High Court Overturns Employment Appeals Tribunal Decision

High Court Overturns Employment Appeals Tribunal Decision To Award Redundancy Payments To Company Employees Who Refused To Transfer To New Business

Mr. Justice John Edwards in the High Court has delivered an important judgment dealing with the area of European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003. In his judgment, delivered on the 28th May 2009 he overturned a decision of the Employment Appeals Tribunal who had awarded redundancy payments to two former employees of software company Symantec Limited, a software manufacturer who in November 2006 transferred part of its undertaking to a new business called Corporate Occupier Solutions (Ireland) Limited in order to outsource its EMEA facilities. Two employees were employed by Symantec Limited as manufacturing engineers who had been informed in December 2005 of the proposed transfer of their respective contracts of employment to the new company. Both employees objected to the transfer and had been advised in advance that a failure to transfer would be treated as a resignation of their respective positions.

Both employees applied to the Employment Appeals Tribunal (EAT) for a redundancy payment claiming that they had been dismissed by reason of redundancy and that payments should be made to them under the Redundancy Payments Act 1967-2003. The claims were upheld but the EAT which ruled that, in the transfer of undertakings

“the employee is not obliged to accept the new employer, and this is not inconsistent with the Transfer of Undertakings Directive in relation to the Transfer of Undertakings”.

The company challenged the ruling on a point of law. The company argued that the employees contracts of employment were in being at the date of the transfer then by virtue of Regulation 4 (1) of the European Communities (Protection of Employees on Transfer of Undertaking) Regulations 2003 states that the obligations and liabilities under the said contract of employment or the responsibility of the transferee, namely in this case Corporate Occupier Solution (Ireland) Limited and not of Symantec. It was also argued on behalf of the companies that under E.U. Law that even if the workers employed in the business did not consent or if they objected the state has not imposed in Irish Legislation adjoined liability of both the transferor and the transferee for obligations arising under the contract of employment existing before the date of the transfer. Article 3 (1) of the Directive provides

“the transferor’s rights and obligations arising from the contract of employment or from an employment relationship existing on the date of the transfer within the meaning of Article 1 (1) shall, by reason of such transfer, be transferred to the transferee.
Member States may provide that, after the date of transfer within the meaning of Article 1 (1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship”.

The European Court of Justice has already held in previous case that Article 3 (1) of the Directive does not preclude an employee employed by the transferor at the date of the transfer of an undertaking objecting to the transfer to the transferee of the contract of employment or the employment relationship. The European Court has held that such an obligation would jeopardise the fundamental rights of the employee, who must be free to choose his employer and cannot be obliged to work for an employer whom he has not freely chosen. European Court decisions have stated that it is for the member states to determine what the fate of the contract of employment or employment relationship should be. This can include the member states providing, in particular, that in such a case the contract of employment or employment relationship must be regarded as terminated either by the employee or employer. Member states could also provide that the contract of employment relationship should be maintained with the transferor.

It is further submitted that in the circumstances in this case the EAT erred in finding that the employees were entitled to lump sum redundancy payments under the Redundancy Payments Act 1967-2003. It was submitted that the EAT determinations were unsupported by legal authority, that there was no legal basis for the finding of redundancy within the meaning of the Redundancy Payment Acts and that it was clear that the transfer regulations applied and that it was open to the employees to challenge the transferee that in fact their positions were redundant but that it was not open to them to challenge Symantec, as its obligations were completed at the time of transfer. The case made by the employees was that the 2003 Regulations had no relevance to the employees’ claims for redundancy. One particular anomaly in the law is that the Irish implementing legislation makes no particular provision as to what will occur if employees decide not to transfer.

Mr. Justice Edwards in his decision seized on this fact that Irish implementing legislation makes no particular provision as to what will occur if employees decide not to transfer, which existed in this case. He held that this fact operated against them. He stated that it does not follow that if an employee decides not to transfer a situation of redundancy automatically arises against the transferor. He held that it cannot do so as the fact that the employee objects to the transfer does not of itself have the effect of negating the transfer. It just means that the employee is not obliged to continue his employment relationship with the transferee but the transfer still goes ahead unless a member state expressly provides for the contrary in its implementing legislation. Mr. Justice Edwards further held that if the Irish legislature had wished the employment relationship with the transferor to continue so as to facilitate the employee in making a claim for redundancy could have enacted legislation for that purpose.

This is another decision of the High Court that brings some clarity to the position regarding the transfer of undertaking regulations which are quite complex. It has often been considered that employees who objected to a transfer and who resign would have been entitled to redundancy payment. This decision is now legal authority that they are not. The decision however does not address the situation where employees’ terms and conditions of employment may be changed in the context of a transfer. This is precluded under the regulations themselves unless the employees’ consent to it. This decision also shows that more and more decisions of the Employment Appeals Tribunal are being referred to the High Court for determination on legal issues. There has been a lot of criticism about the inconsistencies of decisions coming from the Employment Appeals Tribunal which is leading to a lot of uncertainty amongst claimants and employers.

Regulation 4 (1) of the European Communities (Protection of Employees on Transfer of Undertaking) Regulation 2003 provides that:

“The transferor rights and obligation arising from a contract of employment existing on the date of a transfer shall, by reason of such transfer, be transferred