In an important case for the insolvency world, SNR Denton has succeeded in the Employment Appeal Tribunal (EAT) in overturning a decision of the Employment Tribunal which had threatened to seriously impact the work of administrators and their professional advisers.
The claim arose out of the administration of the Jarvis Group of Companies, which went into administration in March 2010. Four partners of Deloitte were appointed as joint administrators (the Administrators). The Administrators instructed SNR Denton (then Denton Wilde Sapte) in anticipation of their appointment as administrators, and retained the firm after their appointment. The Claimant was a solicitor employed by Jarvis plc but assigned to work for Jarvis Accommodation Services Limited (together Jarvis). She was dismissed on 31 March 2010.
The Claimant's Case
The Claimant contended that there had been a service provision change (SPC) under Regulation 3(1)(b) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). She claimed that, following the appointment of the Administrators and their retention of SNR Denton, SNR Denton carried out legal work in connection with the disposal of PFI contracts which the Claimant had previously been doing. Consequently her employment contract should have transferred to SNR Denton under TUPE.
Service Provision Change
An SPC is one of two types of TUPE transfer and entails the carrying out of activities for a client and a change in the person performing those activities. In order for an SPC to take place there has to be an organised grouping of employees which has as its principal purpose the carrying out of the activities concerned on behalf of the client. The client then has to intend that the activities will, following the SPC, be carried out by the transferee "other than in connection with a single specific event or task of short-term duration". TUPE, therefore, requires a single client (in this case Jarvis) to have intended to change service provider.
Employment Tribunal Decision
Despite the fact that SNR Denton provided its services to the Administrators, and not Jarvis, the Claimant surprisingly succeeded in persuading the Employment Tribunal that this had been an SPC and consequently a relevant transfer. The Employment Tribunal also decided that it was not "in connection with a single specific event or task of short-term duration". The logical extension of the decision would have caused fundamental problems for the operation of an administration. Administrators who made redundancies at the company in administration and then used their own firm's staff for debt collection and other administration matters would risk a finding that there had been an SPC to that firm. Consequently the redundant staff's contracts, or more likely the liability for their dismissals, would transfer to the administrators' own firm. This could have had a disastrous result for administrations generally and the statutory regime.
SNR Denton succeeded in persuading the EAT that the Employment Tribunal decision was wrong. Mr Justice Langstaff, President of the EAT, was persuaded to follow the reasoning in an earlier case (Hunter v. McCarrick) and find that, for there to be an SPC, the activities carried out must be carried out for the same client. Accordingly the need to identify that one client was paramount. The Employment Tribunal had essentially treated Jarvis and the Administrators as a single client, on the basis that the Administrators acted as agent for Jarvis.
The Claimant argued in the Employment Tribunal that, as the Administrators acted as agent for Jarvis, then their actions were one and the same. Mr Justice Langstaff referred to the 2012 case of Edenwest Ltd v. CMS Cameron McKenna, where the true nature of the agency relationship between the administrative receiver and the company in administrative receivership was explored. (The position of administrative receivers is analogous to that of administrators.) To describe the relationship as one of agency is technically correct, but apt to give an incorrect impression of the true relationship. Whilst administrative receivers can contract on behalf of the company, not every contract made by an administrative receiver should be treated as a contract with the company. The question is always what was the intention of the administrative receivers. In the Kirwan case, the contract which the Administrators made with SNR Denton was for the provision of legal services to them, and not the provision of legal services to Jarvis. But, although the case will come as an immense relief to administrators and their professional advisers, there was a word of warning. Mr Justice Langstaff highlighted that there may well be circumstances where administrators do, or should be taken to, contract on behalf of the company. It will be a question of fact in each particular case. This underscores the need for clarity in the retainer letter between the parties and any other relevant contractual documents.
Single Specific Event or Task of Short-Term Duration
The case was also interesting for Mr Justice Langstaff's remarks about the exception in Regulation 3(1)(b) for activities "in connection with a single specific event or task of short-term duration". His observations were only tentatively advanced, but he stated that what is short-term or long-term is a matter of perspective and depends entirely on the viewer. The view to be taken here is that of the employment context, i.e. that of the employee and not that of the historian for whom short-term might mean a longer period. He believed that one should look at the broader context of the employment relationship as a whole. At the time TUPE was made, an employee took 12 months to acquire unfair dismissal rights. His employer might need only give him 12 weeks' notice, and conceivably he might only be expected to give one week's notice. All of these time limits created a context in which to judge "short-term". However, one also needed to judge it in the context of a particular employee, and this may vary from case to case and to some extent will be a matter of fact and degree. Provided that a tribunal had regard to the words of the paragraph and the general context, its finding of fact and degree would be unlikely to be wrong. Mr Justice Langstaff also thought it significant that the relevant paragraph of TUPE began with a statement of the intention of the client. A tribunal must, therefore, show that it had understood that it was dealing, not with an objective standard, but with the intention of that particular client. In the Kirwan case the Employment Tribunal had confused what the services were, and the particular term the Employment Tribunal had in mind when it held that the exclusion did not apply was not clear. This meant that, had the appeal not succeeded on other grounds, the matter would have been remitted back to the Employment Tribunal to consider the point.
The case is a welcome confirmation of the approach taken by the EAT previously in Hunter and is of particular significance to administrators and their professional clients. A written judgment will be released by the EAT in the next few weeks.