Loss of a contract “by itself” does not indicate transfer of undertaking

A rights commissioner has ruled that the transfer of a service contract by Tesco from Keelings to Stobart did not constitute a transfer under the Transfer of Undertakings Directive.   The Rights Commissioner agreed that the “mere loss of a service contract to a competitor cannot by itself indicate the existence of a transfer within the meaning of the Directive”.   Full responsibility for the transport function of Tesco was transferred from Keelings to Stobart by Tesco by the way of contractual arrangement.  

“Asset Reliant” Argument

SIPTU, on behalf of nineteen transferring workers contended that the transfer of the transport function is “asset reliant” involving the transfer of trucks and trailers and thus constituted the transfer of part of an undertaking, or business from one employer to another as a result of a legal transfer, to which the TUPE regulations applied.  

Second Generation Contract

The Rights Commissioner concluded that this was a “second generation contract” which, unlike a “first generation contract”, is not covered by TUPE regulations. It was a second generation contract in that what was occurring was a change in contractor.   Had Tesco been contracting out the transportation of its chilled goods for the first time, it would have been a first generation contract, which would have most likely triggered the TUPE regulations.  

Rights Commissioner Observations

The Rights Commissioner had the following observations:  

• The negotiations which took place concerning the contract were between Tesco and Stobart, not Keelings and Stobart.
• No negotiations took place between Stobart and Keelings on the operation of the contract.
• Tesco and Keelings continued to operate as economic entities after the contract was taken on by Stobart.
• There was no transfer of physical assets.
• Only a small proportion of the employees actually transferred to Stobart. All 147 Keelings employees were offered a transfer, but in reality only 19 transferred. The reason why so many employees did not transfer to Stobart was because they understood that TUPE did not apply.

  The Rights Commissioner found that Keelings had retained its identity following its ceasing to provide the contract to Tesco Ireland, that Tesco had awarded the contract to Stobart with no associated transfer of assets such as: goods, equipment, premises, or operating method.   The Commissioner cited the well known ECJ decision in Ayse Suzen, where it was held that owing to the fact that no transfer of physical assets took place and the transferred did not take on a major part of the workforce, there was no transfer of an undertaking.    Source: IRN 44   If you would like help in this matter, please contact us via email or Call 01 866 6426