TUPE – Service Provision Change

The past year has seen a flurry of cases in the employment courts under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) concerning disputes as to whether an employee has transferred to another contractor or client under a service provision change. With a volatile economy and companies seeking alternative ways to operate their business to save costs, such as bringing services in-house, clarity on TUPE service provision change (SPC) has been long needed.

An SPC occurs in the following circumstances:

  1. Outsourcing – when activities are outsourced to a contractor on a client’s behalf;
  2. In-sourcing – when the activities cease to be carried on by a contractor and are carried on by the client itself; and
  3. Change of contractor – when activities carried on by a contractor are transferred to another contractor.

For employees to transfer under a SPC, the following conditions must be satisfied immediately before the SPC:

  1. There is an organised grouping of employees situated in Great Britain, which has as its principal purpose the carrying out of the activities on behalf of the client;
  2. The client intends that the activities will, following the SPC, be carried on by the transferee other than in connection with a single specific event or task of short-term duration; and
  3. The activities concerned do not consist wholly or mainly of the supply of goods for the client’s use.

Johnson Controls Ltd v UK Atomic Energy Authority is one of the latest cases concerning the SPC provisions. In this case the Employment Appeal Tribunal (EAT) held there was no SPC where a centralised taxi-booking service carried on by Johnson Controls was brought in-house by UKAEA, using its secretaries to book taxis directly with taxi firms rather than using an intermediary. The claimant was employed by Johnson Controls as a taxi administrator, which involved taking and arranging taxi bookings for UKAEA’s staff. When UKAEA decided to cut costs, by bringing the service in-house and terminating its contract with Johnson Controls, the claimant brought a claim in the Employment Tribunal for unfair dismissal and a redundancy payment. 80% of the claimant’s time was taken up with booking taxis for UKAEA. The Tribunal considered relevant case law and acknowledged that it must “identify the relevant activities carried out by the original contractor” and determine “whether the activities carried on by the subsequent contractor … are fundamentally or essentially the same as those carried on by the original contractor.” The Tribunal decided the services carried on by the secretaries were essentially different from those carried on by the claimant, as they were not carrying on a centralised service following transfer (which was an important feature of the service provided by Johnson Controls), and therefore the claimant’s employment had not transferred under TUPE. The decision was upheld by the EAT, which ruled that the Tribunal was required to identify the relevant activity based on a holistic assessment.

The case stresses the point that even where an employee works mainly or exclusively for one particular client, the Tribunals will not be persuaded that there has been a relevant transfer under TUPE by this fact alone but will adopt a holistic approach. Service providers should therefore examine the activities pre and post-transfer, as the termination of a contract with a major client could leave them with no option but to make redundancies, if the activities carried on by the client or subsequent contractor are not substantially the same.

Not only should the activities be substantially the same pre and post-transfer, another recent case has also highlighted the importance of employees being deliberately grouped in such a way that their principal purpose for carrying out activities is on behalf of a particular client. In Eddie Stobart Ltd v J Moreman and Others, the claimant believed its employees had transferred to a new contractor, when its client changed to a subsequent contractor. Eddie Stobart provided warehousing and transport services. Its employees worked for two clients, Vion and Forza, the latter of which supplied meat to Asda. Owing to the timing of orders placed by Forza, products for Asda were picked principally by the employees working nightshift while the dayshift employees worked on Vion orders. The operation site for warehousing the meat used by Eddie Stobart subsequently closed and Vion terminated the contract with Eddie Stobart and engaged another company, FJG Logistics Ltd, to provide the services. Eddie Stobart wrote to the employees whom it regarded as being transferred to the Vion contract and advised that their employment contract would transfer to FJG. However, FJG did not accept there had been a transfer under TUPE. The Tribunal concluded that the work by Eddie Stobart’s employees was not done with reference to the customers, but by shift system and job function within that shift. In other words, the fact that certain employees worked exclusively on the Vion contract was not as a result of the company’s organisation of work so that there were teams dedicated to that contract, but rather a result of Vion’s timing of placing orders. Accordingly, the employees were considered to have been dismissed by Eddie Stobart. The tribunal’s decision was upheld on appeal to the EAT. The EAT clarified that the SPC provisions would not apply to a situation where a set of circumstances (as in this case brought by shift patterns and working practice) would mean a group of employees were found to be working on particular tasks for the benefit of a particular client in the absence of deliberate planning or intent.

In light of the above decisions, it is important for service providers to decide early on what should happen to its employees in conjunction with the services provided to its clients. The loss of a major client could mean potential dismissals and potential claims for redundancy. If there is a risk of losing clients to another contractor, service providers might want to consider inserting indemnity provisions into their service contracts protecting them from redundancy claims in the event the client chooses to terminate the contract and reassign the services to another contractor.

Bulletins are for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court. Please note that past bulletins included in the Archive have not been updated by any subsequent changes in statute or case law.