United Kingdom Employment Appeal Tribunal

(1)           Whether there was a “relevant transfer” for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“the TUPE Regulations”)?

(2)           If there was a relevant transfer, whether each of the Claimants’ employment with the Trust was transferred pursuant to the operation of regulation 4 of the TUPE Regulations ?

(2) The TUPE Regulations, the Directive and the Staff Transfer Scheme

(2)(a) Regulation 7(1)

“(1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the 1996 Act (unfair dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is -

(a) the transfer itself; or

(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.”

(Sub-paragraph 7(1)(b) was deleted by an amendment which took effect on 31 January 2014, but the unamended regulation applies in relation to transfers which took place before that date.)

“(1) Subject to sub-paragraph (6), where a person whose contract of employment is transferred by paragraph 3 is dismissed by the transferee during the period starting on the transfer date and ending on 31st March 2015, that person is to be treated, for the purposes of Part 10 of the 1996 Act (unfair dismissal), as having been unfairly dismissed if the sole or principal reason for the dismissal is -

(a) the transfer itself, or

(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.”

(2)(b) Relevant Transfer: Regulation 3  

“ “relevant transfer” means a transfer … to which these Regulations apply in accordance with regulation 3 and “transferor” and “transferee” shall be construed accordingly …”

(1)           Regulation 3(1)(a) provides as follows:

“(1) These Regulations apply to -

(a) a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity; …”

(2)           Regulation 3(1)(a) gives effect to article 1(1)(a) of EU Council Directive No. 2001/23 (“the Acquired Rights Directive”), which provides as follows:

“This Directive shall apply to any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger.”

(1)           Regulation 3(2) provides as follows:

“(2) In this regulation “economic entity” means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.”

(2)           Regulation 3(2) gives effect to article 1(1)(b) of the Acquired Rights Directive , which provides as follows:

“Subject to subparagraph (a) and the following provisions of this Article, there is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.”

(3)           Regulation 3(4)(a) provides as follows:

“(4) Subject to paragraph (1), these Regulations apply to -

(a) public and private undertakings engaged in economic activities whether or not they are operating for gain; …”

(4)           Regulation 3(4)(a) gives effect to the first sentence of article 1(1)(c) of the Acquired Rights Directive , which provides as follows:

“This Directive shall apply to public and private undertakings engaged in economic activities whether or not they are operating for gain. …”

(1)           Regulation 3(5) provides as follows:

“An administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities is not a relevant transfer.”

(2)           Regulation 3(5) gives effect to the second sentence of article 1(1)(c) of the Acquired Rights Directive , which provides as follows:

“… An administrative reorganisation of public administrative authorities, or the transfer of administrative functions between public administrative authorities, is not a transfer within the meaning of this Directive.”

“(1) This paragraph applies to any person who, immediately before the transfer date, was an employee of the transferor and -

(a) is identified in Columns 1 to 3 of a table in the Schedule; or

(b) has, on or after 1st March 2013 but before the transfer date, been notified in writing by the transferor or transferee that they are to be transferred to the transferee on that date.

(2) Subject to sub-paragraph (5), any person to whom this paragraph applies is, on the transfer date, to be transferred to the employment of the transferee.

(3) Subject to sub-paragraph (5), the contract of a person to whom this paragraph applies -

(a) is not terminated by the transfer; and

(b) has effect on and after the transfer date as if originally made between that person and the transferee.” 

“The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.”

“(4) Subject to regulation 9, any purported variation of a contract of employment that is, or will be, transferred by paragraph (1), is void if the sole or principal reason for the variation is the transfer.”

(1)           the Claimants (or at least the ten Claimants who did not resign) had continuity of employment pursuant to sub-paragraphs 3(1) to (3) of the Staff Transfer Scheme; and, consequently

(2)           regulation 4(1) of the TUPE Regulations did not apply to them because, thanks to the Staff Transfer Scheme, theirs were not employment contracts “which would otherwise be terminated by the transfer”. 

(3) Decided Cases on Undertakings

(1)           First, the TUPE Regulations exist to give effect in domestic law to the Acquired Rights Directive , just as the predecessor to the TUPE Regulations , i.e. the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“the 1981 Regulations”), existed to give effect to the 1977 Directive .

(2)           Secondly, it follows that the TUPE Regulations are to be interpreted, so far as possible, in accordance with the Acquired Rights Directive . 

(3)           Thirdly, when considering what constitutes an “undertaking”, it is relevant to look at EU competition law, which uses the same term with the same definition.

(4)           Fourthly, as I have already mentioned, regulation 3(5) of the TUPE Regulations gives effect to article 1(c) of the Acquired Rights Directive which, in turn, was introduced to reflect the decision of the Court of Justice in Henke , a decision made when the 1977 Directive was in force.

(5)           Fifthly, the 1977 Directive (and the 1981 Regulations ) contained no equivalent to article 1(c) of the Acquired Rights Directive (or regulation 3(5) of the TUPE Regulations ).  It follows that regulation 3(5) is merely identifying something which would not be a relevant transfer in any event, even if regulation 3(5) were not there.

(3)(a) Examples from the Decided Cases

(1)           to consider the activities exercised by the state in the particular case; and

(2)           to determine whether those activities belong to the category of:

(a)            “exercising public powers”; or

(b)           carrying on an economic activity by offering goods and services on the market. 

(3)(c) Bettercare and FENIN

“provide or secure the provision of such facilities (including the provision or arranging for the provision of residential of other accommodation, … ) as it considers suitable and adequate.”

