Thursday Law Report: Employee's rights were safeguarded

5 November 1998

British Fuels Limited v Baxendale and another; Wilson and others v St Helens Borough Council

House of Lords (Lord Browne- Wilkinson, Lord Slynn of Hadley, Lord Steyn, Lord Clyde and Lord Hutton) 29 October 1998

THE PURPOSE of Council Directive (EEC) 77/187, to which effect had been given under the Transfer of Undertakings (Protection of Employment) Regulations 1981, was to safeguard the rights of an employee on a transfer, but those rights must depend on national law.

The House of Lords allowed the appeal of British Fuels Limited ("BFL") against the decision of the Court of Appeal that two former employees of National Fuels Distributors Ltd, whose undertaking had been merged with that of BFL, had been dismissed by reason of the transfer, thus rendering the dismissals ineffective, and dismissed the appeals of nine former employees of Lancashire County Council ("LCC") at a community home, the running of which had been taken over by St Helens Borough Council, against the decision of the Court of Appeal that there had been no unlawful deduction from their wages although St Helens was paying them less than they had been paid by LCC.

Two issues under the Transfer of Undertakings (Protection of Employment) Regulations 1981 arose on both appeals. The first was whether, on the transfer of an undertaking, the employees were entitled to retain the benefit of their previous terms and conditions. That in effect raised the question whether the dismissals or purported dismissals by the previous employers took effect or whether they were nullities, ie whether the dismissed employee could compel the transferee to employ him or whether he was given the right to enforce as against the transferee such remedies under national law as he could have enforced against the transferor.

The second issue was whether, if despite dismissal they were entitled to retain the benefit of their previous terms, the employees either by initially agreeing terms with their new employers, or by continuing to work for the new employers had varied any entitlement to the previous terms and conditions.

Nicholas Underhill QC and Brian Napier (Nabarro Nathan- son) for BFL; David Bean QC and Nicholas Randall (Hopkin & Sons, Mansfield) for Baxendale and Meade; Patrick Elias QC and Nicholas Randall (Reynolds Porter Chamberlain) for Wilson; Cherie Booth QC and Simon Gorton (Peter Blackburn, St Helens Borough Council) for St Helens.

Lord Slynn said that the overriding emphasis in the judgments of the European Court was that the exisiting rights of employees were to be safeguarded if there was a transfer of undertaking. The employer, be he transferor or transferee, could not use the transfer as a justification for dismissal, but if he did dismiss it was a question for national law as to what those rights were.

Thus, where there was a transfer of an undertaking and the transferee actually took on the employee, the contract of employment was automatically transferred so that, in the absence of a permissible variation, the terms of the initial contract went with the employee.

Where the transferee did not take on the employees who were dismissed on transfer, the dismissal was not a nullity, though the contractual rights formerly available against the transferor remained intact against the transferee.

If the dismissal was unfair, it could be effective to terminate the working relationship, so that there was nothing of that to pass to the transferee. The contract of employment was kept alive only for the purpose of enforcing rights for its breach, or for enforcing statutory rights dependent on the contract of employment.

Although on a transfer, the employees' rights previously existing against the transferor were enforceable against the transferee and could not be amended by the transfer itself, it did not follow that there could not be a variation of the terms of the contract for reasons which were not due to the transfer either on or after the transfer of the undertaking.