Fairhurst Ward Abbotts Ltd. v Botes Building Ltd. & Ors

For TUPE to apply, there must first be a pre-existing stable economic entity, being an organised grouping of persons and assets for an economic activity. An activity alone is insufficient.

Where a larger economic entity is divided on a change of contractor, a part may be transferred even though that part was not a separately identifiable economic entity before the transfer. The question is whether the part carved out is capable of transfer as a going concern and retains its identity, assessed on all the circumstances. Excessive fragmentation may prevent that conclusion.

An employee’s sickness absence does not itself remove the employee from the undertaking. The material factual question is whether the employee was employed to work in the part transferred immediately before the transfer.

Botes supplied building-maintenance services throughout the London Borough of Southwark under a single Major Voids Contract. On re-tendering, Southwark divided the work geographically. Fairhurst obtained the Area 2 contract, while a different contractor obtained Area 1.

The Employment Tribunal held that the former operation was transferred in two parts and that Fairhurst was liable for the unfair dismissal of six employees. It held that Mr Salih, a carpenter absent through sickness, had not transferred and was unfairly dismissed by Botes. The Employment Appeal Tribunal dismissed Fairhurst’s appeal. It allowed Botes’s cross-appeal concerning Mr Salih and remitted the issue of his assignment immediately before transfer.

The Court of Appeal considered whether Area 2 could be a transferred part of an undertaking although it had not existed as a separate economic entity in Botes’s hands, and whether Mr Salih’s sickness absence prevented his transfer.

1. Fairhurst’s appeal was dismissed unanimously. Under the Transfer of Undertakings (Protection of Employment) Regulations 1981, the court must identify a stable economic entity before the transfer. That entity is an organised grouping of persons and assets, rather than merely the activity performed. Whether it has retained its identity requires an overall assessment of the relevant circumstances.

2. Per Mummery LJ, with May and Pill LJJ agreeing on this issue, the necessary pre-existing entity was the borough-wide Major Voids Contract. A transfer of part of that undertaking did not require Area 2 itself to have been a discrete, stable economic entity before the transfer. A part may be identified for the first time when it is separated from a larger entity, provided that the facts permit it to be treated as a transferred economic entity retaining its identity.

   The tribunal had made sufficient findings. The same maintenance services continued in Area 2, using support, administration and premises previously dedicated to the whole contract. The geographical division did not prevent Area 2 from being transferred as part of Botes’s undertaking. The court nevertheless stressed that fragmentation may be so great that no recognisable entity or stable part remains.

3. Mr Salih’s cross-appeal was dismissed by a majority. Per Mummery LJ, agreed by Pill LJ, sickness absence did not itself detach Mr Salih from the undertaking. The tribunal had instead to decide whether he was employed to work in Area 2 and would have been required to work there immediately before transfer had sickness not excused attendance. Its findings were insufficient, so the Employment Appeal Tribunal’s remittal stood.

   May LJ dissented on that issue. He considered that the contractual assignment to Area 2 and the absence of any suggestion of a device were sufficient to conclude that Mr Salih transferred to Fairhurst.

• Court of Appeal (Civil Division): Fairhurst’s appeal was dismissed. Mr Salih’s cross-appeal was dismissed by a majority, leaving in place the remittal to determine whether he was employed in Area 2 immediately before transfer.

• Employment Appeal Tribunal: On 27 March 2003, dismissed Fairhurst’s appeal from the Employment Tribunal. It allowed Botes’s cross-appeal concerning Mr Salih and remitted the assignment issue to the same tribunal.

• Employment Tribunal: Held that the Major Voids Contract was transferred in two parts under the Transfer of Undertakings (Protection of Employment) Regulations 1981. It found Fairhurst liable for the unfair dismissal of six employees and Botes liable for Mr Salih’s unfair dismissal.