“… the legal analysis in this case is that North & West, having purchased the “bed” in question, then “re-supplies” that bed by means of a further contract with the resident who is liable to pay North & West the cost of his accommodation, up to his available means.  Here again, it seems to us that that is activity of an “economic” character, albeit in a social context. …”

(1)           The CCAT expressed, or appeared to express, the view that it was an economic activity in itself for North & West to enter into commercial contracts with care home operators: see, in particular, paragraphs 191 to 194 and 195 to 199 of its judgment.  This is inconsistent with the decision in FENIN .

(2)           The CCAT also relied on the fact that North & West itself operated eight care homes: see paragraph 200 of its judgment.  This lent support to the conclusion that North & West provided services to the residents of independent care homes, but would perhaps not be a sufficient reason in itself for concluding that North & West was providing services to those residents and so carrying on an economic activity in connection with which it entered into contracts with the care home operators. 

“It seems to us that the factual situations which arose in Eurocontrol and Diego Cali are different from the situation in the present case.  In particular, we are not here concerned with regulatory or administrative decisions of the kind normally classified by the European Court as “the exercise of official authority”. …”

(3)(c)(ii) FENIN

“65. The appellant claims that, in determining whether the purchasing activity of the SNS was economic in nature, the Court of First Instance should have considered whether it was liable to have anti-competitive effects in order not to create “unjustified areas of immunity”.  However, such a criterion cannot be accepted, since it would amount to subjecting every purchase by the state, by a state entity or by consumers to the rules of competition law.  On the contrary, as the judgment under appeal rightly pointed out, a purchase falls within the scope of competition law only in so far as it forms part of the exercise of an economic activity.  Moreover, if the appellant’s argument were to be adopted, the effectiveness of the rules relating to public procurement would be reduced.  The link established between the conduct complained of by the complainants and the non-economic activity of the organisation referred to was also at the heart of the reasoning applied in Eurocontrol in order to hold that competition law did not apply.  It was held that the receipt of a payment by Eurocontrol was not economic in nature, since it was made in the course of carrying out a non-economic activity.

(1)           the purchasing or commissioning of goods or services cannot in itself constitute an economic activity; but

(2)           a body which supplies goods or services on a market is carrying on an economic activity, both in supplying those goods or services and in purchasing goods or services for the purpose of that supply.

“26. In seeking to determine whether an activity carried on by the state or a state entity is of an economic nature, the court is entering dangerous territory, since it must find a balance between the need to protect undistorted competition on the Common Market and respect for the powers of the Member States.  The power of the state which is exercised in the political sphere is subject to democratic control.  A different type of control is imposed on economic operators acting on a market: their conduct is governed by competition law.  But there is no justification, when the state is acting as an economic operator, for relieving its actions of all control.  On the contrary, it must observe the same rules in such cases.  It is therefore essential to establish a clear criterion for determining the point at which competition law becomes applicable.  In principle, the rules of competition law apply only to economic operators who participate on a market and not to states, save where they pay aid to undertakings (Arts 88 to 92 EC).  However, the need for consistency means that if a state ratifies decisions taken by undertakings or if it conducts itself in practice as an economic operator, Arts 81 to 86 EC may apply to it. …” 

(3)(d) Summary

(3)(d)(i) The Two Mutually Exclusive Alternatives

(1)           apply where the activities constitute an economic activity; but

(2)           do not apply where the activities fall within the less clearly defined category referred to in Commission v Italy as “exercising public powers”.

(3)(d)(ii) Economic Activity

“Any activity consisting in offering goods and services on a given market is an economic activity.”

(1)           whether the activity consists in the provision of goods and services (as opposed, for example, to the mere acquisition of goods or services: see FENIN ); and

(2)           whether there is a market for the relevant goods or services. 

(1)           the goods or services are being provided to the state or a state-authorised entity (see Ziemann : contracted-out surveillance at a German army depot); or

(2)           the goods or services are being provided by one state body to another (see Scattolon : a state-run service for cleaning and maintaining state schools).

(1)           it is a public law entity (see, e.g.: Collino , at paragraph 49 of the Advocate General’s opinion; Scattolon ; and Bettercare );

(2)           it is publicly funded (see, e.g.: Scattolon ; and Bettercare );

(3)           it acts in the public interest (see, e.g.: Mayeur , at paragraphs 55 to 58 of the Advocate General’s Opinion; and Scattolon , at paragraph 44); or

(4)           it acts pursuant to statutory functions (see, e.g.: Bettercare ).

(3)(d)(iii) The Exercise of Public Authority

(1)           whether the activity is necessarily carried out by public entities ( Klaus Höfner , at paragraph 22; Ambulanz Glöckner , at paragraph 20; and at paragraph 68 of the Advocate General’s opinion) or is an essential function of the state ( Diego Cali , at paragraph 22; and at paragraph 47 of the Advocate General’s opinion);

(2)           whether the activity is a core state activity ( Diego Cali , at paragraph 47 of the Advocate General’s opinion);

(3)           whether the activity has always been carried out by public entities ( Klaus Höfner , at paragraph 22; Ambulanz Glöckner , at paragraph 20; and at paragraph 68 of the Advocate General’s opinion);

(4)           whether the activity involves the exercise of “prerogatives outside the general law” or “privileges of official power” ( Eurocontrol , at paragraph 9 of the Advocate General’s opinion);

(5)           whether the activity involves the exercise of rights and powers of coercion ( Eurocontrol , at paragraph 24; and at paragraph 9 of the Advocate General’s opinion; ALI ; and Law Society );

(6)           whether the activity is “a public service to which any idea of commercial exploitation with a view to profit is alien” ( Eurocontrol , at paragraph 9 of the Advocate General’s opinion) or one which “cannot conceivably be carried out within a competitive system” ( Diego Cali , at paragraph 49 of the Advocate General’s opinion);

