Change in service – important new cases on when TUPE will apply
After a spate of recent cases, employers now have a clearer picture of how Employment Tribunals will decide whether TUPE applies.
Services do not need to be identical
TUPE can still apply even if the services are not identical. It is sufficient that the activities are "fundamentally and essentially the same". This point was confirmed by the Employment Appeal Tribunal in the case of Metropolitan Resources v Dulwich Churchill (2008).
No transfer where the services are wholly different
In OCS Group v Jones (2009), there was a change of catering provider at a BMW car plant. The initial contractor (OCS) provided a full catering service including a central restaurant, four satellite outlets and both hot and cold meals. The subsequent provider (MIS) ran a much reduced service selling pre-prepared sandwiches and salads only. Whilst both OCS and MIS provided a catering service, it was a "wholly different operation".
Change in the manner and ethos of the services is relevant
Following the closure of a care home for vulnerable adults, the residents were re-housed and support was provided to them in their own homes with the aim of developing greater independence and autonomy. Whilst there remained an obligation to provide personal care for adults, the emphasis had changed to supporting living and welfare. The Tribunal held that this constituted a material shift in the ethos of the service and the manner of its provision so that the services were not "fundamentally and essentially the same" (NHS Trust v Hamshaw (2011)).
Cessation of part of services may defeat TUPE
The cessation of a significant portion of the services may be a factor in determining whether they remain fundamentally the same. In the case of Enterprise Management Services Ltd v Connect-Up Ltd (2012), EMS lost a contract to provide IT support to a number of schools. A new contractor took on much of the work but around 15% of the work previously carried out by EMS staff was excluded from the contract. Even though the majority of the work continued, this was a key factor for the Tribunal in determining that the services did not remain fundamentally the same. Whilst the decision in this case was approved by the Employment Appeal Tribunal, we believe that it may be specific to its facts and so employers should be careful if seeking to rely on it.
Holistic assessment required
There was no TUPE transfer when a client cancelled a contract with a centrally-coordinated taxi administrator and instead used its secretarial staff to book taxis direct. Whilst the tasks undertaken in booking the taxis were similar, when looked at holistically the services were different as there ceased to be a centrally-coordinated element (Johnson Controls v Campbell (2012)).
These cases demonstrate the willingness of Tribunals to find that there has been no TUPE transfer even in circumstances where the general nature of the services remains the same. This creates a risk for employers in the outsourcing sector as it gives scope for the client or a new contractor to influence the application of TUPE on exit by changing the services. It is now even more important to seek appropriate contractual protection at the outset of a contract to ensure that when the contract comes to an end, the contractor is not left with the employees but no work.
50% time spent – not always enough for TUPE
When determining if there will be a TUPE transfer (and if so who transfers), employers often focus on whether there are employees who spend the majority of their time on a particular contract or service. However, this is not enough; employers must first ask themselves whether there is an organised grouping of employees whose principal purpose it is to carry out those activities on behalf of the client.
Eddie Stobart ran a warehouse providing logistics services to two main customers. The day shift worked predominantly for customer A whilst the night shift worked predominantly for customer B. Despite the clear split of work between night and day shift workers, there was no TUPE transfer when Eddie Stobart lost the contract with customer A.
The legal test is that an employee must be "assigned" to an "organised grouping of employees" whose "principal purpose" is to carry on activities on behalf of the client. At the Eddie Stobart warehouse, the time which each employee spent on a particular contract was simply a coincidental result of the way that shift patterns were organised. Importantly, the employees were not organised into teams whose principal purpose was to carry out work for either customer A or B. Whilst the question of how much time an employee spends working on a particular contract or service is relevant to the question of assignment, this case highlights that it is first necessary to show an organised group with the principal purpose of servicing the client (Eddie Stobart Ltd v Moreman (2012)).
The approach taken in the Eddie Stobart case has been supported in both the cases of Seawell v Ceva and Argyll Coastal Services Ltd v Stirling (both 2012). In these cases the courts suggested that in order for TUPE to apply there needs to be a group of employees deliberately organised for a client's work. It appears to be key that the organisation is deliberate and not just happenstance.
In the Seawell case, one of Ceva's employees spent 100% of his time working on a contract to provide logistics and freight forwarding arrangements for Seawell. The employee in question was part of an organised grouping of employees who dealt with inbound operations but this included operations for customers other than Seawell. When Seawell brought the services back in house there was no TUPE transfer as the principal purpose of the inbound team was not work for Seawell; it was inbound operations generally.
These cases are of particular relevance to those providing a "shared service" support function to a number of clients. To ensure that TUPE applies at the end of a contract it would be advisable to set up specific client service teams and to assign particular employees to each team.
As an aside, the Argyll case was of further interest as the Judge confirmed that TUPE can catch employees based outside the UK. For UK TUPE legislation to apply, the organised grouping of employees must be based in the UK. However, employees can still be caught if they are based outside the UK but are assigned to an organised grouping based within the UK.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2012. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.
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