Law Society of England and Wales v Secretary of State for Justice & Anor

The TUPE Regulations

(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 and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee.

 (2) Without prejudice to paragraph (1), but subject to paragraph (6), and regulations 8 and 15(9), on the completion of a relevant transfer—

Subject to regulation 9, in respect of a contract of employment that is, or will be, transferred by paragraph (1), any purported variation of the contract shall be void if the sole or principal reason for the variation is—

Paragraph (4) shall not prevent the employer and his employee, whose contract of employment is, or will be, transferred by paragraph (1), from agreeing a variation of that contract if the sole or principal reason for the variation is—

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.

(9) Subject to regulation 9, where a relevant transfer involves or would involve a substantial change in working conditions to the material detriment of a person whose contract of employment is or would be transferred under paragraph (1), such an employee may treat the contract of employment as having been terminated, and the employee shall be treated for any purpose as having been dismissed by the employer.

(10) No damages shall be payable by an employer as a result of a dismissal falling within paragraph (9) in respect of any failure by the employer to pay wages to an employee in respect of a notice period which the employee has failed to work.

 (11) Paragraphs (1), (7), (8) and (9) are without prejudice to any right of an employee arising apart from these Regulations to terminate his contract of employment without notice in acceptance of a repudiatory breach of contract by his employer.”

The Law Society

keeping the Solicitors’ roll and striking off and suspending solicitors;

attending to the registration of applications for practising certificates;

making rules which affect and bind solicitors;

intervening, as necessary, in solicitors’ practices;

allowing payments from the compensation fund;

making rules about indemnity;

making applications to the Solicitor’s Disciplinary Tribunal;

affording redress for professional services "which are not of the quality which it is reasonable to expect of them" as solicitors;

examining solicitors files, for instance when investigating professional misconduct by a solicitor or whether any professional services are not of the quality reasonable to expect of solicitors;

requiring a solicitor to attend to explain information or documents provided within such files;

ordering a solicitor to pay costs of investigation.

The LCS

The complainant makes contact with LCS.

LCS staff assess the complaint to see that it falls within LCS’ jurisdiction.

The complaint is allocated to an appropriate individual or individuals who attempt to resolve the complaint.

The solicitor or solicitors’ firm will be contacted.

Efforts will be made to resolve the complaint informally.

Failing informal resolution, complaints are formally investigated followed by adjudication by an LCS adjudicator.

LCS has 4 Complaint Units, namely the Customer Contact Centre and Complaints Centres 1, 2 and 3.

The Clementi Report

The 2007 Act

The OLC must, so far as is reasonably practicable, act in a way

The Factual Background to this Dispute

"At the same time, we are starting to see the reforms of the Legal Services Act 2007 come to light, creating a new regulatory landscape for legal services. The incoming OLC will significantly change how redress is provided to consumers of legal services. It also represents a big change for LCS, both for our customers and our staff. This new organisation will require time to set its direction and put in place its architecture.”

At page 7 under the heading "Staffing", this was stated:

“Our HR [Human Resources] service is provided centrally from TLS [the Law Society]. We have a responsibility to work with TLS to manage, inform and support our staff through the many changes involved with closure and handover, including the application of TUPE-style arrangements…”

80-100 LCS staff may move across to the OLC. The staff would need to meet the skills set required for a move to occur. They would move on OLC Terms and Conditions, supported by a transition payment or other options. This would be offered alongside the job fairs and supporting actions for remaining staff, providing the option of seeking alternative employment, or applying to advertise jobs within the OLC, as proposed in Adam’s paper…

There will need to be co-ordinated communication covering the position that TUPE does not apply, the proposed approach for 80 to 100 staff, support for staff in general and lines for the Minister…”

These Proceedings

Is there or is there to be a transfer of LCS’ undertaking to OLC where there is a transfer of an economic entity which retains its identity, for the purposes of Regulation 3 of TUPE?

If so, would it be or amount to the transfer of administrative functions between public administrative authorities for the purposes of Regulation 3(5) of TUPE such as to prevent its being considered as a transfer?

If so, does COSOP come into play in any material way and whether or not it does is this a case in which the Court should grant any declaration?

I will deal with each issue in turn.

Is there or is there to be a transfer of LCS’ undertaking to OLC where there is a transfer of an economic entity which retains its identity, for the purposes of Regulation 3 of TUPE?