(7)           whether the activity has “an exclusively social function” ( Diego Cali , at paragraph 41 of the Advocate General’s opinion);

(8)           whether the activity is typically that of a public authority ( Eurocontrol , at paragraph 30; Diego Cali , at paragraph 23; and at paragraph 41 of the Advocate General’s opinion);

(9)           whether the activity is carried out in the public interest ( Eurocontrol , at paragraph 27) or a service provided for the benefit of the whole community ( Diego Cali , at paragraph 49 of the Advocate General’s opinion) or intended to safeguard the general interests of the state or other public bodies ( Mayeur , at paragraph 61 of the Advocate General’s opinion); and

(10)       whether the activity involves providing services in competition with those offered by operators pursuing a profit motive ( Scattolon , at paragraph 44; and Portimão , at paragraph 34).

(1)           involve the exercise of public authority;

(2)           form part of the essential functions of the state and involve activities that are necessarily carried on by the state; and

(3)           involve the performance of activities specifically centred on political or judicial power, e.g. prerogatives conferred by law, regulatory powers, powers of coercion, powers to restrict liberty or other public powers typical of a public authority.

(1)           “general and fiscal administration, justice, security and national defence” ( Eurocontrol , at paragraph 9 of the Advocate General’s opinion);

(2)           regulatory functions ( ICA and Law Society );

(3)           “posts which contribute to particular tasks of the public administration - for example, national defence, internal security, public finances, the judicial system and home affairs, posts in ministries and central banks - provided that the activities in question are specifically centred on a political or judicial power” ( Mayeur , at paragraph 61 of the Advocate General’s opinion).

(1)           These lists of examples do not purport to be exhaustive.

(2)           Not every activity which falls within these broad headings involves the exercise of public authority.  National defence involves the exercise of public authority, but Zeimann shows that the provision of contracted-out surveillance services at army depots does not.

(3)           Some activities which fall within these broad headings and which may well involve the exercise of public authority may not involve the use of coercive powers.  This may be the case, for example, in relation to senior civil servants (or occupants of “posts in ministries”). 

(3)(d)(iv) Regulation 3(5) and Public Administrative Authorities

(3)(d)(v) Mixed Cases

“Even if it is assumed that those activities had aspects of an economic nature, they could only be ancillary.”

“In this regulation “economic entity” means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.”

66.               I accept Mr Cavanagh’s submission that the solution to this apparent tension is to be found in the opening words of article 1(1)(b) of the Acquired Rights Directive .  Article 1(1)(b) (which had no predecessor in the 1977 Directive ) provides as follows:

“Subject to subparagraph (a) and the following provisions of this Article, there is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.”

(4) The Statutory Duties of the Trust and the Council

(1)           was responsible for the provision of public health functions in the Croydon area and, to a lesser extent, other parts of South West London where relevant agreements were in place; and

(2)           had a discrete departmental structure, headed by the Director of Public Health.

(1)           The Trust had a duty under section 23 of the NHS Act 2006 to make arrangements with a view to securing that it received advice “from persons with professional expertise relating to the physical or mental health of individuals” which was appropriate for enabling it effectively to exercise its functions.

(2)           The Trust had a duty under section 24 of the NHS Act 2006 to prepare, at such times as the Secretary of State may direct, a plan which set out a strategy for improving:

(a)            the health of the people for whom it was responsible; and

(b)           the provision of health care to such people, which included the promotion and protection of public health.

“(a) providing information and advice;

(b) providing services or facilities designed to promote healthy living (whether by helping individuals to address behaviour that is detrimental to health or in any other way);

(c) providing services or facilities for the prevention, diagnosis or treatment of illness;

(d) providing financial incentives to encourage individuals to adopt healthier lifestyles;

(e) providing assistance (including financial assistance) to help individuals to minimise any risks to health arising from their accommodation or environment;

(f) providing or participating in the provision of training for persons working or seeking to work in the field of health improvement;

(g) making available the services of any person or any facilities.”

(1)           provide for the weighing and measuring of children (regulation 3);

(2)           provide, or make arrangements to secure the provision of:

(a)            health checks to be offered to eligible persons in its area (regulation 4);

(b)           open access sexual health services in its area (regulation 6);

(c)            a public health advice service to any clinical commissioning group whose area falls wholly or partly within the Council’s area (regulation 7); and

(3)           provide information and advice to specified persons and bodies with a view to promoting the preparation of appropriate local health protection arrangements (regulation 8),

with power to make and recover charges for: (a) providing information and advice; (b) providing services or facilities designed to promote healthy living; (c) providing or participating in the provision of training for persons working or seeking to work in the field of health improvement; or (d) making available the services of any person or any facilities.

“DsPH will be employed by local government and jointly appointed by the relevant local authority and Public Health England.  They will be the strategic leaders for public health in local communities, working to achieve the best possible public health and wellbeing outcomes across the whole local population, in accordance with locally agreed priorities.  They will be professionally accountable to the Chief Medical Officer (CMO) and part of the Public Health England professional network.

…

To be the most effective leaders possible of public health in their areas, DsPH will have a number of critical tasks, set out in more detail in the Annex, including:

·        promoting health and wellbeing within local government;

·        providing and using evidence relating to health and wellbeing;

·        advising and supporting GP consortia on the population aspects of NHS services;

·        developing an approach to improving health and wellbeing locally, including promoting equality and tackling health inequalities;

·        working closely with Public Health England health protection units (HPUs) to provide health protection as directed by the Secretary of State for Health; and

·        collaborating with local partners on improving health and wellbeing, including GP consortia, other local DsPH, local businesses and others.”

