Nicholls v Croydon London Borough Council

The fact that a public body purchases or commissions goods or services does not, by itself, make that purchasing an economic activity for the purposes of the Acquired Rights Directive and the TUPE Regulations. Rather, a functional approach must be adopted. Activities should be classified by asking whether they consist in offering goods or services on a market or instead form part of the exercise of public authority. If most or all of an entity's work can be offered on a market by non-state actors, that fact strongly indicates an economic activity, but tribunals must explain why they do or do not so conclude. Regulation 4(4) must be given effect where a relevant transfer under the Directive has occurred.

The appeal arose from two preliminary issues decided by an Employment Tribunal after a five-day hearing. Fourteen employees who transferred from Croydon Primary Care Trust to the London Borough of Croydon on 1 April 2013 challenged whether there was a "relevant transfer" under the Transfer of Undertakings (Protection of Employment) Regulations 2006 and whether regulation 4 applied so as to protect their contracts. The ET answered both issues "No". The Employment Appeal Tribunal allowed the appeal on both preliminary issues and remitted the factual and remaining issues to a differently constituted Tribunal. The central question was whether the public health team's activities were economic or the exercise of public authority.

(1) Overall disposal: the appeals are allowed on both preliminary issues. The case is remitted to a differently constituted Employment Tribunal for further steps on the first preliminary issue. (See paras [113]–[125].)

(2) Legal approach: apply a functional test. Determine whether the transferred activity consists in offering goods or services on a market or instead involves the exercise of public authority. Regulation 3(5) implements the Henke exception and excludes transfers of activities involving the exercise of public authority from TUPE's scope. (See paras [44]–[52]; [61]–[68].)

(3) Purchasing/commissioning: the mere act of purchasing or commissioning is not, in itself, an economic activity. One must consider whether the subsequent use of purchased goods or services amounts to an economic activity. The court follows the reasoning of FENIN on this point. (See paras [37]–[43]; [67]–[68].)

(4) Evidential implication: a finding that "all or almost all" of the work can be, and in fact is, offered by non-state actors strongly indicates the transferred entity was carrying on an economic activity. If a tribunal makes such a finding it must explain why it does not conclude that an economic activity exists. Failure to do so renders the decision inadequately reasoned or legally erroneous. (See paras [49]; [109]–[113].)

(5) Regulation 4 and the Staff Transfer Scheme: where a relevant transfer under the Directive has occurred, the protection in article 3(1) must be given effect. The words "which would otherwise be terminated by the transfer" in regulation 4(1) must not be read so as to deny the Directive's protection when a relevant transfer exists. Therefore regulation 4(4) can apply despite the Staff Transfer Scheme preserving employment continuity. (See paras [116]–[124].)

(6) Remedy: remit for further determination by a differently constituted Tribunal on the first preliminary issue. No remission required for the second preliminary issue. (See para [125].)

1. Employment Appeal Tribunal: Appeal allowed on both preliminary issues; remitted to a differently constituted Employment Tribunal (judgment handed down 23 August 2018).
2. Employment Tribunal: Preliminary decision answered "No" to (1) whether there was a relevant transfer under the TUPE Regulations and (2) whether regulation 4 effected the transfer of the claimants' employment (Judgment sent 31 July 2017).