There must be a (i) transfer of an undertaking to another person (ii) where there is a transfer of an economic entity (iii) which retains its identity (Reg 3(1)).

"Economic entity" means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary (Reg 3(2)).

Transfers can be to or from public and private undertakings engaged in economic activities whether or not they are operating for gain (Reg 3(4).

As for whether there has been a transfer:-

More generally the cases also show:-

A useful and necessary first step therefore is to consider whether or not LCS is an undertaking in the light of the current TUPE Regulations. I have no doubt that LCS is an undertaking, as such, having regard to the factors set out in Cheesman at Paragraph 10 (see above). The fact that it does not do what it does for gain does not make it anything other than an undertaking (see Regulation 3(4)). It has an identity of its own in that it is the relatively autonomous part of the Law Society which deals with complaints about professional service. The fact that it is not a business as such is immaterial because the Regulations do not differentiate between undertakings and businesses.

The next step is to determine, as one must, whether LCS is in effect an "economic entity"; by Regulation 3(2), one needs to consider whether the LCS "has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”. I have no doubt that LCS’s central activity is not an economic activity; its central activity is the resolution of complaints made against members or affiliates of the Law Society and it is, primarily, regulatory (see by analogy Institute of Chartered Accountants in England and Wales v Customs and Excise Commissioners ]1999] 1 WLR 701). However, on balance, I consider that in a broad sense there is an ancillary economic activity: the Law Society represents solicitors who provide a wide range of professional services to the public; that is economic activity and the servicing of complaints against solicitors through what could be considered an autonomous subsidiary part of the Law Society, LCS, effectively is an ancillary service or facility which can provide redress or compensation for complainants. In this context, although the Ministry of Justice relied upon the case of Henke v Gemeinde Schierke [1997] ICR 746, this was a German-based case which related to a period prior to the TUPE Regulations in this case; in the Henke case, as the judgement of the Court makes plain, the "ancillary" definition was not applicable.

When one then moves on to consider the facts and factors that need to be taken into account to determine whether there is a transfer, a number of authorities indicate that it is insufficient simply that the activity of the transferor or is to be carried out by the transferee. In Sűzen v Zehnacker Gebäudereinigung GmbH [1997] ICR 662 , the Court provided useful guidance:

“14.

In order to determine whether the conditions for the transfer of an entity are met, it is necessary to consider all the facts characterizing the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers and Redmond Stichting, paragraphs 13 and 24 respectively).
15. As observed by most of the parties who commented on this point, the mere fact that the service provided by the old and the new awardees of a contract is similar does not therefore support the conclusion that an economic entity has been transferred. An entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organized, its operating methods or indeed, where appropriate, the operational resources available to it.
16. The mere loss of a service contract to a competitor cannot therefore by itself indicate the existence of a transfer within the meaning of the directive. In those circumstances, the service undertaking previously entrusted with the contract does not, on losing a customer, thereby cease fully to exist, and a business or part of a business belonging to it cannot be considered to have been transferred to the new awardee of the contract.
17 It must also be noted that, although the transfer of assets is one of the criteria to be taken into account by the national court in deciding whether an undertaking has in fact been transferred, the absence of such assets does not necessarily preclude the existence of such a transfer (Schmidt and Merckx, cited above, paragraphs 16 and 21 respectively).
18. As pointed out in paragraph 14 of this judgment, the national court, in assessing the facts characterizing the transaction in question, must take into account among other things the type of undertaking or business concerned. It follows that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business. Where in particular an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets.
19. The United Kingdom Government and the Commission have argued that, for the entity previously entrusted with a service contract to have been the subject of a transfer within the meaning of the directive, it may be sufficient in certain circumstances for the new awardee of the contract to have voluntarily taken over the majority of the employees specially assigned by his predecessor to the performance of the contract.
20. In that regard, it should be borne in mind that the factual circumstances to be taken into account in determining whether the conditions for a transfer are met include in particular, in addition to the degree of similarity of the activity carried on before and after the transfer and the type of undertaking or business concerned, the question whether or not the majority of the employees were taken over by the new employer (Spijkers, cited above, paragraph 13).
21 Since in certain labour-intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognized that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, as stated in paragraph 21 of Rygaard, cited above, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis.
22 It is for the national court to establish, in the light of the foregoing interpretative guidance, whether a transfer has occurred in this case.”

