The use of employee secondments in outsourcings is widespread. Staff, whose employment might otherwise transfer from customer to service provider pursuant to the Acquired Rights Directive ("ARD"), instead remain employees of the customer and are then seconded to the service provider. Customers, service providers and staff may often prefer such an arrangement to an outright transfer. Customers can retain staff who would otherwise transfer and service providers have access to, and the assistance of, key staff at the start of the contract. Staff also appreciate the element of choice which secondment gives them. In short, secondments often provide the desired flexibility which a strict application of the ARD does not allow. However, a recent House of Lords ("HL") decision in the UK suggests that the issue of secondment in the context of an ARD transfer needs to be approached with great caution to avoid unforeseen, and potentially unfavourable, consequences for all of those involved.
The Case
North Wales Training and Enterprise Council Limited (t/a Celtec) v. Astley & ors [2006] UKHL 29 concerned the outsourcing in 1990 by the Department of Education ("DofE") of part of its training responsibilities to newly established training and enterprise councils (TECs). Although the TECs were able to recruit their own staff, to ensure they could deliver the services immediately, civil servants were offered secondments from the DofE to the TECs. When the secondments ended three years later, seconded staff had the option of accepting employment with the TEC on the TEC’s terms and conditions of employment or being redeployed by the DofE. The claimants resigned from the DofE and signed new contracts with Celtec’s predecessor TEC. When one of the claimants was made redundant in 1998, she claimed a redundancy payment based on continuity of employment back to the beginning of her employment with the DofE. All the claimants then sought a determination by the employment tribunal as to the length of their continuous employment. Celtec argued that they were only entitled to continuity of employment from 1993.
Prior to the HL’s decision, the European Court of Justice ("ECJ") had already ruled in the same case that the use of the word "date" in the ARD, combined with the need for legal certainty, meant that the parties had to be able to point to a specific date on which they said the transfer occurred and that a transfer could not occur over a period of time. The only guidance which the ECJ gave on ascertaining when a transfer took place was that the relevant date was the date on which responsibility as employer for carrying on the business of the unit transferred moved from the transferor to the transferee.
The Decision
Applying the ECJ’s guidance, the majority of the HL held that the ARD transfer was in 1990 (when the TEC took over the premises, information systems and databases of the DofE area offices) and that the civil servants who thought, along with the DofE and the TEC, that they had been seconded to the TEC in 1990 had actually transferred to it at that date. So, even though everybody thought, in 1990-93, that the individuals were on secondment, in fact (because of later events) their employment had transferred. The HL recognised the difficulties which its judgment may cause parties and referred in particular to "the obliteration of reality in relation to such matters as [seconded employees’] pension rights".
The HL did confirm that it is open to an employee whose contract of employment would otherwise be transferred of his own free will to withdraw from this arrangement by declining employment with the transferee but only if the employee:
- is in a position to choose whether or not to enter the employment of the transferee; and
- in fact exercises that choice by deciding of his own free will not to do so.
The Impact
Although Celtec v. Astley concerned a public sector transferor, secondment is also widely used in private sector outsourcings. Accordingly, the case is of general interest and concern. In the light of its findings, what should customers and service providers be doing to minimise the risks regarding secondments? From a customer perspective, there are primarily practical concerns: if you have been treating someone as an employee whose employment has in fact transferred, you may need to revisit benefit entitlements which have been treated as accrued during the secondment period.
For service providers, there are substantial risks which you need to address at the earliest possible opportunity. For example, on second generation outsourcings your due diligence should cover whether you are inheriting any potential liabilities as a result of secondment arrangements in place at the time of any previous contracts. At the point of transfer, are employees transferring automatically as well as being seconded? If you can show that an employee could have transferred but chose to be seconded instead, you will be able to argue that by opting for secondment in such circumstances the employee has removed himself from the ARD altogether.
Finally, for both customers and service providers, identifying the date of the transfer may itself prove tricky. In a complex transaction, it may not be possible accurately to pinpoint a particular calendar date on which "responsibility" as employer for carrying on the business is transferred.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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