The majority of Local Authorities in Scotland operate Arms
Length External Organisations ("ALEOs"). Audit Scotland
defines ALEOs as "companies, trusts and other bodies that
are separate from the local authority but are subject to local
authority control or influence". Common services provided
by ALEOs are leisure facilities, cleaning and car parking.
In its judgment in Armstrong and Others v Glasgow City Council
and Others, the Glasgow Employment Tribunal concluded that
ALEOs which are Limited Liability Partnerships ("LLPs")
are not "associated employers" for the purposes of
section 1(6) of the Equal Pay Act 1970 ("EPA"). Section
1(6) of the EPA provides that two employers are to be treated as
associated if "one is a company over which the other
(directly or indirectly) has control or both are companies of which
a third person (directly or indirectly) has control".
"Company" is not defined by the EPA, however, the
Companies Act 2006 identifies types of company as limited and
unlimited companies, private and public companies, companies
limited by guarantee and community interest companies. The Tribunal
concluded that an LLP does not fall into any of these categories
and the Tribunal was not persuaded to apply a wider
definition.
The practical effect of this conclusion is that an employee who is
employed by an LLP cannot compare himself with an employee of the
local authority (and vice versa) for the purposes of claiming equal
pay after the date of TUPE transfer to the ALEO employer. If the
Claimant and the comparator were employed on common terms and
conditions prior to one of them transferring to the LLP
(under TUPE) then a comparison can continue to be made. The
comparison would, however, be restricted to the comparator's
rate of pay at the time of transfer (a principle established by
Gutridge v Sodexo plc). The comparator's pay rises
following the transfer will not be taken into account.
The Tribunal concluded that one of the ALEOs in question was an
"associated employer" of the Council because it was a
company limited by guarantee rather than an LLP.
The Tribunal also concluded that Glasgow City Council was not the
"single source" responsible for the Claimants' terms
and conditions of employment. The "single source"
argument derives from European case law and provides Claimants with
a further option to the "associated employer" argument
referred to above.
In order to succeed in the "single source" argument, the
Claimants are required to establish that one body is responsible
for setting the terms and conditions of the Claimants and the
comparators. The Tribunal was satisfied on the evidence that each
of the ALEOs was responsible for setting the terms and conditions
of its employees and that the Council had no control over that
aspect of the ALEOs' business. Specific evidence was led
regarding changes that ALEOs had made to their employees' terms
and conditions. The ALEOs also individually negotiated the annual
pay award with the recognised trade unions.
As it was common ground that the Armstrong claimants had
transferred to Glasgow City Council's ALEOs as a result of
TUPE, Glasgow City Council was dismissed as a Respondent in the
proceedings. Another consequence of the decision in the context of
the Armstrong litigation is to reduce the value of the
claims in the event that they succeed. The Claimants affected by
this decision are predominantly represented by no win no fee
solicitors, Fox Cross.
We are pleased to have been able to assist the Council in
achieving this successful outcome.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