This case and others (see for instance Sanchez Hidalgo v Asoçiaçion de Servicios Acer [1999] IRLR 136) caution against jumping to the conclusion that the mere fact that the service provided by the old and new undertaking is similar does not justify the conclusion that there has been a transfer of an economic entity by the one to the other. There is of course a logic in that because, if one business ceases to function for one reason or another and coincidentally another business is set up and seeks to perform the same activities, it is difficult to say from this factor alone that there has been a transfer of an economic entity from one to the other. It might of course be different if a controlling organisation or public body shuts down the business being carried out by X and starts it up again to be carried out by Y (see Sophie Redmond Stichting v Bartol [1992] IRLR 366).

I have formed the very clear view that there is neither a transfer of the LCS undertaking nor will there be a transfer in which the economic entity represented in or by LCS’ undertaking will, can or is intended to retain its identity. I am conscious that usually the time at which to assess whether the transferor’s identity has been retained within the transferee is after the alleged transfer has taken place but I have been asked to form a view now albeit before any transfer has actually happened. The primary factors stem from the type of organisations which LCS is and has been and which OCL is or is certainly intended to be. OCL has been set up as a body which not only is but is intended to be perceived to be totally independent of any of the professions against whose members complaints can be pursued. It can not be considered as self regulating as the LCS is. Parliament undoubtedly intended it to be so. That appears not only in the wording of the 2007 Act but also from the Clementi Review and the Parliamentary debates that preceded its coming into law. The context was of course the predecessor organisations of LCS which had attracted criticism and complaint over the preceding years and it seems undoubtedly to have been the case that LCS has sought to improve and change. However, one can not get away from the basic fact that LCS is a subsidiary, albeit autonomous, organisation within the Law Society and all its staff and the bulk of its funding come from the Law Society and its members. Its identity is inextricably mixed up with that of the Law Society itself; I do not by that intend or imply any criticism at all either of the Law Society or LCS. The LCS is part of a self regulation system and that is a key part of its identity (and it is not necessarily the worse for that). Ms. Evans, the Chief Executive of LCS accepted that LCS had functional but not structural independence from the Law Society. I am not convinced on the evidence that LCS is wholly functionally independent. The facts that all the employees are employed by the Law Society and that LCS’ budget has to be reviewed and agreed by the Law Society suggest otherwise although I do not doubt that the employees consider themselves independent of the Law Society and seek to act independently. The very fact that the Law Society without reference to LCS sought to deal direct with MoJ and OLC about the future of the LCS staff suggests a residual element of functional control although again I do not doubt that this was all done in good faith and with the best of intentions.

The reality is that, apart from any employees who are or may be taken on by OLC, there is nothing which is in any normal sense going to be transferred by LCS to OLC. None of the tangible or indeed intangible assets of LCS will go over. None of the buildings will be transferred to or used by OLC. None of the complaints being processed by LCS will be transferred over to be finished off by OLC. On any sensible analysis, the only activity which was dealt with by LCS but will also be dealt with by OLC is the processing of complaints about solicitors, albeit that OLC will also have the additional function of dealing with complaints in respect of other parts of the legal professions such as the Bar.

It is argued that, as OLC will numerically be dealing with the very large percentage of complaints (possibly 90% of all complaints) against solicitors, that very proportion suggests that LCS’s identity will be retained. However, the numbers of complaints that may be dealt with do not really assist logically in determining whether the identity is retained. It cannot readily be said that OLC is LCS “writ large”.

There was substantial debate as to whether or not there was likely to be any material difference in the procedures for processing complaints as between LCS and OLC. Subject to a number of important differences, I did not perceive on the evidence much difference. In both organisations, the complaints have to be received by one means or another (telephone, letter, e-mail or fax), attempts made to ascertain whether there really is a viable complaint and if so what the complaint really is about, attempts to resolve the complaints through a conciliatory-type approach, transmission of unresolved complaints to someone for a decision and then some type of enforcement will follow. The fact that different words are used to describe the different stages is immaterial.