(5) The Tribunal’s Findings of Fact

(1)           As I have said, it was not suggested that the public health team was exercising any coercive powers.

(2)           On the other hand, one can see how it could be argued that at least some, if not all, of the activities of the public health team constituted the sort of activities which are normally carried out by civil servants of one kind or another.

(3)           One of the public health team’s activities was commissioning the provision by third parties of services to members of the public.  The Claimants placed considerable emphasis on this.  However:

(a)            this was not in itself an economic activity (see FENIN ); and

(b)           unlike North & West in Bettercare , the public health team did not have a contractual relationship with the recipients of those services.

(4)           The Claimants also contended, in effect, that most, if not all, of the public heath team’s activities were capable of being outsourced. 

(5)(a) The Agreed Statement of Facts

(1)           Consultants in Public Health: Bernadette Alves, Sara Corben de Romero, Jenny Hacker, Sarah Nicholls and Ellen Corine Schwartz.

(2)           Effective Commissioning Initiative Lead, and subsequently Public Health Project Manager: Marion Abbott.

(3)           Public Health Strategic Lead: Young People: Kate Naish.

(4)           Sexual Health Promotion Lead: Fred Semugera.

(5)           Evidence Based Practice Lead: Tracy Steadman.

(6)           Health Improvement Commissioner: Addictive Behaviour: Jimmy Burke.

(7)           Health and Wellbeing Programme Manager: Anna Kitt.

(8)           Smoking Cessation Network Manager: Beata Tuskiewicz-Piecarski.

(9)           Senior Assistant Knowledge Officer: Linden Hunt.

(10)       Assistant Knowledge Officer: Barbara Whittlesea.

(5)(b) The “Key Factual Questions”

“13. A significant part of the evidence before me was directed to the issue of identifying a public administrative authority and whether the activities of the Public Health Team were economic activities, and whether the Public Health Team constituted an economic entity within the meaning of Regulation 3(1) TUPE.  It was the Respondent’s contention that the team had been carrying out administrative functions within the meaning of Regulation 3(5) when it transferred.

14. The skeleton argument on behalf of the Unite Claimants helpfully posed two key factual questions namely

a. What were the teams functions/activities [ sic ] (specifically, or at least most importantly at the time of and immediately before and after the transfer)?

b. Were those activities inherently and unnecessarily [ sic ] state administrative activities; or were they “economic” such that they could equally be carried out by non-Governmental organisations (in the private and third sectors)?”

“29. There was very little conflict of evidence between the witnesses.  The fundamental issue before me appeared to determine whether on the agreed facts and evidence, against the background of the statutory framework and the relevant authorities, the various public health functions which were transferred from the PCT to the London Borough of Croydon on 1 April 2013 constituted a relevant transfer, namely whether the team which transferred from the PCT to the Respondent constituted an economic entity.”

(5)(c) The Tribunal’s Principal Findings of Fact

“37. In her evidence to the Tribunal Dr Schwartz agreed that most public health functions of the Primary Care Trust transferred to Croydon Council and that local Public Health functions were there to improve the health of the public.  Dr Schwartz also agreed that there were three domains namely health protection, health improvement and health services and that the role of the Council was a collaborative working with different players.

38. A significant focus of the evidence was on the commissioning role of the Council for services such as, sexual health services, weight management, healthy living, and smoking cessation.  In his evidence to the Tribunal Mr Morton, Head of Health and Wellbeing at Croydon stated that after the transition the available budget rose to £22 million.  The Council was responsible for procuring functions and public health has an involvement in procuring such services as advised by the Public Health Team.

39. In cross examination Mr Morton agreed that the Public Health Team had been involved [to] a significant extent [in] the commissioning of sexual health services.  After the transfer or transition the Council’s legal team were involved in the commission process and the Council tightened up the way in which the services were commissioned.

40. The handover certificate from Croydon PCT to Croydon Counsel [sic], page 1846 to 1847, relating to adult weight management service was stated by Mr Morton in his evidence as representing the bulk of commissioning, together with smoking cessation, page 1841.  In her witness statement Dr Schwartz said that in her experience the PCT had been primarily a commissioning body and that only a few small functions were provided in-house.

41. In cross examination Dr Schwartz was asked how much of her working week were spent on procurement.  Dr Schwartz stated that she led what her team did but a very little of her own time was spent on procurement which she put at 2%.  In relation to documentation Dr Schwartz stated she had to see the documents to make sure that they were fit for the purpose namely embodying Public Health Principles.  When asked whether Public Health was a Governmental function Dr Schwartz replied “yes ultimately it is.  Strategic objective is given by local officers.”  When asked about her role as a public health professional Dr Schwartz replied that her role was different from a public health professional in a pharmaceutical company.”

“… The commissioning of services which are economic activities is necessarily, in itself, an economic activity - see Bettercare .”   (Ms Tether’s Opening Note, paragraph 22.3; and see also paragraph 29 of Mr Hutcheon’s Opening Note.)

(5)(d) The Tribunal’s Additional Findings of Fact

(1)           a summary of the submissions made by Ms Tether (paragraphs 42 to 46), Mr Hutcheon (paragraphs 47 to 52) and Mr Cavanagh (paragraphs 53 to 60); and

(2)           the Tribunal’s conclusions on the first preliminary issue (paragraphs 60 to 71) and on the second (paragraphs 72 to 74).  

