New ISG Ltd v Vernon & Ors

An employee may object to the transfer of employment under regulation 4(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 after the transfer where the employee was not informed of the transferee’s identity beforehand. The provision must be construed purposively to preserve the employee’s freedom to choose the employer. An objection need not take any prescribed form. In an interim injunction application, the court may determine a pure construction issue where it is fully argued and does not depend on disputed facts. Where serious issues remain, the court must apply the American Cyanamid principles, including the adequacy of damages and the balance of convenience.

New ISG sought continuation of interim injunctions restraining five former employees of New Infrastructure Services Group Ltd from using confidential information and breaching restrictive covenants. The business assets and goodwill had been sold to New ISG during the transferor’s administration. The employees contended that they had objected to becoming employed by New ISG under regulation 4(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006, and that the covenants were consequently unenforceable.

The court also considered whether Mr Harvey’s covenants had been incorporated, whether restrictive rights passed with the goodwill, and whether interim relief should continue if serious issues remained.

1. Regulation 4(7). The court determined the timing issue on the interim application. Regulation 4(7) was construed purposively. An employee who was not told the identity of the transferee before completion could object after the transfer, subject to conduct showing that the employee had affirmed the transfer. A contrary construction would undermine the employee’s fundamental freedom to choose the employer and the purpose of the Acquired Rights Directive. The court followed the purposive approach supported by Katsikas v Konstadinidis [1993] IRLR 179 and Humphreys v University of Oxford [2000] ICR 405.
2. The authorities relied on by New ISG did not require a different result. Hay v George Hanson [1996] IRLR 427 concerned the form of an objection and did not address the present situation. The employees’ resignation letters could constitute objections, since no particular method of notification was required. Their conduct during the two working days after the transfer did not make it clear that they would not object.
3. The administrators had plainly breached regulation 13 of the 2006 Regulations by failing properly to inform or consult employees, failing to identify the transferee and giving inaccurate information about the employees’ rights. Administration did not, by itself, constitute special circumstances under regulation 13(9), and the administrators had not taken all reasonably practicable steps. The court relied on Re Hartlebury Printers [1992] ICR 559.
4. The restrictive covenants could not be enforced through the sale of goodwill. The purchase price had not been paid in full, so the goodwill remained vested in the vendor. The court therefore did not apply the principle in Townsend v Jarman [1900] 2 Ch 698. Mr Harvey was also not seriously arguable to be bound by covenants he had never agreed to incorporate into his later employment contract.
5. The injunctions would in any event have been refused under the principles in American Cyanamid v Ethicon. Damages would be difficult to assess and the employees might be unable to satisfy an award, but there were also doubts about New ISG’s ability to honour its undertaking. The balance of convenience favoured refusal, particularly because the injunctions threatened the employees’ ability to earn a living, the status quo had shifted, and an early trial was available.