I do consider that in several respects however the OLC jurisdiction is materially and substantially different from the LCS jurisdiction or approach. Unlike the LCS, the final resolution of unresolved disputes will be by an ombudsman scheme. Ombudsmen under the 2007 Act cannot during their appointment carry on any activity which is a reserved legal activity for reward (Section 122(3)). Their terms of engagement must be such as to ensure their independence (see Section 123 (8)). The criterion in any determination by an ombudsman is that it should be "fair and reasonable in all the circumstances of the case” (Section 137(1)); that determination therefore does not have to been necessarily by reference to the rules or practice of the different professions whose members are the subject matter of complaints. That is consistent with the statutory requirement of “protecting and promoting the interests of consumers”. That remit is essentially broader than the remit of adjudicators under the LCS scheme, although I have no doubt that such adjudicators would seek to act fairly and reasonably. LCS adjudicators are primarily concerned with what it was reasonable to expect of the respondent as a solicitor in the context of whether there has been inadequate professional service. The facts that all the adjudicators are solicitors and that some complaints are outsourced to solicitors point strongly to a perceived need to involve solicitors in deciding complaints which is a need which is not recognised within the OLC set up.

There are very much wider and more direct powers available to the OLC and these relate to the enforcement of ombudsmen’s determinations directly through the courts (Section 141). An ombudsman can procure through the courts the enforcement of requirements made against either party to produce documents or information (Sections 147-149). These are not powers which the LCS or its adjudicators have. Ombudsmen can certainly more readily hold hearings and require the parties to attend hearings and give evidence (Section 133) whereas it is at best obscure whether LCS can hold hearings; the evidence certainly is strongly suggested that hearings are exceptionally rare and in any event parties’ attendance can not be enforced.

OLC will not be constrained by what might be called multi-discipline disputes where the complaint is that a number of different legal professionals have behaved in some inappropriate way; in effect because OLC is charged with dealing with complaints from all the legal professions it can deal with them in a way which LCS could not and did not. Similarly OLC will not be constrained in practice by complaints of professional negligence in the way that LCS was. In so far as complaints about professional misconduct are concerned, the OLC scheme is such that the ombudsman's jurisdiction is not excluded albeit that suspected misconduct must be reported to the relevant regulatory body (Section 143).

There are some real differences so far as case fees are concerned. For the LCS, a complainant can be asked to pay a case fee (albeit refundable if the complaint is upheld) whilst OLC has no such power. To the contrary OLC must charge a case fee to lawyers (albeit that it can be waived or refunded). OLC has power to award costs to be paid to the complainant by the respondent (Section 133(3)) whilst LCS does not. The focus, rightly or wrongly, in the case of the OLC is on the complaining consumer.

There is a substantive difference in the essence of the complaints which may be made to LCS as compared with OLC. Complaints to the former are as to whether the solicitors’ services “are of the quality which is reasonable to expect” whilst to the latter complaints are to be by reference to “reasonable standards of service”. The former reasonable expectation standard must necessarily raise issues of what is reasonably expected of solicitors whilst the reasonable service standards are not so constrained albeit it may well be that the two tests produce the same answer in any given case and that it is not immaterial in a complaint to OLC for a solicitor to explain behaviour by reference to solicitors’ standards of service.

I do not attach much importance to the difference in the financial limits are relating to claims (currently £15,000 in respect of LCS and £30,000 in relation to LCS complaints). There is little evidence before the court that the increased limit will make any significant difference in the number or type of disputes. Similarly I do not attach significance to the fact that the LCS proceeds upon the basis of published policies as to how it addresses complaints whilst the OLC is required to produce Scheme Rules. Similarly the fact that generally the time limits for bringing complaints are different (6 months for LCS and 12 months for OLC) is a relatively minor difference and there was no evidence that a significantly greater number of complaints will be caught by a 12 month general time-limit rather than a 6 month one.

It is said that OLC will adopt non-legalistic or less legalistic approaches to complaint resolution than LCS. Whilst I have no doubt from the evidence that this is OLC’s aspiration and that aspiration may turn out to be achieved, it is difficult to see how complaints which do involve legalities can be finally resolved without some consideration of those legalities. Similarly, a solicitor against whom complaint is made must be entitled at least to assert during an OLC complaints handling process that there was a good legal or practice reason for what he or she is alleged to have said or done (or not said or not done). It is therefore difficult to see this aspiration as giving rise to significant differences at this stage.

It is difficult to form any concluded view on how many of the current LCS staff (some 345 in number) want to move across to OLC. An informal straw poll suggests that only about one third want to move albeit about another third might be prepared to do so in effect if nothing else is on offer. I find it difficult to attach any weight one way or another as to this factor as it is based on such imperfect information.

