Legal Updates

Employment Law– Transfer of Undertakings - TUPE – Employee Lack of Knowledge of New Employer

In the case of New ISG Ltd v Vernon and Others [2007] an employee did not know who his new employer was going to be after his existing employer was sold. According to Regulation 4(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”):

“(7) Paragraphs (1) and (2) shall not operate to transfer the contract of employment and the rights, powers, duties and liabilities under or in connection with it of an employee who informs the transferor or the transferee that he objects to becoming employed by the transferee”.

The defendants in this case had all been employed in sales positions by ISG (“the Company”). The Company's business provided recruitment agency services for both white and blue collar workers to the rail industry. It was well known that there were fewer clients, as well as a shortage of skilled professionals and engineers, in the rail industry than in other industries. Those involved in the industry knew and dealt with almost all of the clients and candidates.

All of the defendants, except the fourth defendant, accepted that they had signed written contracts of employment. They also accepted that those contracts contained restrictive covenants which prevented solicitation, canvassing or dealing with clients or temporary workers of the employer.

Subsequently, the Company became insolvent and joint administrators were appointed on the 13th of July 2007. On the 19th of July, the joint administrators offered for sale some of the assets of the Company, including goodwill. On the 27th of July, UKRS and its subsidiary, the claimant, agreed to purchase the assets of the company.

The defendants maintained that they had received very little information from the joint administrators as to the progress of the proposed asset sale. At about 3pm on the 27th of July, all staff were called into a meeting. They were informed that UKRS had purchased the Company, and that they were now to be regarded as employees of UKRS.

The defendants argued that they were very concerned by the sale to UKRS. On the 31st of July, they resigned with immediate effect and subsequently gained employment with a competitor. During the course of that employment, they canvassed, solicited and dealt with a variety of clients and temporary workers of the claimant.

The claimant also alleged that the defendants had removed confidential information from its premises. It then obtained a ‘without notice injunction’ preventing the defendants from breaching the restrictive covenants.

Issues arose as to whether the defendants' objections to the transfer to UKRS had prevented the transfer of their employment pursuant to Regulation 4(7) of TUPE.

The claimant submitted that Regulation 4(7) should be construed narrowly, and that on the plain meaning of the words used in the Regulation any notification of objection by the defendants had to have been made before the date of the transfer.

The defendants argued that Regulation 4(7) should be construed purposively. It should have regard to an employee's fundamental right to choose his employer. In cases where the employee was not informed of the identity of the employer to which his employment had been transferred until after the transfer had taken place, Regulation 4(7) had to be construed as applying to objections made after a transfer had been carried out.

The court decided that in a case where an employee did not know the identity of the employer to which his employment had been transferred before the date of the transfer of the undertaking, the fundamental principle that an employee should be free to choose his employer required that Regulation 4(7) of TUPE be construed purposively.

This meant that in this case, despite the delay of two working days, the defendants' resignations had been effective objections within the meaning of Regulation 4(7). Accordingly, it was held that the restrictive covenants were not enforceable against them. In such circumstances, the court felt that there was no serious issue to be tried.

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© RT COOPERS, 2008. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.


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