“43. Public Health activities were not fundamentally different in kind from other health care services and that health protection was only a small part of the Public Health Team.  Health prevention was no different in kind from the treatment of those injured or unwell and that the activity involved in such could be carried out both in the public and private sector.  There was a large market for health promotion.

…

47. Mr Hutcheon on behalf of the Unite Claimants submitted that the Tribunal should focus on what the activities of the team actually were.  The activities involved commissioning, research, ie needs assessment, training, maintenance of public health library which were all services offered on a market.   The functions of the Public Health Team could be contracted out.”

“48. Mr Hutcheon pointed out that Mr Morton had accepted that a very significant part of teams activities [ sic ] and that prior to the transfer commissioning had accounted for half of the team’s budget.  Immediately on transfer the team had a budget of £22m a significant proportion of which was spent on commissioning of sexual health services. …

49. … Mr Morton had accepted the proposition that “all or almost of the work done by the Public Health Team can be, and in fact is, offered by non-state actors operating in the same market”.  Pages 1348 and 1349 had contained proposals about what should happen to the Public Health Team following transition. …”

“19. … As Dr Schwartz points out in § 40 of her witness statement, the work that the PH team performed before and after the transfer could just as easily have been commissioned and carried out in the private sector. …

20. Moreover there are, as Dr Schwartz explains at §§ 50 and 51 of her witness statement, private sector companies which specialise in the provision of public health services of the kind provided by the PH team, and in fact provide such services to bodies in the public sector.  See also Dr Nicholls’ statement, at §§ 25 and 26. …”

(See also: paragraphs 44 to 47 of Ms Tether’s closing submissions; paragraphs 29 and 32d of Mr Hutcheon’s opening note; and paragraphs 31 to 38 of Mr Hutcheon’s closing submissions.)

“70. Dr Schwartz’s evidence reinforced the public health role of the team by stating that it was its role to undertake strategic assessment of needs.  Dr Schwartz stated that the role of the team was to identify vulnerable groups and to ensure that services were applied appropriately.  The team conducts research to enable informed decisions to be made and to inform commissioning.  Mr Morton said that the team had responsibility for both pandemic flu preparedness and seasonal flu preparedness and to ensure plans were in place for immunisation and screening.”

(6) The Tribunal’s Conclusions on the First Preliminary Issue

(1)           set out the terms of regulation 3(1)(a) and 3(5) (paragraph 8);

(2)           set out the decision in Henke (paragraphs 30 and 31); and 

(3)           correctly identified the definition of economic activity (paragraph 35).

“61. In my Judgment, the background to this case is the role of government in the protection and improving the health of the public.  Dr Schwartz agreed that Public Health was ultimately a governmental function.  In order to undertake its role in public health protection, Government operates through the agency of bodies or organisations such as PCT’s and local authorities.

62. I considered that there was significant force in the Respondent’s submission that the function of maintaining public health is quintessentially governmental which involves the provision of healthcare services with the aim or intention of improving the health of the population.

63. I bore in mind the fact that the National Health Service Act 2006 established PCT’s and provided that healthcare included the promotion and protection of public health.  The Health and Social Care Act 2012 provided that each local authority must take such steps as it considers appropriate for improving the health of the people in its area.  Both PCT’s and local authorities were and are responsible for activities involved in the promotion of and the provision of public health functions.

64. The statutory framework reflects the involvement of government and its responsibility for the provision of public health.”

“65. The Henke exception reflected in Article 1(c) of the Acquired Rights Directive 2001/23/EEC and incorporated into UK domestic law by regulation 3 of TUPE 2006 expressly provides an exception to the general provision of the protection of employees’ rights on transfer.

66. The cases I have been referred to such as Scattolon , and Bettercare , where the Henke exception did not apply, involved the transfer of a particular activity, namely the transfer of school cleaners in Scattolon and the provision of retirement homes for the elderly in Bettercare involved economic activities.  They involved particular activities being transferred which were in themselves economic activities, the transfers did not involve the contracting out of the public health responsibilities.  The present case was triggered by the proposed changes to the terms and conditions of the Claimants, not by the transfer itself of a particular aspect of the responsibilities of the team from the PCT to the Respondent.”

(1)           The nature of the “trigger” for the present case was an irrelevant consideration when considering whether there was a relevant transfer on 1 April 2013 and when considering whether the present case can be distinguished from other decided cases.

(2)           The responsibilities of the public health team were transferred from the Trust to the Council. 

(3)           What the Tribunal seems to have been saying is that this was not a case of the transfer of, say, a particular service provided by the public health team.  For example, if the public health team had itself operated, say, a drug clinic, and that clinic had been transferred to the Council, then the provision of that clinic’s services might have been an economic activity, as in Redmond Foundation .  

“67. In FENIN the Advocate-General considered that that [ sic ] the issue was whether the function involved was economic or the exercise of public authority, and that if the function was pursuant to the exercise of public authority, it was not converted into an economic activity, even if it was contracted out.  The Advocate-General in FENIN stated (AG 66):

Thus, where a purchase is linked to the performance of non-economic functions, it may fall outside the scope of competition law.

68. Paragraph 21 of the judgment in FENIN held,

… that there is no need to dissociate the activity of purchasing goods from the subsequent use to which they are put in order to determine the nature of that purchasing activity, and that the nature of the purchasing activity must be determined according to whether or not the subsequent use of the purchased goods amounts to an economic activity.”

“69. In the particular circumstances of this case, I consider that the overarching role of both the PCT and subsequently the local authority involved the responsibility of the state through the public health team in the provision of the state’s responsibility for public health.  The case of Diego Cali is clear authority for the contention that the activity contracted out, namely the contracting out of anti pollution activities involved a governmental activity, namely the protection of the environment.  In the closing submissions on behalf of the Respondent, it was noted that the public health team does not bid for contracts and that unlike the position of private health providers; the team is not trying to obtain business.  I am not persuaded that the involvement of private providers through the process of commissioning undermines the ultimate responsibility of the Respondent for public health.”

