Managing agents and property service companies who employ staff to provide services such as security, maintenance, cleaning or caretaking to buildings should take note: if the landlord/owner terminates their service contract and engages another agent or service company their staff may well transfer automatically to the new service provider if the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) apply. Similarly, if the landlord directly employs security guards or cleaning staff and then decides to contract out the service, TUPE is likely to apply.
Importantly, on the sale of a property in certain circumstances, the services of such security, maintenance , cleaning or caretaking staff may also have rights under TUPE to follow their work.
WHAT IS TUPE?
TUPE applies where there is a “relevant transfer”, either where a business or part is sold (a business transfer) or where there is a change in service provider (a service provision change (SPC)). It is important to be aware of this, because there are a number of legal obligations which arise if TUPE does apply. There are financial consequences if they are not complied with. This article focuses on the SPC aspects and their application to staff who provide services to buildings through managing agents and property service companies.
A GUIDE TO IDENTIFYING SERVICE PROVISION CHANGES
Very briefly, there are three types of SPC; where a service is outsourced (by the client to a contractor), it is reassigned (second generation outsourcing) or it is brought back in-house (in-sourced). However, if a property is sold or leased, but there is no change in the managing agent or service provider, there would be no TUPE transfer as the employees continue to be employed by the same employer.
In order for a change in activities to qualify as an SPC there are other conditions, which must also be satisfied:
- Organised grouping
There must be an organised grouping of employees situated in Great Britain before the change, whose principal purpose is carrying out activities for the client. An “organised grouping” can include a single employee, therefore there can be an SPC, for example, where there is one employee carrying out caretaking services or cleaning services at a building. It is also important to determine whether the employees are assigned to the “organised grouping of resources or employees,” that is the subject of the transfer. This can be difficult to assess where an employee provides services to a number of properties managed by the managing agent or serviced by the service provider. If the services are carried out on an ad hoc basis for the client or for a number of different clients it is likely that they would not fall within the test. Contracts for the supply of goods or for the one-off buying-in of services are excluded from TUPE.
In order for TUPE to apply, the activities must be “fundamentally the same” before and after the SPC. This will depend on the facts of each case. Activities are generally defined broadly by Employment Tribunals so that TUPE applies.
- The client
In order for the SPC provisions to apply, the services provided before and after the change must be for the same client. If there is a change in the contractor providing the services and, at the same time, a change in the owner of the property, TUPE will not apply. If this is the case, the outgoing service provider will need to consider how to deal with the risk they will be left with superfluous staff if their contract is terminated in connection with the sale of the building.
It is, however, also possible for there to be an SPC where the services are provided to more than one client under different contracts. TUPE will apply in this event if the clients before and after the SPC are the same and the clients demonstrate a common intention, but there is a change in who is providing the services. This is likely to arise in situations where the tenants in commercial premises or residents management companies on a residential estate group together to commission activities, eg property maintenance or security either under a single umbrella arrangement or under separate contracts.
EFFECT OF TUPE APPLYING AND PRACTICAL CONSIDERATIONS
This is a complicated area of law and there is a great deal of litigation concerning the application of TUPE. If this is not properly considered in advance, there are significant implications and consequences. It is important to be aware of these. Broadly, if TUPE applies:
- The employees will automatically transfer from the previous service provider (“the transferor”) to the new provider (“the transferee”) under their existing terms and conditions (save in respect of occupational pension rights). Their continuity of service will be preserved and the transferee will inherit all rights and liabilities in relation to them. It is therefore important for the new provider to carry out due diligence in advance to see what it will be inheriting in terms of staffing costs, to ascertain whether redundancies may be necessary and the likely costs.
- There are information and consultation provisions, which must be complied with. An employment tribunal may award up to 13 weeks actual pay for such failure for each affected employee. The transferor and transferee are jointly and severally liable in this respect.
- There is very limited scope for a transferee to harmonise terms and conditions of employees who transfer under TUPE and this reinforces the need for careful due diligence prior to taking on a contract.
- There is enhanced protection against dismissal, which may have cost implications for the transferee and the transferor.
- TUPE expressly preserves the right for an employee to resign and claim constructive unfair dismissal if the transfer results in a repudiatory breach of their contract or a substantial change in their working conditions to their material detriment (ie where the new contractor is proposing changes).
- The transferor must also provide employee liability information (including age and identity of employees, their disciplinary and grievance records and details of any claims) to the transferee at least 28 days before the transfer. Failure to do so may result in a minimum award of £500 payable to the transferee by the transferor for each employee for whom it failed to provide information.
It is important for any service company involved in a change of service provider to take specialist employment advice on whether TUPE is likely to apply, irrespective of whether they are the transferor or transferee. This will put them in a good position to assess the likely cost consequences and to consider what provisions and protection, including indemnities, they will need in any outsourcing agreement.