Wednesday 27 June 2012

Rangers: is it all in the timing?

It’s been a while since our last post about Rangers and the legal spotlight has now moved from questions of insolvency and administration to that of the employment rights held by those players, including Steven Naismith and Steven Whittaker, who don’t want their contracts to transfer to “Newco”. Both sides (players and owners) agree that a right to object to a transfer arises under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) but there seems to be a difference of opinion about what the Regulations mean in practice. New owner Charles Green was quoted this morning as saying:

“It’s clear the regulations behind TUPE are if someone has an objection, they have to notify within 24 hours. This is almost two weeks after the day. I think this is just opportunism. I’ll definitely challenge it.” 

We can't see a "24 hours" provision in the Regulations but neither, in the discussions about who’s right and who’s wrong, have we yet seen mention of the case law in which precisely these issues of timing have been very carefully considered.

“Effect of relevant transfer on contracts of employment

4.—(1) Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor … but …shall have effect after the transfer as if originally made between the person so employed and the transferee.

(7) Paragraphs (1) and (2) shall not operate to transfer the contract of employment and the rights, powers, duties and liabilities under or in connection with it of an employee who informs the transferor or the transferee that he objects to becoming employed by the transferee.

(8) Subject to paragraphs (9) and (11), where an employee so objects, the relevant transfer shall operate so as to terminate his contract of employment with the transferor but he shall not be treated, for any purpose, as having been dismissed by the transferor.”

As has been noted elsewhere, and as their name suggests, the TUPE Regulations were introduced to protect and give rights to employees, not employers. (Although, on another view, as Lady Smith has observed, “these regulations ousted the common law rule that an employer cannot transfer an employee's contract of employment to a third party without his consent”).  In any event, whatever the motivation for introducing the Regulations, it  does not mean that the rights given are limitless or completely uncircumscribed. So, how to interpret them?

The Regulations do not set out any formal means, nor time, by which notice must be given under paragraph 7. Happily, we have some judicial guidance. In the case of New ISG Ltd v Vernon and others the High Court in England had to consider at what point in the process of the transfer of an “undertaking” an employee must exercise his right to object under paragraph 7. It is only by validly doing so, of course, that an employee will avoid automatically transfering across to become an employee of the transferee. 

ISG were a recruitment agency specialising in the rail industry. Their employees had agreed restrictive covenants so that they could not solicit or canvas business from, or deal with, ISG customers for a year after leaving ISG’s employment. ISG was put into administration and its assets were sold to a new company. This transfer took place just before a weekend and there was no preceding consultation: the employees were only told about it after the transfer had taken place. All of them resigned on the following Wednesday, not wishing to work for the transferee. The transferee tried to enforce the restrictive covenants in ISG’s employment contracts and was initially successful in getting injunctions. 

However the employees later successfully argued that transfer of their contracts to the transferee had not happened because they had objected to the transfer. The court held that there is nothing in the Regulations to say that an employee must register his objection before the transfer happens, especially when he actually doesn’t know the identity of the transferee until afterwards. It rejected the transferee’s argument that the wording of Regulation 4(7) made it plain on “any ordinary construction of the wording [that] the notification by the employee must take place before the date of the transfer”. It applied “a purposive construction so as to accord with the fundamental right of the employee and the Acquired Rights Directive.” The Court was also critical of the lack of consultation entered into by the Administrators which it felt did not comply with its obligations under Regulation 13(2).  It provides:

" (2) Long enough before a relevant transfer to enable the employer of any affected employees to consult the appropriate representatives of any affected employees, the employer shall inform those representatives of—
(a) the fact that the transfer is to take place, the date or proposed date of the transfer and the reasons for it; 
(d) if the employer is the transferor, the measures, in connection with the transfer, which he envisages the transferee will take in relation to any affected employees who will become employees of the transferee after the transfer by virtue of regulation 4 or, if he envisages that no measures will be so taken, that fact."

The Administrators argued that the insolvency of ISG and the need to act quickly so as to preserve the goodwill for the benefit of creditors the insolvency amounted to a “special circumstance” within the meaning of Regulation 13(9):

"(9) If in any case there are special circumstances which render it not reasonably practicable for an employer to perform a duty imposed on him by any of paragraphs (2) to (7), he shall take all such steps towards performing that duty as are reasonably practicable in the circumstances."

The Court rejected that argument too. It then set itself the task of answering a question which it formulated as:  "Did the Respondents in fact object in time”?