I do not see how the identity of LCS will or could be transferred to OLC. As the Law Society itself said in a relatively recent letter to OLC (26 October 2009) in suggesting what a speaker might suggest:

“I think the most useful territory for Elizabeth to cover would be to describe her vision for the way in which OLC should operate. In particular, getting across to the Council the sort of messages she conveyed to the Justice Select committee about the way in which she hopes the OLC-as a brand-new body, with no history to constrain it-can take a much more modern (and less legalistic) approach to dispute resolution. We hope she might emphasise that whilst many of the same skills used in LCS may be helpful, the culture and approach of OLC will be very different.

Emphasising the difference would be very helpful. A number of Council members (and solicitors generally) feel that LCS is biased against solicitors. I think this may arise from the fact that LCS bends over backwards to be fair to consumers, precisely because it operates under the ambit of the Law Society. If Elizabeth were able to get across the message that OLC is an independent dispute resolution body, rather than being either "the lawyer's friend" or the "consumer champion" that would be very welcome.”

It follows from the above that I am satisfied for all of the above reasons that there neither is nor is to be a transfer of LCS’ undertaking to OLC in that there is or is to be no transfer of an economic entity which retains its identity, for the purposes of Regulation 3 of TUPE.

This question is relatively easily answered, albeit in the light of the answer I have given to the first issue it is strictly unnecessary to do so. On closing, Leading Counsel for the Law Society, doubtless on instructions, became distinctly lukewarm (if not positively neutral) as to whether I should make the declaration sought by his client. Regulation 3(5) reflected what has been called the Henke exception and is a relatively innocuous looking clause:

“An administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities is not a relevant transfer.”

The case of Henke informs the discussion. The case was concerned with the combining of German municipalities to form an administrative “collectivity” in circumstances where those municipalities had previously engaged in such activities as tourism, day nurseries, the operation of car parks and local transport. Mrs Henke had been dismissed from one of the municipalities and she argued amongst other things that her contract of employment had been transferred to the new collectivity. In circumstances where there then no provision about transfer of functions between public administrative authorities, the Court stated:

“14 Consequently, the reorganization of structures of the public administration or the transfer of administrative functions between public administrative authorities does not constitute a "transfer of an undertaking" within the meaning of the Directive…

17 It appears that, in the circumstances to which the main proceedings relate, the transfer carried out between the municipality and the administrative collectivity related only to activities involving the exercise of public authority. Even if is assumed that those activities had aspects of an economic nature, they could only be ancillary.”

The reference in Paragraph 17 of that judgement to the exercise of public authority (also picked up in other cases such as Sanchez Hidalgo v ADSA [1999] IRLR 136 and Mayeur v APM [2000] IRLR 783) provides a pointer to what a public administrative body might be considered to be: a body which exercises public authority. In Adult Learning Inspectorate v Beloff (30 January 2008), the Employment Appeal Tribunal upheld at Paragraph 30 (and set out) findings by the Employment Tribunal quoted in the following terms:

“20 There is no statutory definition of what constitutes a public administrative authority. The claimant's representative accepted, rightly in our view, that Ofsted is a public administrative authority.

21 In our judgment, a public body whose functions involve the exercise of public authority would be a public administrative authority for the purposes of TUPE. We have, in our findings of fact, compared the powers and functions of Ofsted and ALI. Both bodies are created by statute and have a statutory remit, statutory functions and statutory powers. We accepted that the ALI carries out activities that could be described as commercial in nature however it was clear to us that those were ancillary to its core business which was that of inspection. It was set up by the Government as an inspectorate and it the majority of its funding was provided by the Government for the purpose of carrying out those functions. We accepted the respondents' proposition that the ECJ cases in which it was held that the Henke exception did not apply, draw a distinction, perhaps most clearly set out in the Sanchez Hidalgo case at paragraph 24, between whether the service being provided involves the exercise of public authority or not. In that case, and the joined case of Zeimann, there was contracting out of home help and surveillance services respectively, neither of which involved the exercise of public authority, and it was held that TUPE applied. The Cabinet Office statement of practice relating to staff transfers in the public sector, states that TUPE transfers can apply in the public sector. This is not (as was suggested by the claimant's representative) inconsistent with the ECJ case law. It reflects that case law. The key question was whether the ALI's functions involved the exercise of public authority. We were satisfied that the statutory powers and functions of the ALI concern the exercise of public authority. We were also satisfied that they are similar in nature to those of Ofsted and that those core functions and powers are being transferred in their entirety to New Ofsted. Consequently, it appeared to us that the transfer of functions from ALI to New Ofsted is a statutory transfer of administrative functions between public administrative authorities. It follows from the Henke case and from the exception contained in Regulation 3(5) of TUPE 2006, that this is not a transfer to which TUPE 1981 or TUPE 2006 apply. Consequently, our unanimous judgment is that the tribunal has no jurisdiction to hear the claimant's complaint in respect of failure to consult as required by TUPE.”

