It has been a long-held issue of contention whether the TUPE regulations (TUPE) protect the interests of sub-contractors in the event of a service provision change. The spirit of TUPE, which is focused on preserving employment where activities are ongoing, suggests they should and yet the specific wording of the regulations makes such an interpretation less straight-forward.

A recent case before the EAT has now considered this issue and found that TUPE can apply to a transferor and a sub-contractor, protecting the employment of affected employees, even though there may be no direct contractual relationship between them, since the contractor breaks the direct-link, as “the middle man”.  This decision is significant for transferors involved in recent or proposed outsourcing or insourcing of services.

Background

A familiar scenario, in this case the Council contracted the running of a car park to a contractor (Saturn Leisure Limited) which, in turn, sub-contracted that activity to Regal Car Parks Limited. The Claimant, Mr Jinks, had been employed by Saturn but claimed that his employment had transferred to Regal and then, once the Council resumed responsibility of the car park, he became an employee of the Council, pursuant to TUPE. When this was denied by the Council, Mr Jinks brought a claim of unfair dismissal.

Was the wording of TUPE a stumbling block?

Regulation 3(1)(b) of TUPE establishes that a change of contractor (i.e. a “service provision change”) may be a relevant transfer. However, uncertainty has arisen due to the specific wording of this provision which refers to the transferor as “the client” and the transferee as “the contractor”.

Subject to certain conditions set out in Regulation 3(3), TUPE states that a service provision changes arises where:

  1. activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client’s behalf (“a contractor”); 
  2. activities cease to be carried out by a contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf; or 
  3. activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf.

Regulation 2 seeks to clarify that references to “contractor” can include “sub-contractor”. However, this qualification to Regulation 3(1)(b) has not been universally understood  by employers to mean that transferors have any liability for employees of a sub-contractor with which they have no contractual nexus. Indeed, many have sought to argue that, since their contractual relationship is with the contractor only, TUPE does not apply.

Decision of the EAT

Overturning a decision of the Employment tribunal to strike out Mr Jinks’ claim as having no reasonable prospect of success, on the basis the Council was “the client” of Saturn, not Regal and TUPE did not apply, the EAT was clear that such an analysis was too simplistic.

Relying on the case of Horizon Security Services Limited v Ndeze, the EAT identified three important principles in this context which establish that the person on whose behalf services are provided by a sub-contractor may not necessarily be the contractor with which the sub-contract is made:

  • the question of who is the client for Regulation 3 purposes is one of fact, not law;
  • there can be more than one “client” in any given case;
  • the terms of Regulations 3(10(b)(iii) must be read with Regulation 2

On the facts, Regal was in reality carrying out activities “on behalf” of the Council, despite the absence of any direct contractual relationship, in that the Council was the real or ultimate client of Regal in respect of the car parking service in which Mr Jinks was employed. As a result, the strike-out application should be remitted to the Employment tribunal.

Comment

Transferor parties often face claims from employees of sub-contractors, looking to them to honour principles of TUPE which they will not necessarily have anticipated, budgeted for, nor in their eyes, legally acquired.

Prior to this decision by the EAT, the legal position had been unclear, leaving all parties uncertain and employees often losing out. This case makes clear that the strict legal or contractual relationships do not necessarily answer the Regulation 3 question. Transferors must therefore take account of the fact that, in terms of the employment protection afforded, TUPE may draw no distinction between employees of the contractor (with whom they contract directly) and those of a sub-contractor. Subject to the ordinary conditions which apply -such as that the activities remain fundamentally the same – transferors may accordingly acquire liability for the sub-contractors’ employees and should seek appropriate indemnities or financial provision.

Jinks v London Borough of Havering