Nicholls v Croydon London Borough Council

An entity carries on an economic activity where it offers goods or services on a market. Purchasing or commissioning goods or services is not, by itself, an economic activity; its character depends on the subsequent use.

The exclusion in regulation 3(5) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 applies only to activities involving the exercise of public authority. A functional examination of the transferred activities is required. The fact that an activity is public, statutory, publicly funded or in the public interest is not decisive.

Where the tribunal found that all or almost all of a public health team’s work was offered by non-state actors in the same market, it had to explain why that did not establish economic activity. A statutory staff-transfer scheme could not prevent regulation 4(1) operating so as to deny the protection in regulation 4(4), if there was a relevant transfer.

Fourteen public-health employees appealed against an Employment Tribunal decision on two preliminary issues. Their employment moved from Croydon Primary Care Trust to the London Borough of Croydon on 1 April 2013 under a staff transfer scheme made pursuant to the Health and Social Care Act 2012.

After the Council sought to change their terms, some employees resigned and others were dismissed and offered re-engagement. They brought unfair-dismissal and related claims. The Tribunal held that the transfer was excluded by regulation 3(5) of the Transfer of Undertakings (Protection of Employment) Regulations 2006, and that regulation 4 did not transfer the contracts in any event.

The central issues were whether the public health team was an economic entity or exercised public authority, and whether the staff transfer scheme excluded the employees’ reliance on regulation 4(4).

1. Appeals allowed. The first preliminary issue was remitted to a differently constituted Employment Tribunal. The second was answered in the employees’ favour.

2. The correct approach under regulation 3 is functional. The tribunal must identify the activities of the transferred entity and determine whether they are economic activities or activities involving the exercise of public authority. Those categories are mutually exclusive. Offering goods or services on a market is an economic activity, irrespective of public-law status, public funding, statutory duties, public interest or absence of profit.

3. Commissioning or purchasing services is not economic activity in itself. Its character depends on whether the subsequent use is economic. Regulation 3(5) is not a free-standing exception to be narrowly construed; it identifies transfers involving public authority which fall outside the Directive’s field. A transferred entity undertaking public-authority functions is not an economic entity merely because it has ancillary economic activities.

4. The Employment Tribunal correctly rejected the proposition that commissioning alone made the public health team economic, and correctly rejected the contention that the Trust’s other activities determined whether regulation 3(5) applied. Its reasons nevertheless contained a material gap. It had found that all, or almost all, of the team’s work could be, and was, offered by non-state actors in the same market. That was a strong indication of economic activity. The observation that the team did not bid for contracts or seek business did not adequately explain the contrary conclusion.

5. If there was a relevant transfer, article 3(1) of the Acquired Rights Directive applied to the employees’ contracts. Regulation 4(1) had to be read so that the words “which would otherwise be terminated by the transfer”, together with the staff transfer scheme, did not deprive them of the protection in regulation 4(4). No remission was needed on that issue.

• Employment Appeal Tribunal: Allowed the employees’ appeals, remitted the regulation 3 issue to a freshly constituted Employment Tribunal, and held that regulation 4(1) applied if there was a relevant transfer.

• Employment Tribunal: Judgment sent on 31 July 2017. It held that regulation 3(5) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 excluded a relevant transfer and answered both preliminary issues negatively.