employment contract.	Confirmed that objection prevents transfer of contract to transferee and that member states may determine fate of contract post-objection.
University of Oxford v Humphreys [2000] ICR 405, CA	Liability for dismissal claims post-transfer and the distinction between transferor and transferee obligations.	Clarified that claims for dismissal must be asserted against transferor when contract does not transfer due to objection.

Court's Reasoning and Analysis

The Court analysed the interplay between regulations 4(7), 4(8), and 4(9) of the 2006 Regulations in the context of a relevant transfer involving substantial detrimental changes to the employee’s working conditions. It confirmed that regulation 4(9) grants the employee a choice to treat the contract as terminated and be deemed dismissed by the employer (transferor or transferee depending on timing). If the employee elects not to terminate, the contract transfers unless the employee objects under regulation 4(7).

The Court rejected the Tribunal’s conclusion that an employee may object to transfer yet remain employed by the transferor post-transfer without dismissal or termination. Instead, it held that an objection under regulation 4(7) precludes transfer of the contract and triggers termination by operation of law under regulation 4(8), subject to the employee’s election under regulation 4(9).

The Court emphasised that the employee’s choice under regulation 4(9) must be communicated unequivocally by overt acts inconsistent with subsistence of the contract. The Plaintiff did not make such an election. Therefore, despite the objection, the contract terminated by operation of law on transfer date, with the transferor treated as the dismissing employer.

The Court examined the Employment Tribunal’s factual findings and concluded they were not perverse. The Plaintiff’s conduct, including continuing to seek sick pay and denying resignation, supported the Tribunal’s finding that he did not treat the contract as terminated. The Court also noted that the transferor’s letters effectively ended the employment on 8 November 2019, constituting dismissal.

Finally, the Court held that the contract did not transfer to the transferee, who had no liability for dismissal claims. The Employee’s rights and remedies lie against the transferor.

Holding and Implications

The appeal and cross-appeal are both dismissed.

The Court held that where a relevant transfer involves a substantial detrimental change, regulation 4(9) grants the employee the right to treat the contract as terminated, resulting in dismissal by the employer (transferor or transferee). If the employee objects under regulation 4(7), the contract does not transfer and terminates by operation of law under regulation 4(8), with dismissal attributed to the transferor. An employee who objects but does not elect to terminate remains employed by the transferor until dismissal or election to terminate.

In this case, the Plaintiff’s contract did not transfer to the transferee. The transferor’s conduct terminated the contract by dismissal on 8 November 2019. The Plaintiff’s remedies lie against the transferor. No new precedent was established beyond the correct interpretation of the 2006 Regulations in this context.