(7) Grounds of Appeal

(1)           The Tribunal misunderstood the distinction between public administrative functions and economic activities.

(2)           The Tribunal misunderstood the test of an economic activity.

(3)           The Tribunal misunderstood the meaning of public administrative functions.

(4)           The Tribunal misunderstood the meaning of public administrative authority.

(5)           The Tribunal failed to make essential findings of fact as to the activities of the public health team.

(6)           The Tribunal failed to decide whether the activities of the public health team were economic activities.

(1)           the Tribunal has failed to give adequate reasons for its conclusions, given its findings of fact; or

(2)           if the reasons given in paragraph 69 were the Tribunal’s reasons for not concluding from its finding of fact in paragraph 49 that the public health team was carrying on an economic activity, the Tribunal made an error of law. 

(1)           that the Tribunal made an error of law in directing itself as to the distinction to be drawn between an economic activity and the exercise of public authority; or

(2)           that this a case where the Tribunal, having directed itself correctly, can be seen to have departed from that direction when applying the law to the facts. 

(8) The Second Preliminary Issue

“If there was a relevant transfer, whether each of the Claimants’ employment with the Trust was transferred pursuant to the operation of Regulation 4 of the TUPE Regulations?”

(8)(a) Why does the Second Preliminary Issue Matter?

(1)           Those Claimants who were constructively dismissed rely on repudiatory breaches of contract which include the Council’s attempts to pressure them to accept inferior terms and conditions of employment, and in this respect the Claimants rely specifically on the allegation that the Council’s proposed changes to terms and conditions would have been void under regulation 4(4) of the TUPE Regulations .

(2)           All of the Claimants bring freestanding breach of contract claims based on the same allegation.

(3)           All of the Claimants bring ordinary unfair dismissal claims in the alternative and, in support of their contention that the dismissals were unfair (even if for a potentially fair reason), they rely on the submission that the alternative terms and conditions offered to them in the course of the dismissal process would have been void pursuant to regulation 4(4).

“Accordingly, in due course the ET will have to determine whether and to what extent a reason for the Claimants’ dismissal was a TUPE transfer or a reason connected with such a transfer. However, if the Claimants were not transferred into the employment of the Respondent by Regulation 4 TUPE 2006, then the [Council] will contend that any dismissal could not be by reason of or for a reason connected with any relevant transfer (so as to be contrary to Regulation 7 TUPE 2006). If a “relevant transfer” had not caused the pay disparity between the Claimants and the [Council’s] other employees, it could not be the cause of the need to harmonise terms and conditions of employment.”

(8)(b) The Tribunal’s Conclusions

“72. Turning to the issue of ‘ouster’, the Respondent contended that in the event that there was a relevant transfer it would not and could not have operated so as to terminate the contracts of employment of any of the Claimants, namely to operate to terminate their contracts of employment with the transferor because their employments had been preserved by the provisions of the Health and Social Care Act 2012 (Croydon Primary Care Trust) Staff Transfer Scheme 2013.

73. The Claimants contended that Regulation 4 of TUPE should be construed by disapplying the words “which would otherwise be terminated by the transfer”.  Alternatively it was submitted that the Tribunal should disapply the Transfer Scheme on the ground that it was incompatible with the Claimant’s rights under the Directive.  Disapplying the scheme would have the same effect as a purposive construction of regulation 4 TUPE and would accordingly give proper effect to the Claimant’s [ sic ] rights under the Directive.

74. I am not persuaded that this is a case where the Tribunal should disapply the operation of the Transfer Scheme.  The provisions of TUPE already provide an exception to the general rule of protection for the rights of employees by the operation of regulation 3(5), which gives effect to the Henke exception.  The reference to a ‘relevant transfer’ in regulation 4 of TUPE does, in my judgment, envisage circumstances where the protection afforded by TUPE to contacts of employment does not apply, and regulation 3(5) expressly provides that an administrative reorganisation or the transfer of administrative functions between public administrative authorities is not a ‘relevant transfer’.”

(8)(c) The Answer to the Second Preliminary Issue

(9) Disposal

ANNEX

(A1) Klaus Höfner

“21. It must be observed, in the context of competition law, first that the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed and, secondly, that employment procurement is an economic activity.

22. The fact that employment procurement activities are normally entrusted to public agencies cannot affect the economic nature of such activities.  Employment procurement has not always been, and is not necessarily , carried out by public entities. …”

(A2) Redmond Foundation

“18. Secondly, as the Commission emphasises in its observations, moreover, the fact that in this case the origin of the operation lies in the grant of subsidies to foundations or associations whose services are allegedly provided without remuneration does not exclude that operation from the scope of the directive.  The directive, as has already been stated, is designed to ensure that employees’ rights are safeguarded, and covers all employees who enjoy some, albeit limited, protection against dismissal under national law: Case 105/84, Foreningen AF Arbejdsledere I Danmark v Danmols Inventar , and Case 237/84, EC Commission v Belgium .  According to the order for reference, the employees concerned are subject to the Dutch Civil Code.”

(A3) Eurocontrol

“9. If we now turn to the examination of the substance of the question submitted to the Court, on the basis of the aforesaid considerations concerning the possibility of subjecting Eurocontrol to the Community rules on competition, it is apparent that the essential factor in classifying a body as an undertaking is the pursuit of an economic activity capable of being carried on, at least in principle, by a private undertaking with a view to profit .

