UK: Employment Newsletter - July 2012

Last Updated: 3 August 2012
Article by Brian Gegg


In Seawell Ltd v Ceva Freight (UK) Ltd, the Scottish EAT again considered the meaning of 'an organised grouping of employees' in the context of service provision changes under TUPE, and followed the approach set out in Argyll Coastal Services Ltd v Stirling (above).

Ceva is a freight forwarding and management logistics business. Its workforce is organised into a group dealing with 'inbound' goods and a group dealing with 'outbound' goods. Mr Moffat was employed in the outbound group with seven other people. He worked 100% of his time on an account for Seawell, whilst his group colleagues worked on other accounts in addition to the Seawell account. Following Seawell's decision to take the activity in-house, a dispute arose as to whether Mr Moffat had transferred to Seawell under TUPE. The tribunal concluded that TUPE applied because Mr Moffat spent 100% of his time on Seawell work.

However, the EAT held that the tribunal had failed to apply the law correctly. It should have identified an organised grouping of employees and then identified the activities carried out by that grouping. The EAT found that the only deliberately organised grouping of employees was that of an 'inbound' and an 'outbound' operation. There was no grouping organised for the purposes of the Seawell contract. Nor was it sufficient that Mr Moffat spent all his time on Seawell work to show that he was 'an organised grouping'. TUPE also requires the organised grouping to carry out all the activities under the contract. Seawell took the whole contract back, not just the work performed by Mr Moffat.

This case follows the more restrictive approach taken recently by tribunals interpreting the service provision changes of TUPE. It highlights the need to organise employees specifically with reference to client needs and requirements.


The Court of Appeal has held in Chandler v Cape plc that a parent company owed a duty of care for the health and safety of an employee of a subsidiary. This is the first reported case dealing with this issue.

From 1959 to 1962 Mr Chandler worked for a subsidiary of Cape plc which manufactured asbestos products. Whilst at work he was exposed to asbestos fibres, and in 2007 he was diagnosed with asbestosis. By that time, the subsidiary had been dissolved and its employers' liability insurance did not cover asbestosis. Mr Chandler's estate brought a claim against Cape plc alleging that it had owed and breached its duty of care to Mr Chandler.

The Court of Appeal agreed that in the particular circumstances of the case, Cape plc had owed Mr Chandler a direct duty of care which had been breached. The key circumstances here were that the parent company ran a very similar business to that of its subsidiary; it was well aware of the risks of being exposed to asbestos; and it had controlled health and safety policy and practice across the group. This decision does not affect the general principle of separate legal personality. The relevant law was the common law duty of care established in Caparo Industries plc v Dickman (1992): the damage must be foreseeable; there must be a sufficiently close relationship between the parties; and it must be fair, just and reasonable to impose a duty of care.

The Court gave general guidance on the circumstances in which a parent company may have a direct duty of care for the health and safety of employees of a subsidiary:

  • the businesses of the parent company and subsidiary are in a relevant respect the same;
  • the parent company had or ought to have had superior knowledge of relevant health and safety practices;
  • the parent company knew or ought to have known that the subsidiary's system of work was unsafe; and
  • the parent company knew or ought to have foreseen that the subsidiary would rely on that superior knowledge to protect its workforce.

It is clear that the courts will look at the wider relationship between group companies when assessing liability. Employers are therefore advised to look at group policies, reporting lines, and the extent of a parent company's involvement in the affairs of subsidiaries, as well as reviewing relevant insurance policies. This judgement also increases the importance of due diligence on acquisitions in order to assess potential liabilities.


Under the European Working Time Directive, workers are entitled to a minimum of four weeks' paid annual leave.

The UK Working Time Regulations provide for a more generous 5.6 weeks' paid annual holiday. Recent ECJ decisions on holiday entitlement and sickness absence have expanded the statutory provisions. It is now clear that workers on sick leave continue to accrue holiday, and may carry over any accrued but untaken holiday to a subsequent leave year if they could not take it due to sickness.

The recent ECJ case of Neidel v Stadt Frankfurt am Main has now confirmed that workers are only entitled to carry over four weeks' annual leave accrued whilst on sickness absence. In addition, on termination of employment, workers are entitled to be paid in lieu of holiday accrued but not taken because of sickness. However, this requirement only relates to the four weeks' minimum leave prescribed by the European Working Time Directive. It is up to member states to decide whether to provide for a more generous entitlement. In Neidel, a worker on long-term sick leave was only allowed to carry over holiday for nine months after the end of the leave year. Given that the carry over period should be substantially longer than the relevant holiday reference period, nine months was held to be too short as the leave year was 12 months.

The Government is in the process of amending the Working Time Regulations to take account of recent case law, but has already indicated that it intends to limit carry over of holiday to the minimum four weeks' entitlement rather than the full 5.6 weeks' leave. In KHS AG v Schulte a carry over period of 15 months was held to be compatible with the Working Time Directive. It therefore seems unlikely that the Government will set a carry over period of less than 15 months.


In Argyll Coastal Services Ltd v Stirling and Others, the EAT has provided helpful guidance on the application of TUPE to service provision changes.

This case involved the loss of a contract through a re-tendering process for a ship and crew chartered by the MOD to deliver cargo to the Falklands.

Although the EAT's guidance is non-binding, it sets out a useful structured approach for assessing whether there has been a service provision change:

  • was there an organised grouping of employees? This phrase implies a grouping which is less than the transferor's whole workforce, deliberately organised and working together as a team;
  • did that grouping have as its principal (and not necessarily sole) purpose the carrying out of the relevant activities?
  • 'relevant activities' should be assessed by looking at what service the client contracted for, and then examining precisely what activities were in fact undertaken;
  • Was the claimant assigned to that organised grouping?

