EC rules on worker rights may slow contracting out

CONTRACTING out such services as catering, cleaning and property management is an attractive way for companies to cut costs and concentrate on core activities. But the Confederation of British Industry says many of them are being put off by uncertainty over the Acquired Rights Directive issued by the European Community.

Although attention on the directive has largely concentrated on its effects on public services, the implications are just as great for business-to-business contracts. The directive states that terms and conditions of employment cannot be worsened as a result of transferring an undertaking to another organisation.

When implemented in Britain in the form of the 1981 Transfer of Undertakings (Protection of Employment) Regulations - known as Tupe or Tour - the Government drew up the regulations too narrowly. In particular, non-commercial operations should not have been excluded. The uncertainty is not restricted to Britain, and it has been left to case law to clarify the scope of the directive. In the recent Watson Rask v ISS case, the European Court of Justice held that the regulations applied where a canteen's management was contracted out. The contract parties had wrongly believed that the regulations did not apply since the ownership of the facilities had not been transferred.

In another recent case, the court said that employees could apply the undertaking in refusing to be transferred, thus enabling them to claim constructive dismissal. The Government hopes to overcome this difficulty through an amendment to the Trade Union Reform and Employment Rights Bill just introduced in the House of Lords. However, trade unions may contest its validity, and new disputes over the interpretation of the directive are still arising.

One of the assumptions made to date has been that employees with less than two years of employment are not covered by the regulations, as they are excluded from British employment protection legislation. Stephen Cavalier, a solicitor with Thompsons (which has just published a guide to Tupe), says this is probably wrong. 'I think the regulations apply in any case. My argument is that there is nothing in the directive to justify this.'

Another issue is share purchase takeovers. These are not covered by the directive, but companies are if they are sold by receivers as going concerns. Receivers are therefore restricted in disposing of staff in order to make a business more attractive to a buyer.

Olga Aikin, an employment law consultant, added that many businesses were keen to contract out facilities once the uncertainties are resolved.