One therefore turns to consider whether LCS is a body which has exercised public authority. The fact that it is not a government service as such is in logic immaterial although it may well almost invariably be the case that government departments and Non Departmental Public Bodies do exercise such authority. There have been a number of European cases in which private companies are said to exercise public authority (see e.g. Diego Cali v SEPG SpA [1997 1 ECR 1547).

The House of Lords case of Institute of Chartered Accountants v Commissioners for Customs & Excise [1999] 1 WLR 701 provides informative assistance. The opinion of Lord Slynn with which the other members of the House agreed set out at Paragraph 1 the issues:

“Two questions have been raised on this appeal. The first is whether section 4 of the Value Added Tax Act 1994 and article 4 of the Sixth Council Directive 77/3881 E.E.C. of 17 May 1977 ("the Directive") make chargeable to Value Added Tax certain activities carried out by the Institute of Chartered Accountants in England and Wales with the consequence that the Institute can claim repayment or set-off of Input Tax paid on goods and services supplied to the Institute, the latter being the real purpose of these proceedings. If the activities are chargeable to tax, then the second question arises as to whether the Institute is a body governed by public law and whether it engages in these activities as a public authority, in which case the Institute is not considered a taxable person in respect of these activities…”

Lord Slynn went on:

“On the basis of cases like Eurocontrol [1994] E.C.R. I-43 and as a matter of ordinary language, I do not consider that what is done here by the Institute is such an economic activity. The Institute is carrying out on behalf of the State a regulatory function in each of these three financial areas to ensure that only fit and proper persons are licensed or authorised to carry out the various activities and to monitor what they do. This is essentially a function of the State for the protection of the actual or potential investor, trader and shareholder. It is not in any real sense a trading or commercial activity which might justify it being described as 'economic' and the fact that fees are charged for the granting of the licences (to be assessed overall on a break-even basis) does not convert it into one…

In relation to the Directive, the Tribunal said:

"A regulatory activity carried out under a statutory power for the purpose of protecting the public by supervising and maintaining the standards of practitioners in, for example, the Financial Services field falls on the other side of the line from economic activities."

In the present case, I agree that that is entirely right and the same goes for "business" in the context of these three Statutes.”

Although this House of Lords case was concerned with different issues, it follows in logic that regulatory functions can (and should here) be distinguished from economic activity. Regulatory activity designed to protect the public by bringing to account practitioners whose service falls below an acceptable standard can be said to be administrative rather than anything else.

There has been some authority about the Law Society which casts some light on the capacity in which it acts. In Parochial Church Council of the Parish of Aston Cantlow and Wilmcote with Billesley, Warwickshire v Wallbank and another [2003] UKHL 37 , Lord Nicholls said in reviewing parts of the Human Rights Act and the difference between public authorities and private organisations:

“9.

In a modern developed state governmental functions extend far beyond maintenance of law and order and defence of the realm. Further, the manner in which wide ranging governmental functions are discharged varies considerably. In the interests of efficiency and economy, and for other reasons, functions of a governmental nature are frequently discharged by non-governmental bodies. Sometimes this will be a consequence of privatisation, sometimes not. One obvious example is the running of prisons by commercial organisations. Another is the discharge of regulatory functions by organisations in the private sector, for instance, the Law Society. Section 6(3)(b) gathers this type of case into the embrace of section 6 by including within the phrase 'public authority' any person whose functions include 'functions of a public nature'. This extension of the expression 'public authority' does not apply to a person if the nature of the act in question is 'private'.”

I am satisfied that LCS is a public administrative body which has not had administrative functions which are to be transferred to OLC, for the following reasons:

It follows that TUPE Regulation 3(5) bites as OLC is statutorily to assume these functions; indeed, it has not been argued that OLC is not a public authority to whom these administrative functions are being transferred.

