Using European law, the judges over-ruled industrial tribunal findings and ordered that the employees at Orsett Hospital, Essex, were due compensation because they had been re-employed by new contractors on inferior terms.
The ruling, under the 'acquired rights' directive, calls into question the degree to which the British government can avoid European legislation by simply opting out of the social chapter of the Maastricht treaty.
It also undermines the ability of private firms to undercut publicly run services by cutting costs. Eight supervisors and 98 cleaners were made redundant by Initial Health Care Services in 1991 when the company's tender to renew its contract with Basildon and Thurrock Health Authority was rejected in favour of Pall Mall Services. Nearly all the staff were then engaged by Pall Mall, but on less favourable terms.
Backed by Unison, the public services union, 12 members of staff sought legal rulings that they had been unfairly dismissed and that the two companies had failed to give effect to the 1981 Transfer of Undertakings (Protection of Employment) Regulations.
The case was rejected by an industrial tribunal on the grounds that there was no transfer of equipment or goodwill from Initial to Pall Mall and therefore no transfer of an 'undertaking'. The fact that the same workforce was employed did not amount to a transfer. This decision was upheld by the Employment Appeal Tribunal, but overruled yesterday.
John Hall, director general of the Business Services Association, to which both Initial and Pall Mall belong, said yesterday's judgment had dealt a 'devastating' blow to the Government's policies of compulsory competitive tendering of local services and 'market-testing' of Whitehall functions.
Alan Jinkinson, general secretary of Unision, described the decision as a huge victory.
'The Government's policy of deregulating the British labour market is in tatters,' he said. 'It is a significant step along the road of bringing our laws into line with civilised European standards.'
Stephen Cavalier, of Brian Thompson and Partners which acted on behalf of Unison, pointed out that yesterday's judgment came from the highest court yet to pronounce in the row over Transfer of Undertakings legislation. 'In my view it puts the lid on the whole issue,' he said.
In the judgment, Lord Justice Neill said although some changes in cleaning methods may have been introduced by Pall Mall, essentially the same services were being carried out by the same staff on the same premises for the same health authority.Reuse content