British American Business 2007

British American Business 2007 | Practical Advice | Labor Law

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LABOR LAW

Rules of engagement

Adele Martins of solicitor firm Magrath & Co examines the extension of UK employment law beyond territorial waters

In today’s global business arena, many employees have roles with an international remit – often undertaking periods of work in foreign jurisdictions. Whether employees are formally transferred to or merely seconded to a local employer, numerous issues arise, not least the question of applicable employment rights.

It is generally accepted that individuals are granted the employment rights of the country in which they work, irrespective of where they are from originally (Article 6(1) Rome Convention). However, two significant legal developments during 2006 raised questions about how far such rights extend. Is globalization creeping beyond national boundaries to a greater extent than previously thought?

UNFAIR DISMISSAL

Pursuant to Section 94 of the Employment Rights Act 1996 (“the Act”), an employee with in excess of one year’s continuous service has the right not to be unfairly dismissed by his employer. Section 196 of the Act originally excluded employees that “ordinarily work outside Great Britain” from the ambit of that protection, but in 1999 section 196 was repealed (an unsuccessful attempt at simplifying matters) and arguably the first significant step to extending the territorial jurisdiction of unfair dismissal rights had been taken.

In a landmark decision last year in the cases of Serco –v– Lawson (“Lawson”), Botham –v– Ministry of Defence (“Botham”) and Crofts –v– Veta Limited (“Crofts”) (2006) (together “Serco”) the territorial scope of unfair dismissal rights received some clarification and it is clear that in some circumstances the long arm of the law extends well beyond territorial waters.

In essence, the House of Lords determine but not always that the right not to be unfairly dismissed still generally applies only to employees working in Great Britain at the time of dismissal. The prior history of the contractual relationship may be relevant to establishing whether an employee is really working or on a casual visit, but the usual question is whether or not the individual was working in Great Britain at the time he was dismissed.

In the case of Botham, the employee was employed by the Ministry Of Defence in a civilian capacity in Germany. His contract was governed by English law and he was described as a “UK-based youth worker”. The House of Lords held that Mr Botham was protected by s94(1) because he was working in a “political or social British enclave abroad”.
In the case of Lawson the employee had been recruited in Britain and was ordinarily domiciled in Britain. He worked for a British company as a security officer on a Royal Air Force base on Ascension Island in the South Atlantic. Whilst Mr Lawson’s position was held not to be as strong as Mr Botham, it was held that it would be unrealistic to regard him as employed in a foreign community.
In the case of Crofts, the employee was employed as a pilot by Veta Limited, a subsidiary of Cathay Pacific (both Hong Kong companies). He was based at Heathrow, from which airport his flying cycles normally commenced and ended, and he resided in Great Britain. The House of Lords found that he was protected by s94(1) because he was, on the facts, based in Great Britain.

A number of principles come out of the decision, including:

The protection of section 94(1) does apply to peripatetic employees but the test of “ordinarily working outside Great Britain” remains – one must consider not what the contract says, but the conduct of the parties at the time.
Expatriate employees who work and are based abroad are unlikely to fall within the remit of s94(1) unless they work for an employer that is based in Great Britain – and the employee is posted abroad for the purposes of a business carried on in Great Britain.
Individuals seconded to Great Britain for a substantial period, (in excess of one year), will undoubtedly be protected from unfair dismissal (irrespective of the choice of law governing the assignment). However, individuals assigned to the UK for shorter periods raise more complex problems. It is likely that the Employment Tribunal will extend protection to an individual even if his period of continuous service is not exclusively based in Great Britain. The question is, how long the period of work within the jurisdiction must be before a Tribunal will countenance making such a decision.

OUTSOURCING ABROAD

Outsourcing abroad or “off-shoring” has become increasingly common, particularly within the services sector. Many argue that off-shoring enables businesses to remain competitive and that it is a natural result of globalization, but employee protection groups are warning of the dangers of the use of cheap labour with little employment protection.

While at present there is almost no authority on the point, it does seem that the ambit of The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE 2006”) extends beyond national boundaries. Regulation 3(1)(a) makes it clear that the transferrer undertaking must be situated in the UK immediately prior to transfer. However, there is no stipulation as to where the undertaking may be situated after the transfer – and TUPE 2006 introduced a number of provisions which suggest that the scope of the regulations is not limited to the UK, including:

The concept of a Service Provision Change (“SPC”) type of transfer – which appears to clearly cover outsourcing abroad.
The express provision in Regulation 3 (4) (b) (1) that the transfer may be governed by the law of a country outside the UK.

An SPC transfer includes first-generation contracting out (contractors taking over activities previously undertaken by a company), secondgeneration contracting out (a change of contractors/subsequent contractor) and contracting in (a company abolishing contracting out and taking the service in house). The following must be satisfied immediately before the SPC for the transfer to fall within the ambit of the regulations:

There must be an organized grouping of employees situated in Great Britain;
Which has as its principle purpose the carrying out of the activities concerned on behalf of the client;
The client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single event or task of short-term duration; and
The activities concerned do not consist wholly or mainly of the supply of goods for the client’s use.

It is clear from the above that TUPE 2006 is not excluded when outsourcing abroad (that is, the obligations in relation to pre-transfer consultation must still be met) but it may not be the case that all regulations apply with full effect. The fundamental objective of TUPE is to protect the rights of employees in the event of a transfer and the regulations are drafted on the assumption that the transfer of employee rights will afford the best protection. However, in off-shoring cases that may well not be the case:

Enforcement against a UK transferrer will be easier than enforcement abroad.
If liabilities do transfer under TUPE, the transferrer is arguably relieved of the obligation to seek alternative employment for employees within the UK.
Under Regulation 4, the provisions relating to the transfer of statutory liabilities would mean that employment rights will transfer and be applicable to employment in a foreign jurisdiction – although it is most doubtful that such effect was intended.

CONCLUSION

Therefore, whilst it is clearly the case that the territorial scope of the law is limited, the boundaries are blurring. Employers within the UK, dealing with employees outside the jurisdiction, must consider carefully whether UK employment rights extend to them. Employers outsourcing abroad must ensure that their obligations under TUPE are met. In particular a transferee must carefully consider the obligation to provide information to a transferrer in relation to employees within the jurisdiction – which, under Serco, may well include some offshore workers.

For more information, contact:
Adele Martins
Partner, Magrath & Co Solicitors
Employment Department
Tel: +44 (0) 20 7495 3003
E-mail: adele.martins@magrath.co.uk

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