The pursuit of an activity that involves the exercise of official powers is, on the other hand, incompatible with that classification, with the result that a body acting as a public authority is not subject to the Treaty rules on competition.  In that connection it must be observed that, whilst the Court has preferred not to define that concept in abstract terms, the judgments that refer to it, in the various areas of Community law in which that concept is relevant, follow the path marked out by Mayras AG in his opinion in Reyners , according to whom “ official authority is that which arises from the sovereignty and majesty of the State; for him who exercises it, it implies the power of enjoying the prerogatives outside the general law, privileges of official power and powers of coercion over citizens ”.

The activities and duties concerned here include without doubt those relating to the fundamental powers of a public authority in areas such as general and fiscal administration, justice, security and national defence .  On the other hand, although some of the tasks connected with the pursuit of an activity by a public authority in that capacity may be separated from the range of activities carried on by a particular body, the Treaty provisions on competition remain applicable to them.”

“This leads me to the conclusion that air control constitutes a natural monopoly in the air space where it is carried out, and in that respect, competition between two bodies not only is not desirable but would not even be possible in practice.  In the final analysis it is a public service to which any idea of commercial exploitation with a view to profit is alien : which may not be incompatible, where appropriate and given equal efficiency, with economic management of the activity in question.”

“24. … For the purposes of such control, Eurocontrol is vested with rights and powers of coercion which derogate from ordinary law and which affect users of air space. …

27. Eurocontrol thus carries out, on behalf of the Contracting States, tasks in the public interest aimed at contributing to the maintenance and improvement of air navigation safety.

…

30. Taken as a whole, Eurocontrol’s activities, by their nature, their aim and the rules to which they are subject, are connected with the exercise of powers relating to the control and supervision of air space which are typically those of a public authority .  They are not of an economic nature justifying the application of the Treaty rules of competition.”

(A4) Henke

“13. As appears from the preamble to the Directive, in particular the first recital, the Directive sets out to protect workers against the potentially unfavourable consequences for them of changes in the structure of undertakings resulting from economic trends at national and Community level, through, inter alia, transfers of undertakings, businesses or parts of businesses to other employers as a result of transfers or mergers.

14. Consequently, the reorganisation of structures of the public administration or the transfer of administrative functions between public administrative authorities does not constitute a “transfer of an undertaking” within the meaning of the Directive.”

“17. It appears that, in the circumstances to which the main proceedings relate, the transfer carried out between the municipality and the administrative collectivity related only to activities involving the exercise of public authority .   Even if it is assumed that those activities had aspects of an economic nature, they could only be ancillary .”

“… Apart from the classic area of municipal undertakings and the sphere of functions involving only the exercise of public powers, it seems to me that in particular it will be difficult and not always possible to draw the distinction in a particular case .  Even in the area of activities involving the exercise of public powers, there has been a huge change in recent years.  Activities which a few years ago were still regarded as purely for the public authorities are now being carried out by private undertakings. … This means that the criterion of activity in the exercise of public powers is very difficult to pin down, since it is subject to constant change.  What is today regarded as purely public may, in even only a few years, be carried out by a private undertaking with a view to profit.  It also cannot be ruled out that functions carried out by a private undertaking will not be regarded after a time as being again functions of the public authorities. …”

(A5) Diego Cali

“41. It is clear from the case law of the Court of Justice, and more especially the judgments in Sat Fluggesellschaft and Poucet , that certain bodies that are the instruments of a policy in the (general) public interest and enjoy prerogatives of the public authority, that is to say bodies that exercise an activity typical of a public authority or have an exclusively social function , do not constitute undertakings and are not therefore subject to the Community rules on competition.

42. In reaching those conclusions, the Court of Justice has focused on the nature of the activity exercised, that is to say whether or not it is of an economic nature and whether it could, in principle, be performed by a private profit-making undertaking .  It has also considered the aim of the activity and the rules to which it is subject .  In addition, the Court has looked at a number, or bundle, of indicators that on their own are not sufficient to rule out that an activity is of an economic nature and establish that it falls outside the scope of competition law.  Basically, the Court has assessed the extent to which the entity whose activities are under review operates in compliance with the rules laid down by the administrative authorities and whether, more particularly, it has the power to influence the level of the consideration demanded in return for the services provided to users, and the extent to which it is profit-making.”

“47. The anti-pollution surveillance carried out by SEPG at the Porto Petroli meets the fundamental need to ensure the safety of both users of the Porto Petroli and the inhabitants of the surrounding area.  As well as being geared to protection of the environment, an aspect that I shall consider below, that activity is directly linked, if not equivalent, to the function of policing the maritime area of the port, and that, in my view, is a function that may be exercised by a public authority, regardless of the legal form adopted for its organisation and administration.  Consequently, a legal body assigned the above responsibilities may not be deemed to be an undertaking within the meaning of Article 86, and it is therefore unnecessary to consider whether it constitutes an undertaking entrusted with the operation of services of general economic interest, within the meaning of Article 90(2) of the Treaty.

48. Furthermore, it seems to me that the performance of the abovementioned tasks, that is to say SEPG’s anti-pollution activities, ought specifically to be recognised by the Court as constituting an essential function of the State .  In other words, an activity that consists in anti-pollution surveillance of the maritime environment, that is to say in protecting the environment, cannot constitute the activity of an undertaking but falls into the category of a core State activity .