The EAT also held that an organised grouping of employees cannot be made up of employees who have different employers.


In Cavenagh v William Evans Ltd, the Court of Appeal held that an employer who had terminated the employment of its managing director under a contractual pay in lieu of notice clause was obliged to make this payment despite discovering subsequently that he had been guilty of gross misconduct before his employment ended.

Mr Cavenagh's position as managing director of William Evans Ltd became redundant. The company terminated his service agreement summarily by agreeing to make a contractual payment in lieu of notice amounting to six months' pay. However, it was subsequently discovered that Mr Cavenagh had made an unauthorised payment from company funds to his pension fund prior to the termination of his employment. Since this would have amounted to gross misconduct, the company refused to make the payment in lieu of notice.

William Evans Ltd relied on the case of Boston Deep Sea Fishing v Ansell which established the principle that an employer may justify an otherwise wrongful dismissal with facts which were not known at the time of dismissal, but only discovered subsequently. It argued that Mr Cavenagh's prior gross misconduct gave the company a complete defence to his debt claim for the payment in lieu of notice. Mr Cavenagh argued that his situation could be distinguished because in Boston Deep Sea Fishing v Ansell the employee's claim was for damages for wrongful dismissal, whereas his case was for a debt due under a contractual term which had been exercised by the company. The Court of Appeal agreed with this argument, finding that when an employer chooses to exercise a pay in lieu of notice clause, it elects for a clean break. This involves taking a risk that it may subsequently discover matters that could have justified summary dismissal, just as it takes a risk that the employee may die or find a job elsewhere. Although the legal analysis may be correct, it is clearly unfortunate that Mr Cavenagh was able to profit from his own wrong. Unusually, however, the company did not plead a counterclaim. For example, it could have sought damages for breach of fiduciary duty.

Employers should consider whether their pay in lieu of notice clauses and compromise agreements need amending to include provision for the recovery or withholding of a payment if any earlier repudiatory breaches by the employee are discovered.


Rights and obligations relating to an occupational pension scheme do not automatically transfer under TUPE. However, this exclusion only applies to pension benefits which are 'old age, invalidity or survivors' benefits' (Regulation 10).

In Beckmann v Dynamco Whicheloe Macfarlane Ltd (2002) and Martin v South Bank University (2002), the ECJ held that enhanced benefits payable on early retirement and redundancy were not 'old age' benefits. Liability for these benefits (often referred to as 'Beckmann and Martin' rights) therefore transferred under TUPE to a purchaser. These cases left several areas of uncertainty which are usually dealt with by the inclusion of appropriate indemnities from the seller to the buyer in commercial deals.

The scope of 'old age, invalidity and survivors' benefits' has now been further clarified by the High Court in The Proctor & Gamble Company v Svenska Cellulosa Aktiebolaget (SCA) and another.This case concerned the asset sale of Proctor & Gamble's tissue towel business to SCA. Some of the transferring employees were members of Proctor & Gamble's Pension Fund which provided various early retirement benefits. A dispute arose as to whether liability for these early retirement benefits transferred to SCA under TUPE. The High Court ruled on three main issues:

  • the right to be considered for a benefit transfers under TUPE. Therefore a right to be considered for an early retirement provision can transfer, and any subsequent application for early retirement must be considered fairly and in good faith;
  • the buyer only takes on liability for an enhanced early retirement pension that is no longer available to employees after the transfer, not for the full retirement pension. These employees cannot make a double recovery by also claiming a full early retirement pension from the buyer;
  • only liability for benefits payable from actual retirement to the normal retirement date can transfer. Liability for instalments of an early retirement pension payable past normal retirement date relates to 'old age benefits' within the scope of the TUPE exception and does not transfer.

This case is likely to be appealed, which should provide further guidance on these areas, as well as on the practical difficulties involved in implementing them.


The Enterprise and Regulatory Reform Bill, introduced on 23rd May 2012, contains measures to implement the Government's reforms to employment law. In summary, the proposals include:

  • imposing a duty on applicants to attempt conciliation through ACAS prior to submitting tribunal proceedings;
  • introducing legal officers to determine some tribunal claims;
  • a possible change in the calculation of unfair dismissal compensation;
  • imposing financial penalties on employers where 'aggravated features' are present, for example, malicious intent or repeated breaches;
  • renaming compromise agreements as 'settlement agreements'.

The Children and Families Bill will also contain proposals for flexible parental leave and flexible working for both parents.


As part of its 'Red Tape Challenge', the Government is consulting on proposals to abolish various employment law provisions, including:

  • statutory discrimination questionnaires;
  • the third party harassment provisions in the Equality Act 2010 under which an employer may be liable for harassment of its employees by third parties such as customers or visitors; and
  • the public sector equality duty in the Equality Act 2010 which requires public authorities to have regard to eliminating discrimination and advancing equality when exercising their functions.

The CRB has issued new identity checking guidelines, effective from 28th May 2012. These will run in parallel with the existing guidance until 31st August 2012, when the existing guidance will cease to apply. The changes require documents to be produced from agencies which undertake stringent identity verification and should therefore make it harder for individuals to conceal previous criminal records by changing their name.

From 10th September 2012, new vetting requirements will apply to employers, voluntary organisations and charities who engage people to work with vulnerable groups. For example, vetting will focus on work involving close and unsupervised contact with vulnerable groups; the minimum age for CRB checks will be 16; and applicants will have a right to request a review of police information disclosed in an enhanced CRB check. In December 2012, the ISA and the CRB will be merged into a single body to be known as the 'Disclosure and Barring Service'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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