Employment News: TUPE & Service Provision Changes – A More Common Sense Approach Taken By The Courts?

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE Regulations”) came into force in 2006, and apply to business transfers (i.e. sale of a business) and service provision changes.

What is a Service Provision Change (“SPC”)?

A SPC may occur in three situations namely (Section 3(1)(b) TUPE Regulations):

1. Outsourcing: Company outsources services to a contractor;
2. Subsequent contractor: Company reassigns a contract already in place to another contractor; or
3. Insourcing: Company brings work back “in-house”.

In order for there to be a TUPE transfer as a result of one of the three SPC situations above, a number of other conditions must be met.  Immediately before the SPC there must be:

1. An organised grouping of employees inGreat Britainwhich has as its principal purpose, the carrying out of the activity for the client concerned;
2. An identifiable activity carried out on behalf of the client which will continue to be carried out following the transfer; and
3. The organised grouping of employees must be assigned to the activities carried out for the client.

There has been a flurry of case law dealing with the concept of a SPC.

Organised grouping

In Eddie Stobart Ltd v Moreman and others UKEAT/0223/11 the EAT held that an “organised grouping of employees” must be organised in a planned, deliberate and intentional way, i.e. a dedicated team which has been intentionally put together.  In this case although the employees carried out all of their work for one particular client, there was no SPC because the work was organised in an “accidental” manner and not intended to serve a particular client.  Thus, the fact that an employee spends the majority of their time on tasks for a particular client does not mean there will necessarily be a TUPE transfer.

Individual employees?

The EAT in Seawell Ltd v Ceva Freight (UK) Ltd and another UKEAT/0034/11 held that although one employee can amount to an organised grouping of employees, there was no SPC when the client took work back “in-house” because there was no evidence that the individual was a deliberately organised grouping who was tasked to deal specifically with the client’s work.  In addition, although the individual did spend 100% of his time working for the client other employees had a role within the alleged “organised grouping” as they spent between 10 to 20% of their time also working for that client.

Activities

Before and after transfer

The EAT in Enterprise Management Services Ltd v Connect-Up Ltd and the Claimants [2012] IRLR 190 held that there was no SPC when the activities carried out by the new contractor were not essentially the same as those carried out by the old contractor.  In addition there was a fragmentation of services provided after the alleged transfer.  Here, when the new contract was awarded it excluded 15% of the work carried out by the old contractor and around 40% of the old contractor’s clients chose to use other service providers.

Identifying an “activity”

The EAT in the case of Johnson Controls Ltd v Campbell and another UKEAT/0041/12 held that there was no SPC following the client, UKAEA, taking its taxi administration service back “in-house”.  The EAT held that there was no longer a centralised service (as had previously been provided by Mr Campbell who carried out a host of duties) and certain elements of the role previously carried out by Mr Campbell no longer existed. The EAT believed a different activity was being carried out by UKAEA, mainly because it was much simpler.  They stated that Employment Tribunals must take a “holistic assessment” of the activities that will be carried out pre and post transfer.  They added that it is not as simple as considering a list of tasks and assessing whether the majority of those tasks are the same pre and post transfer.

Supply of goods

The EAT in the case of Pannu and others v Geo W King (In liquidation) and others UKEAT/0021/11 considered the exclusion under Regulation 3(3)(b) which states that there cannot be a SPC if the change in activity is the supply of goods.  The EAT confirmed the position that although the Claimants were providing services to their employer GMK, and they were an organised grouping of employees, the contract and thus activities between GMK and IBC Vehicles Ltd (received van parts under the contract) were for the supply of goods.  This position did not change when a contract to supply those goods was agreed with a third party.  The exclusion under Regulation 3(3)(b) therefore applied and there was no SPC.

Conclusion

These recent EAT decisions have been favourable to employers and provide useful guidance on the interpretation of the law dealing with the concept of a SPC. This helps employers act with more certainty and take a more robust approach, for the time being at least.  However, there are still a number of issues.  For example, employees have to be based inGreat Britainto get protection.  The position is unclear if the employee is based inGreat Britainbut works overseas.  The Government has also requested a “Call for evidence” on the effectiveness of the TUPE Regulations and the results are expected to be published later this year.

For more information or advice on the contents of this update, please contact Ranjit Dhindsa or Tara Newsome.