ADI (UK) LIMITED v. FIRM SECURITY GROUP LIMITED

Under the Transfer of Undertakings (Protection of Employment) Regulations 1981, a change of contractor is not a transfer merely because substantially the same work continues for the same customer in the same place. The court must assess whether a stable economic entity retained its identity, considering all relevant factors together. In labour-intensive operations, the workforce may be the principal asset. If employees would have transferred the undertaking but were not taken on principally to avoid the Regulations, their non-transfer cannot defeat a finding of transfer. The reason for non-engagement must be established; there is no automatic transfer where it is not.

ADI provided security services at the Darwin Shopping Centre through nine employees. Firm Security Group replaced ADI under the same customer contract, using the same premises and facilities, but took on none of ADI's staff.

The majority of the Employment Tribunal found no economic entity and no relevant transfer. The majority of the Employment Appeal Tribunal upheld that conclusion, while its minority considered that the tribunal had failed to address whether the workforce had been deliberately rejected to avoid the Regulations. ADI appealed. The central issue was whether the reason for the employees' non-engagement was relevant to the existence of a transfer.

1. Majority disposition. May LJ and Dyson LJ allowed the appeal and remitted the case to a differently constituted Employment Tribunal. The tribunal had not decided why Firm Security Group failed to take on ADI's nine employees. Simon Brown LJ dissented and would have dismissed the appeal.
2. Economic entity and overall assessment. The security operation at the shopping centre was a discrete economic entity. The inquiry nevertheless required all the circumstances to be considered together. Similar services, the same premises, the same customer and access to the customer's facilities did not, without more, establish a transfer. In this labour-intensive case there were no meaningful tangible or intangible assets and no workforce was taken on. Following Süzen [1997] ICR 662 and Allen [2000] ICR 436, an entity could not be reduced to the activity entrusted to it.
3. The ECM point. Following ECM (Vehicle Delivery) Limited v. Cox [1999] ICR 1162, the reason why employees were not appointed was a relevant circumstance. Where actual workforce transfer would be relevant, a tribunal must consider that reason if raised. If the reason or principal reason was to avoid the application of the Regulations, the case was to be treated as involving a transfer. May LJ rejected both a positive burden on the opposing party to prove the reason and a requirement that the reason be limited to an economic, technical or organisational reason. Dyson LJ expressed the purposive approach as treating avoidance-motivated non-transfer as equivalent to actual transfer.
4. Application and order. If avoidance was established, there was a transfer; otherwise there was not. The issue was remitted for determination. The respondent was ordered to pay the appellant's costs, summarily assessed at £19,481.50.
5. Dissent. Simon Brown LJ considered the non-transfer of the workforce decisive in this labour-intensive case. In his view, Süzen and Allen did not support deeming a transfer where none had occurred, and Litster [1990] 1 AC 546 applied only after a transfer was established.

1. Court of Appeal (Civil Division). Appeal allowed by a majority under [2001] EWCA Civ 971; the matter was remitted to a differently constituted Employment Tribunal.
2. Employment Appeal Tribunal. The majority dismissed ADI's appeal from the Employment Tribunal. The minority considered that the tribunal had failed to address the reason for Firm Security Group's refusal to employ the existing workforce.
3. Employment Tribunal. The majority found no economic entity and no relevant transfer. The minority considered that the undertaking had transferred and that the workforce had not been taken on to avoid the Regulations.