The Cabinet Office paper "Staff Transfers in the Public Sector Statement of Practice" (“COSOP”) forms the basis of the Law Society’s third head of declaration. Its argument is that the cessation of the functions of the LCS and the start of the functions of the OLC is a transfer falling within the scope of the COSOP and is of the type covered by Paragraphs 17 to 20 thereof. This argument is put forward in anticipation that any decision which the relevant Minister may make (for instance about whether a transfer order may be made under the Employment Relations Act) may have to be made with the constraint which the declaration sought may impose. This is all in the potential context that what the Minister may or may not decide to do may then be subject to judicial review. The Law Society through its Counsel accepts that, if it fails to establish that TUPE applies at all (i.e. if it fails on the first issue), the COSOP argument fails also. Accordingly, it is strictly unnecessary for me to decide this third issue but, lest it be relevant and out of deference to the arguments put forward, I do so.

All parties, rightly, accept that this Court has a discretion as to whether to grant a declaration.

COSOP is simply a statement of practice put out by the Cabinet Office as representing the Government’s approach and policy. That is not to belittle it but it is not binding in law; it is not a statute or statutory instrument and does not in itself give rise to any enforceable rights. Ministers are not in any absolute terms required to implement it. It is not a document to which the Interpretation Act 1978 applies and is not subject necessarily to the normal canons of contractual or statutory interpretation. I must therefore exercise substantial caution in reviewing what COSOP means although I and I believe all parties do not go so far as Humpty Dumpty: “when I use a word it means what I choose it to mean-neither more nor less” (Alice through the Looking Glass).

The Guiding Principles of COSOP are said at page 2 to be:

“.The Government is committed to ensuring that the public sector is a good employer and model contractor and client. The people employed in the public sector, directly and indirectly, are its biggest assets and critical in developing modern, high quality, efficient, responsive, customer focused and environmentally friendly public services.

. The Government’s approach to modernising public services is a pragmatic one, based on finding the best supplier who can deliver quality services and value for money for the taxpayer. This involves some services or functions being provided by, or in partnership with, the private or voluntary sector, or restructured and organised in a new way within the public sector. The involvement, commitment and motivation of staff are vital to achieving smooth and seamless transition during such organisational change.

. Public Private Partnerships and the process of modernisation through organisational change in the public sector will be best achieved by clarity and certainty about the treatment of staff involved. The Government is committed to ensuring that staff involved in all such transfers are treated fairly and consistently and their rights respected. This will encourage a cooperative, partnership approach to the modernisation of the public sector with consequential benefits for all citizens.”

Relevant parts of the Introduction are:

“1.

In order to meet these guiding principles the Government believes that there must the a clear and consistent policy for the treatment of staff, founded upon the provisions of…TUPE…This Statement of Practice sets out the framework that the Government expects all public sector organisations to work within to achieve this aim (see paragraph 6 for the coverage of this Statement).

2.

TUPE implements the 2001 European Council Acquired Right Directive. In broad terms, TUPE protects employees’ terms and conditions… when the business or service in which they were is transferred from one employer to another. Employment with the new employer is treated as continuous from the date of the employee’s start with the first employer. Terms and conditions cannot be changed where the operative reason for the change is the transfer although changes are other reasons may be negotiated, subject to certain conditions.

5.

In the area of Public Private Partnerships and change in the public sector, the consultations that the Government has undertaken in the representations which had been made, and showed a strong consensus between private sector employers, the voluntary sector, employee representatives and public sector organisations for the application of TUPE to situations where a service or function is contracted out, then read tendered, brought back into the public sector, transferred within the public sector, or restructured and organised in a new way in a different part of the public sector. In any event, the TUPE Regulations 2006 and expanded the previous definition of what constitutes a transfer. It is accepted that there will still be some genuinely exceptional circumstances where TUPE will not apply but it is anticipated that there will be fewer than under the 1981 Regulations. Attempts to orchestrate a non-TUPE situation in other circumstances should not be tolerated. The policy in this Statement of Practice is therefore based on the following principles:

. contracting-out exercises with the private sector and voluntary organisation and transfers between different parts of the public sector, will begin the long the bases of staff will transfer and TUPE should apply, unless there are genuinely exceptional reasons not to do so…

. in circumstances where TUPE does not apply in strict legal terms to certain types of transfer between different parts of the public sector, the principles of TUPE should be followed (where possible using legislation to effect the transfer) and the staff involved should be treated no less favourably than have the Regulations apply…”

The Section headed “Coverage” addresses what and whom the Statement covers:

“6.This Statement of Practice sets out a framework to be followed by public sector organisation to implement the Government’s policy on the treatment of staff transfers where the public sector is the employer when contracting out or the client in a subsequent re-tendering situation. It applies directly to Central Government Departments and Agencies and to the NHS. The Government expects other public sector organisations to follow this Statement of Practice. Local government is subject to some different considerations…The Personnel and Human Resources panel of the Local Government Association support the principles set out in this Statement of Practice and have encouraged their adoption by individual local authorities.

