Tag Archive: service provision change

Important EAT case highlights that the employees protected by TUPE may extend more widely than anticipated

 Gurpreet Duhra, a Partner in our Sheffield office, comments:  The EAT has given judgment in a number of cases recently on the scope and interpretation of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). A case which merits particular attention is one which highlights that the protection afforded by the service change provisions in TUPE may extend beyond the employees of contractors with whom an employer has a direct contractual relationship, to the employees of sub-contractors with whom they do not have a direct contractual relationship.  This is important as it potentially significantly increases employee liabilities and these need to be assessed and accounted for when considering the impact, and cost, of a service provision change.

Jinks v London Borough of Havering

This case was concerned with Regulation 3(1) (b) TUPE which states that TUPE applies to a service provision change, which includes a situation in which “activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf”.

The facts were that a council contracted with a company, Saturn Leisure Ltd (Saturn), to manage one of its ice rinks, including an associated car park. Saturn sub-contracted the management of the car park to another company, Regal Car Parks Ltd (Regal).  In mid-April 2013, the ice rink closed. The car park site continued to operate for another couple of weeks but Saturn gave up occupation of the whole site at the end of April 2013. The council then took control of the site and closed the car park. It subsequently granted a licence to an NHS Trust to use the car park for its staff before finally converting it a few months later into a public use car park.

The claimant employee had previously been employed by Saturn and he argued that in mid-April 2013 his employment had transferred to Regal; he then claimed that when the council took on the operation of the car park, his employment transferred to the council and that their failure to accept him as an employee had led to his constructive unfair dismissal.

The council sought to argue that the claimant had not been employed by Regal and, in any event, there had been no transfer of his employment from Regal to the council.

The employment tribunal struck out the employee’s claim on the basis that it was Saturn which had engaged Regal and, when Saturn gave up its interest in the car park, it did so without transferring the benefit of its own contract with the council to anyone else. At that point the sub-contract between Saturn and Regal ended. There was never any direct contractual link between Regal and the council and therefore the requirements for a TUPE transfer were not met when the council took the car parking service back in-house.

The EAT overturned the tribunal’s decision. In doing so, it found that whilst the relevant service provision change regulations in TUPE require activities to cease to be carried out by a contractor on a client’s behalf, and instead to be carried out by the client on its own behalf, under Regulation 2 TUPE, the term ‘contractor’ also includes ‘sub-contractor’. Whilst the EAT acknowledged that the activities before and after an alleged transfer must be for the same client, it found that the employee had a reasonable prospect of showing that the council was Regal’s client.  The EAT held that the client of a sub-contractor is not necessarily only the contractor to which it is contractually bound to provide a service. It said that 3 important principles had been established by earlier case law (1) the question of who is the client is one of fact, not law; (2) there can be more than one client in any given case; (3) the terms of the TUPE regulations indicate that the person on whose behalf services are provided by a sub-contractor may not necessarily be the contractor from whom the sub-contract is held.

This case is important as it highlights that liabilities for employees may extend further than an employer anticipates if it is engaged in a service provision change, for example, when taking a service back in-house, there may be liability not only for employees of the party with whom the employer has a direct contractual relationship but also the employees of sub-contractors as well.  This case indicates that the facts of each case will be critical, and in particular, the assessment of who is the ‘client’ for the purposes of  TUPE ie who can it be said the services are being provided for? Where risks arise, employers should ensure that this is reflected in the deal with adjustments to price and/or appropriate indemnities.

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TUPE: But not as we know it?

Sandra M Wallace, UK Group Head, comments:

The introduction of the service provision change (SPC) regulations in TUPE 2006 promised so much in terms of certainty, but unfortunately has delivered so little. Far from giving employers and employees alike much needed confidence about the circumstances in which TUPE will apply, recent case law has created a great deal of uncertainty. Now the Government has launched a consultation paper (pdf) indicating that it proposes to remove the SPC provisions altogether. With a long lead-in period, however, until any changes are likely come into force, and with no guarantee that they will provide any additional clarity, businesses still need to understand how the trend has been moving in recent months.

At its simplest, a service provision change occurs when activities carried out on behalf of a client by one person are instead carried out by another person. However, immediately before the change there has to be an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of activities on behalf of the client. On the face of it these provisions are relatively straightforward but, over the last 12 months, they have, in fact, courted a good deal of controversy.

Organised grouping

In 2012, the first case to muddy the SPC waters was Eddie Stobart v Moreman and others. In this case, the EAT found that there had been no SPC in respect of employees who spent 50% or more of their time on a particular contract. The EAT said that the requirement of an organised grouping necessarily means that the employees be organised by reference to the requirements of the client in question. It does not apply to a situation where a group of employees may, without any deliberate intent or planning, be found to be working mostly on tasks which benefit a particular client.

Next came Argyll Coastal Services Ltd v Stirling where the EAT said the employees must be “deliberately organised for the purpose of carrying out the activities”. This approach was also taken in Seawell Ltd v Ceva Freight (UK) Ltd where the EAT found that an organised grouping does not arise merely by an employee spending 100% of their time on a particular contract. What is required is a client ‘team’ to be set up and specifically dedicated to the client. The EAT said “it cannot be a matter of happenstance”.

Activities

Further surprising decisions in late 2011/2012 arose in the context of ‘activities’. In order for an SPC to occur, the activities carried out by the new contractor must also be ‘fundamentally’ or ‘essentially’ the same as those carried out by the old contractor. However, surprisingly, in Nottinghamshire Healthcare NHS Trust v Hamshaw and others there was no SPC, and therefore no transfer of employees, when the Trust closed a care home and outsourced care of the residents to a new provider supervising independent living the residents’ own homes. Again, in Enterprise Management Services Ltd v Connect Up Ltd, there was no SPC when a new provider of IT support services provided the same services as the old provider with the exception of one small service which formed only 15% of the overall work. In Johnson Controls Ltd v UK Atomic Energy Authority there was no SPC when taxi booking services were taken back in-house when previously they had been provided by a taxi administration service. In each case, the courts held that the activities carried out after the change were essentially different from those carried out before.

Client identity

In 2012, the courts also confirmed a restrictive approach to the meaning of ‘client’. In order for there to be a SPC, the client must remain the same. In Hunter v McCarrick, the Court of Appeal found that when a property services company was replaced by another company on the sale of the property the employees of the original company did not transfer. There was no SPC as the client had changed.

This recent spate of cases has revealed a new trend in the interpretation of TUPE’s SPC provisions. Gone are many of the old assumptions about what constitutes an organised grouping of employees. Gone too are the traditional assumptions about the type of activities which need to carried out by the new provider for a SPC to occur. However, whether the Government’s plans to remove the SPC provisions altogether will assist parties to identify and understand their obligations better remains to be seen. The application (or not) of TUPE will remain very much a live issue. This is because service provision changes will still potentially fall within the definition of a business transfer (as they did pre-2006). Therefore complicated assessments of whether TUPE applies will still need to be made but potentially without the assistance of express statutory provisions.

sandra.wallace@dlapiper.com
+44 121 262 5913

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