Now, it’s important to realise the significance of simply putting the question. The Court accepted that there must be some limit on the exercise of the right to object. One would think that an employee could not work on for, say, years and then purport to exercise a right to object. And if not years, then presumably not months, nor maybe weeks nor, possibly, days.  In the particular circumstances, the Court held that:

 “2 working days is a very short period of time from the date of the announcement at 3 p.m on 27th July 2007 …it cannot seriously be argued that any of the [employees]… had made it clear by their conduct that there would be no objection under regulation 4(7) to the transfer of their employments to New ISG”.

And that helpfully makes it clear that what is important is not just the passage of time but whether the employee has, whether explicitly or as an implication from his conduct, agreed to the transfer and not to exercise a right to object.

In Scotland, the issue was considered by Lady Smith sitting at the Employment Appeal Tribunal in Capita Health Solutions v BBC and others. Noting the use of the progressive participle "becoming", she seemed to have some sympathy with the view that an objection had, on the plain wording of the Regulation, to be made before the transfer took effect:

“The objection can be communicated in any manner; the regulations do not call for formality in that regard (Hay v George Hanson (Building Contractors) Ltd [1996] IRLR 427). Further, the use of wording such as "…where he objects to becoming employed by the transferee…" (my emphasis) which appears in reg. 5(4A) seems indicative of a requirement that the objection be communicated prior to the date of transfer. I can see, however, that there could be circumstances where their overall protective intent will not be capable of achievement if prior objection is insisted upon, such as where employees are kept in the dark about the transfer prior to the date of its occurrence, as happened in the case of  New ISG  Ltd v Vernon and others [2008] ICR 319.”

She decided:

“Employees are plainly entitled to object to being transferred to the employment of another employer. Their right to do so accords with common law, with the underlying intentions of the relevant Directives and with the TUPE. The regulations are not prescriptive as to the form that the objection requires to take if it is to be effective, as was discussed in the case of Hay (see: paragraphs 9 – 11). Whether or not an employee has in fact objected will depend on the facts and circumstances of each case. Further, the test is plainly an objective one. Parties' stated intentions, whilst relevant considerations, will not be determinative of the issue.”

She then held:

“Having given careful consideration to the whole circumstances…it seems to me clear that the claimant's employment did transfer to the second respondents on 1 April 2006, the date that the undertaking transferred. That is because when what was said and done is looked at as a whole, the only proper interpretation that can be put on it is that the claimant did not object to being employed by the second respondents. She was, clearly, only prepared to work for them for a limited period of six weeks but that being so, she cannot, at the same time, insist that she objected. What her approach shows is that she was in fact agreeable to working for the second respondents albeit only for a short period. That her preparedness was time limited does not mean that she objected to a transfer.”

So, as always, it comes down to the particular facts and circumstances. The players do appear to feel strongly that a lack of consultation meant that, in essence, they didn't until very recently know what they could object to. They point out that they've been on holiday. It's just that it's never safe to think that the outcome of any legal dispute is clear-cut on the basis of what's reported in the press. It’s been known for some time that Charles Green had set up the “Newco” and bought assets from the administrators. Initially, he announced that "Newco" would be called “The Rangers Football Club”, before it became apparent that Companies House might not be happy with that, given the existence of "The Rangers Football Club plc” (incorporated 1899) . There seems to be a developing confusion about the precise identity of "Newco". Duff & Phelps reported that they were dealing with Sevco 5088 Ltd (company number 08011390 incorporated in England on 29 March 2012). From the most recent reports, Ibrox Stadium and Murray Park have been transferred to Sevco Scotland Limited (company number SC425159 incorporated in Scotland on 29 May 2012). We’re not sure if the precise name of the transferee company is the important thing as in any event the gist of the deal, and Green’s central involvement, were being reported nearly a month ago. It’s maybe not immediately obvious why a player who did not want his contract to transfer across had to wait much beyond then before he could make an objection to his contract transferring to anyone. Remember, he doesn’t actually need to know who the transferee is. Regulation 4(7) allows the objection to be made to either transferor or transferee.

The implication (though it is certainly no more than that) of Lady Smith’s opinion seems to us to be that an objection should be made before the transfer takes place unless the circumstances make that not reasonably practicable. Now, even so, the drastic change in the club’s position and, say, the likely lack of future bonus payments of the kind earned in the past, might yet allow the players to claim a right to leave on other grounds. No doubt, things will become clearer on a proper understanding of the whole circumstances which is, of course, currently available only to the parties involved and their legal advisers.

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