7.

The Statement of Practice covers the following types of situation that may involve transfers of staff:

. Public Private Partnerships…

. Second and subsequent generation contracting where, when the contract was first awarded, staff transferred from the public sector …

. Reorganisations and transfers from one part of the public sector to another, (paragraphs 17-20)

. Reorganisations and transfers within the Civil Servants (where TUPE cannot apply because there is no change in employer but TUPE principles should be followed…”

It can be seen that COSOP is intended to apply to what it calls the “public sector” and, as has been properly accepted by Counsel for the Law Society, the only “type of situation” under which the LCS/OLC transfer could arguably come is “Reorganisations and transfers from one part of the public sector to another” as set out in Paragraph 17. Paragraph 17 states:

“TUPE can apply to the transfers of a function from one part of the public sector to another where there is a change of employer. This, for example, can include:

. Transfers between local government and civil service Departments and agencies

. Transfers between local governments and NDPBs

. Transfers between local government and the NHS

. Transfers between the NHS and Civil Service Apartments and Agencies

. Transfers between the NHS and NDPBs

. Transfers between NDPBs and civil service departments and agencies”

Paragraph 18 refers to the case of Henke and TUPE Regulation 3(5), which suggests that the drafters of this Statement of Practice had this in mind but it stops short of saying that whenever Regulation 3(5) applies the Government will effect a TUPE transfer nonetheless. Paragraph 19 acknowledges that usually Government will legislate for transfers and Paragraph 20 goes on to say:

“ Section 38 of the Employment Relations Act also includes a power that can be used to apply the requirements of TUPE specifically to transfers outside the scope of the Directive…Where, for whatever reason, this power or other legislation is not used there will be no legal requirement or obligation in such cases for staff to transfer to another part of the public sector where the function is to be performed (as to attempt to compel them would, in effect, constitute a unilateral change in their employment contracts by imposing a change of employer). In such cases, as a matter of policy, public sector bodies should insure that the principles underpinning TUPE are followed, so staff are offered the opportunity to transfer on terms that are, overall, no less favourable than had TUPE applied. They should also ensure appropriate pension provision and redundancy and severance terms. Staff who choose not to transfer should, where possible, be redeployed within the transferring public sector organisation.”

It is argued by the Law Society that LCS is to be considered as a public sector body to which COSOP is intended to apply and that in effect its staff should be transferred to OLC by one means or another. It argues for what it accepts might be called a “purposive” interpretation of COSOP in that it is said that it is clearly intended that all transfers excluded by Regulation 3(5) are to be covered. The MoJ and OLC argue otherwise.

I am not going to make a definitive interpretation of COSOP. If I was not to do so, much more information would be required than has been provided such as to what types of transfer it been applied in the past and as to the background in which this paper and its November 2007 revision were drafted. This type of investigation has not been possible in the short time available between the issue of the proceedings and the hearing.

However, based purely on the wording, I doubt very much whether COSOP was intended to be applied to private sector organisations whose functions are to be stopped and a new organisation set up by statute to carry out those functions amongst others. My reasoning thus far is as follows:

I am very reluctant, and decline, to make any declaration on the topic at all. My reasons are as follows:

It follows from the above that I will not grant any declaration as requested as to the applicability of COSOP.

For all the above reasons, the Law Society’s claims in these proceedings are dismissed. Obviously, the Court is conscious that the position of LCS employees is precarious but I should record that both Defendants have confirmed that the terms of the agreement negotiated and provisionally agreed with the Law Society remain on the table and the Chief Executive has openly stated that OLC is very interested in recruiting from LCS; this should provide a not inconsiderable number of jobs to LCS employees.

The parties are agreed that costs should follow the event and that there should be interim payments on account of costs. There was some disagreement as to whether I should in the Judgement Order dismissing the Claimant’s claims make declarations reflecting this Judgement. I am persuaded that it would be helpful if declarations were issued, particularly for the employees as a brief summary of what has been decided.