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.