TUPE or not TUPE?

Outsource iStock 000007727531XSmall 146x219Case law on TUPE is creating significant uncertainty. Sarah Lamont highlights the impact on cost and risk in staff transfers.

As the leaves fall thick and fast at the close of the year, so there has been a veritable flurry of decisions handed down over the last 12 months in respect of Transfer of Undertakings (Protection of Employment) Regulations 2006.

While the ‘new’ 2006 TUPE Regulations were intended to provide some clarity around whether TUPE applies, this case law is throwing up more uncertainty.

Background

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) are designed to protect employees so that when there is a change in their employer, their employment passes to the new employer without any adverse effect on their employment rights. The aim is that the incoming employer ‘stands in the shoes’ of the outgoing employer, as far as employees are concerned.

Since 2006, TUPE has been designed to cover ‘service provision changes’ (SPC) where services are outsourced or transferred between providers, including:

  • reassigning such a contract (whether by contracting out, outsourcing or re-tendering), or
  • bringing the work ‘in-house’ (where a contract ends with the service being performed in-house by the client themselves).

It could cover, therefore, outsourcing or where staff are to be transferred to the host authority in a shared services arrangement or to a joint venture company.  

Muddying the waters?

The 2006 TUPE Regulations are based on earlier legislation, the 1981 TUPE Regulations. Prior to the 2006 Regulations coming into force, considerable case law had arisen over whether outsourcing situations or changes in service providers would be covered. The aim of the ‘new’ 2006 Regulations was to clarify the position and to ensure that they fall within TUPE (via the SPC provisions above).

However, the application of the SPC provisions is not so clear cut as it might appear or have been intended. Fragmentation of services and complex arrangements around second and third generation outsourcing has muddied the waters to the extent that far from being clear, now, more than ever, careful consideration needs to be given to:

  • whether TUPE would apply,
  • which staff might transfer and
  • what risks and liabilities might arise.  

Organisation of employees

For the SPC provisions in TUPE to apply, there must be an ‘organised grouping’ of employees (situated in Great Britain) whose principal purpose is the carrying out of activities on behalf of the client.

What is meant by ‘organised grouping’? A case called Argyll Coastal Services Limited v Stirling (2012) confirmed that there must be a deliberate organisation of employees for the purpose of carrying out the activities required by the particular client, working together as a team.

The Argyll decision was built on by the recent Employment Appeal Tribunal (EAT) case of Eddie Stobart Ltd v Moreman (2012). The facts, in brief, were that, because of the timing of shift arrangements, a certain group of employees working on the night shift dealt primarily with one client, Forza, while the day shift dealt primarily with another client, Vion. When Eddie Stobart lost the Vion contract, the question arose whether day shift employees transferred to the business that took over the contract.

The EAT said that they did not transfer because they were not an ‘organised grouping of employees’ under the SPC provisions of TUPE.

This was because the employees servicing the Vion contract, on the day shift, were doing so simply because the timing of their shift coincidentally meant that they serviced that particular client. There was no deliberate intent that they were allocated to that specific client. Accordingly, TUPE’s SPC requirements were not met.

So, for the SPC provisions under TUPE to ‘bite’, employees must be organised by reference to the requirements of the particular client; they must be dedicated to the services that are to transfer.

Fragmentation of services

For the SPC provisions under TUPE to apply, it must be possible to identify the activities that are transferring, pre and post transfer. This can become complicated where a service which used to be provided by one contractor under a single contract is split up, so that the work is done instead by two or more separate contractors, each operating under separate contracts. It has been established that TUPE can apply in this situation, and also that the transferee who takes over the greater part of the transferred activities takes all the relevant employees of the transferor (Kimberley Group Housing Ltd v Hambley, 2009).

But what happens if services are so fragmented amongst different providers that it is not possible to identify the destination of the activities as between the new providers?

At the end of last year, a case called Enterprise Management Services Ltd v Connect-Up Ltd confirmed that a re-tendering of a contract to provide IT support in schools was not an SPC where:

  • some 15% of the work done by the contractor was omitted from the retendered contract, and
  • the retendered service was fragmented among a number of different contractors.

So a service provision change can occur where activities are distributed among a number of contractors, providing it is possible to identify with which contractor they end up. However, where the activities are more or less randomly distributed among the new contractors and are not easily identifiable as the activities carried out by the original contractor, it would seem that TUPE will not apply.

Changes in the way the services are to be provided

It has been clear for a few years that the services must remain fundamentally and essentially the same pre- and post-transfer in order for TUPE to apply. However, what that means in practice is not always clear. In another recent case, Johnson Controls Ltd v Campbell (2012), the EAT held that a ‘holistic’ approach should be taken to identifying the ‘activities’ pre- and post-transfer; it is not simply a question of identifying a list of tasks and assessing whether the majority of those tasks are the same pre- and post-transfer.

Mr Campbell was employed by Johnson Controls Ltd as a taxi administrator. This involved him taking bookings for taxis from clients, including the United Kingdom Atomic Energy Authority (UKAEA). He claimed that 80% of his time was taken up with taxi activities for UKAEA. After some time, UKAEA decided not to use Johnson for booking taxis as its secretaries could book taxis directly with the taxi firms. The Tribunal found that the activity had been a ‘central co-ordinated service’ which no longer existed after UKAEA’s secretaries took on the function of booking taxis direct with taxi firms, so there was no service provision change under TUPE.

The EAT agreed but stressed that the decision should not be interpreted as a ‘green light’ to employment tribunals to conclude that there will be no service provision change in situations where duties or activities performed before an alleged transfer are split after the transfer between others performing similar duties or tasks.

It will still, therefore, be a question of fact for an Employment Tribunal to decide in each case, which makes it increasingly difficult to predict in advance whether a transfer would be covered by TUPE or not.

TUPE and you

What does all this uncertainty mean in practice?

The potential impact could include:

  • increasing scope for incoming providers/potential transferees to argue that TUPE does not apply on a retendering, which could have an effect on service delivery and increasing requests for client authorities to become involved;
  • unexpected redundancy payments, either for outgoing contractors who may want to build that into their price or for authorities in, e.g. shared services projects, particularly on any termination of such arrangements; and  
  • tribunal claims.

When planning for a service change it is therefore key to ensure that the possible risks and costs of the application (or potentially non-application) of TUPE have been factored in and that, where possible, you consider whether you can structure arrangements so that you can maximise, or minimise, the impact of TUPE.

The future for TUPE

Finally, the Government is currently consulting on possible changes to TUPE, including the revision or abolition of the SPC aspects of the Regulations.

A ‘call for evidence’ on the effectiveness of TUPE was published last November because there were concerns that the regulations ‘gold- plate’ the Directive from which they are derived and are overly bureaucratic. The Government’s response to the call for evidence was published in September 2012 and there will now be a period of ‘policy design’ in which the Government will consider a number of suggested ideas, including:

  • whether the SPC provisions should be retained or repealed;
  • whether liability for employees should pass entirely to the transferee as now, or be held jointly and severally by transferee and transferor;
  • whether employee liability information should be provided earlier to the transferee.

We are yet to see precise proposals following on from the call for evidence so, for the time being, the current TUPE regulations continue to apply.

Sarah Lamont is a partner in the Employment Department at Bevan Brittan. She can be contacted on 0870 194 8943 or by This email address is being protected from spambots. You need JavaScript enabled to view it..