49. In the light of the above analysis, I consider that in so far as it involves anti-pollution surveillance of the Porto Petroli, the activity of SEPG cannot conceivably be carried out within a competitive system , since that would jeopardise, if not destroy, the effectiveness of the system of safeguards as regards both the port environment and the safety of port users and inhabitants of the surrounding areas.  It is therefore a public service unrelated to commercial profit-making activity .  Furthermore, that this service is provided for the benefit of the whole of the community is also apparent from the fact that the surveillance has to be exercised regardless whether the fees owed by any particular vessel have been paid.”

“16. As regards the possible application of the competition rules of the Treaty, a distinction must be drawn between a situation where the State acts in the exercise of official authority and that where it carries on economic activities of an industrial or commercial nature by offering goods or services on the market (Case 118/85, EC Commission v Italy ).

…

22. The anti-pollution surveillance for which SEPG was responsible in the oil port of Genoa is a task in the public interest which forms part of the essential functions of the State as regards protection of the environment in maritime areas.

(A7) Sánchez Hidalgo

“… It may be concluded that the scope of the Directive is not determined by the transferor and its status under public or private law, as long as the transferor is exercising an economic activity.   It is not therefore the nature of the transferor which is decisive, but the nature of the activity carried on.  The exercise of public authority cannot be the subject of a business transfer within the meaning of the Directive.”

“31. On the other hand, the reorganisation of structures of the public administration or the transfer of administrative functions between public administrative authorities does not constitute a transfer of an undertaking within the meaning of the Directive.  In those cases the transfer concerns activities involving the exercise of public authority .

32. So, the fact that the service transferred was the subject of a concession by a public body such as a municipality cannot exclude application of the Directive if the activity in question does not involve the exercise of public authority .”

(A9) Mayeur

“55. In the submission of the French Government, the activity carried on by APIM on behalf of the municipality of Metz cannot be characterised as an economic activity.  The documents in the case, it maintains, show that the primary activity of APIM consisted in promoting the City of Metz and in attracting economic activities to its territory.  That activity, carried out on behalf of a local authority and in the general interest, and thus in the public interest, is more akin to a task carried out in the general interest.

56. That, however, is not how the Court has defined “economic activity”.

57. According to settled case law of the Court, any activity involving the offer of goods and services in a given market constitutes an economic activity . …

58. That definition , laid down in the context of the law of competition and of the free movement of services, has been transposed to the context of Directive 77/187. …”

“61. Furthermore, posts including functions which, although performed within a structure which could be classified as an economic entity, are linked to the exercise of public authority, do not constitute economic activities: Henke and Sánchez Hidalgo … The court has however given a strict definition to that type of post.  It only covers posts which involve a genuine participation, directly or indirectly, in the exercise of public authority and in the functions intended to safeguard the general interests of the state or other public bodies … That definition encompasses posts which contribute to particular tasks of the public administration - for example, national defence, internal security, public finances, the judicial system and home affairs, posts in ministries and central banks - provided that the activities in question are specifically centred on a political or judicial power .”

“38. Secondly, it is also clear from the order for reference that the defendant carried out publicity and information activities on behalf of the City of Metz in connection with services which the latter offers to the public.

39. Activity of that kind, consisting in the provision of services, is economic in nature and cannot be regarded as deriving from the exercise of public authority.

40. The transfer of an economic activity such as that carried out by the Defendant cannot be excluded from the scope of Directive 77/187 solely on the ground that it is carried out for non profit-making purpose or in the public interest. …”

(A10) Ambulanz Glöckner

“67. It will be recalled that for the purposes of Community competition law the concept of undertaking encompasses every entity engaged in an economic activity regardless of the legal status of the entity and the way it is financed .  The basic test is whether the entity in question is engaged in an activity which consists in offering goods and services on a given marke t and which could, at least in principle, be carried out by a private actor in order to make profits .

68. In the present case, it is clear from the facts of the main proceedings that non-emergency patient transport has in the past been carried out in Germany by private undertakings with a view to making profits .  Moreover, it appears from the file that Ambulanz Glöckner has in the past also provided emergency transport services.  Nothing therefore suggests that the nature of either emergency or patient transport is such that those services must necessarily be carried out by public entities.  Whether emergency or patient transport generates profits will depend exclusively on the remuneration which the operator obtains for his services.  Furthermore, the referring court states that under German civil law, too, the relationship between ambulance service provider and patient is viewed as an “ordinary service contract”.  The provision of ambulance services therefore constitutes an economic activity within the meaning of the Court's case law.”

“19. As regards the first of these points, the concept of an undertaking, in the context of competition law, covers any entity engaged in an economic activity, regardless of the legal status of the entity or the way in which it is financed.  Any activity consisting in offering goods and services on a given market is an economic activity .

20. In the present case, the medical aid organisations provide services, for remuneration from users, on the market for emergency transport services and patient transport services.  Such activities have not always been, and are not necessarily, carried on by such organisations or by public authorities .  According to the documents before the Court, in the past Ambulanz Glöckner has itself provided both types of service.  The provision of such services therefore constitutes an economic activity for the purposes of the application of the competition rules laid down by the Treaty.”

(A11) ALI

“The key question was whether the ALI’s functions involved the exercise of public authority.”

(A12) Scattolon

“51. I conclude from those considerations that such exclusion from the scope of Directive 77/187 is justified not by the public-law nature of the entities at issue, but rather, on the basis of a functional approach, by the fact that a transfer relates to activities involving the exercise of public authority .  However, where a transfer relates to an economic activity, it falls within the scope of that directive.   The public-law or private-law nature of the transferor and the transferee is of little importance, in that regard.  Subsequent judgments demonstrate that the Court upheld that functional approach, placing the emphasis on the existence or otherwise of an activity involving the exercise of public authority.”