This year has heralded a number of appellate judgments on the service provision change (“SPC”) provisions of the Transfer of Undertakings Regulations 2006 (“TUPE”), prior to which there had been a distinct lack of helpful judgments on the topic. This briefing note will look at what lessons can be learnt from four of the key cases of 2012 on this subject.
A reminder of the basics
Regulation 3(1)(b) of TUPE broadened the definition of a “relevant transfer” to make it clear that it includes SPCs, such as outsourcing, insourcing or assignment to a new contractor. Regulation 3(1)(b) provides that there is a relevant transfer where “before the [SPC] there is an organised grouping of employees …which has as its principal purpose the carrying out of the activities concerned on behalf of the client” and “the client intends that the activities will, following the [SPC], be carried out by the transferee other than in connection with a single specific event or task.”
Who is the client?
Regulation 3 (1)(b)(ii), which covers the change of subcontractor scenario, states that a relevant transfer will arise where “activities cease to be carried out by a contractor on a client’s behalf…and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf.” In Hunter v McCarrick the EAT addressed the question of who is the “client” for these purposes. It held that the reference to “the” client means that TUPE does not apply where there is a change in the end client for whom the services are being carried out. The EAT said that if it had been intended that employees employed on an activity should follow that activity when it was undertaken for a different client then TUPE would have so provided.
There had been discussions previously as to whether TUPE could be interpreted so that its protections followed the activity, rather than the client. Although this case appears to have cleared this point up (and was followed by the EAT in the more recent case of Taurus Group Ltd v Crofts) it has been appealed and is due to be heard by the Court of Appeal by the end of the year. We will keep you updated.
What is an organised grouping?
Regulation 3(3)(a)(i) makes it a condition that immediately before the SPC “there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client”. In Eddie Stobart Ltd v Moreman, Stobart provided services to two different clients. The employees who worked the day shift mainly worked for one client and the night shift employees for the other. When the site closed down, Vion, the client whose work was normally carried out during the day shift, took its work to FJG. Stobart argued that there had been a SPC and that the day shift employees TUPE transferred to FJG. FJG contested this. The Employment Judge held that just because the employees spent all or most of their time on tasks related to a particular contract did not mean that they were an “organised grouping”. The EAT agreed citing that there is a difference between a “group” and an “organised grouping.” A group of employees “may in practice, but without any deliberate planning or intent, be found to be working mostly on tasks which benefit a particular client”. This decision limits the application of the SPC provisions of TUPE to employees who have been specifically organised to form part of a dedicated client team.
What is an activity?
In Johnson v Campbell and another the EAT considered how to identify an “activity” in the context of a SPC. Johnson employed Campbell as a taxi administrator. He took bookings for taxis from clients, including the United Kingdom Atomic Energy Authority (UKAEA), and performed other administrative functions for them. 80% of Campbell’s time was taken up with work for UKAEA. UKAEA stopped using the services of Johnson and instead got its secretaries to book taxis directly. The tribunal followed the approach set in Metropolitan Resources Ltd v Churchill 2009 and asked whether UKAEA was performing essentially the same activity as that carried out by Johnson. It held that the activity was a “central co-ordinated service” which no longer existed after UKAEA’s secretaries took over and therefore there was no SPC under TUPE. The EAT held that the Tribunal was entitled to place emphasis on the centralised and co-ordinated nature of the service. It held that to answer the question of what the activity is required taking a holistic approach. It cannot be answered by determining whether the majority of tasks have moved across. This case suggests that an SPC will not necessarily be considered a TUPE transfer if the majority of the tasks carried out before and after the alleged transfer are the same. It will be a question of assessing the nature of the activity as a whole.
In striving to interpret TUPE in a practical and systematic way, employers often apply a percentage approach when determining which employees should transfer (i.e. if more than 50% of an employee’s time is taken up on a particular client they transfer). This case and Enterprise Management Services Ltd v Connect Up below show that unfortunately no safety can be found in such analysis. Every employee must be looked at individually and their role analysed independently.
Busting the percentage approach
In a similar vein to Johnson, the question the EAT in Enterprise Management Services Ltd v Connect Up had to answer was whether activities carried out post transfer were the same as those that took place before. Enterprise had a preferred provider contract with Leeds City Council (LLC) to provide curriculum and administrative support to schools run by LLC. The claimants were employed by Enterprise to carry out these services. Enterprise chose not to re-tender for the contract when the time came and the majority of the schools were taken over by Connect Up. Five other providers serviced the rest of the schools. The Employment Judge held that the claimants were an organised grouping of employees who had the principal purpose of carrying out activities on behalf of the client. However, the activities carried out by Connect Up were significantly different from those carried out for the client by Enterprise and therefore there was no TUPE transfer. In particular, Connect Up did not do curriculum work, which was 15% of the claimants’ workload. The EAT agreed stating that this meant that “the activities carried out by Connect Up were not essentially or fundamentally the same as those carried out by Enterprise.” Furthermore, that the Tribunal was entitled to conclude that the services formerly provided by Enterprise were “so spread amongst other providers as well as Connect Up that no SPC had taken place on that basis.” The last part of this judgment is controversial given that it is in direct conflict with the Government Guidance on TUPE. The Guidance states that a SPC would “potentially cover situations where just some of the activities in the original service contract are re-tendered and awarded to a new contractor, or where the original service contract is split up into two or more components, each of which is assigned to a different contractor. In each of these cases, the key test is whether an organised grouping has as its principal purpose the carrying out of the activities that are transferred.” The Guidance was not referred to in the judgment so may have been overlooked.
Help or Hindrance?
Whilst these cases are useful indicators of what the EAT is thinking and are binding on Tribunals, they also demonstrate that the SPC provisions of TUPE are still very much open to differing interpretations. A literal translation of the provisions might work in one instance but not in another and every case will turn on its own particular facts. This is something that has been picked up by the Government in its call for evidence on the topic. Their response was published last month and highlighted concerns among respondents over the complexity of the SPC provisions, in particular posing such questions as: when are employees “assigned” to the group being transferred and what happens when activities are redistributed between a number of contractors? The Government has entered a period of policy design which it aims to consult on by the end of this year. We will update you when there are further developments to report.