Hot on the heels of Hunter, in the recent case of Taurus Group Ltd v Crofts and another, the Employment Appeals Tribunal (EAT) has held that there is no transfer under the service provision change definition if the change of a contractor comes with a change in the client for whom the services were being carried out. This case is important for those dealing with second or subsequent generation outsourcings and commercial property transactions.

Facts

Mr Crofts was employed by Reliance Security Services Limited (Reliance) as a security guard in a Nottingham student halls of residence known as The Glasshouse. Reliance originally entered into a contract with Ely Properties to provide security services at The Glasshouse. Ely Properties eventually went into administration.

The Glasshouse was then acquired by Mansion Group (Mansion). Mansion emailed Reliance to say that their acquisition of The Glasshouse was on the basis that all previous contracts for “services, goods, management or otherwise” would be terminated and that Mansion would not take on any liability for them. Mansion subsequently appointed Taurus Group Limited (Taurus) to provide security services at The Glasshouse. Reliance therefore lost their contract and Mr Crofts’ employment was terminated.

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Mr Crofts brought an unfair dismissal claim against both Reliance and Taurus. At the pre-hearing review, the tribunal judge decided that TUPE applied as there had been a service provision change. It was held that Regulation 3(1)(b)(ii) applied as services had ceased to be carried on by a contractor (Reliance) on a client’s behalf and were instead provided by a subsequent contractor (Taurus) on the client’s behalf (a “second generation outsourcing”). The Tribunal held that “the client” for these purposes was that person who “from time to time” required the provision of services (initially Ely Properties; later Mansion). The claim against Reliance was dismissed on the basis that the contract of employment and any liabilities had transferred to Taurus under TUPE. Taurus appealed.

Following its earlier decision in Hunter, the EAT upheld Taurus’ appeal on the basis that the service provision change definition in TUPE requires the services carried out before and after the change of contractor to be on behalf of the same client. The EAT rejected the submission that Mansion was a client of Reliance prior to completion or when Mansion sent the email terminating Reliance’s services. Reliance’s client was never the same as Taurus’ client.

Being a creature of UK, rather than EU law, the service provision change rules in TUPE were subjected to a more literal (rather than a purposive) interpretation by the EAT. This approach followed the EAT’s earlier decision in Metropolitan Resources Ltd v Churchill Developments and in Hunter. It was therefore held that the term “client” was singular, bearing its “straightforward and common sense” meaning and should not be interpreted purposively. Mr Crofts’ claim against Taurus failed and his claim against Reliance was reinstated.

Comment

This case and Hunter are particularly significant for those involved in second generation outsourcings and especially commercial property transactions. Take home points:  

  1. Where there is a change in the ownership or management of a commercial property at the same time as facilities or other services are changed, the facilities staff will not transfer under the “service provision change” test to the incoming facilities provider and (subject to (3) below) liability for their employment and its termination will remain with the outgoing provider.2
  2. . The same principles will apply to a second generation outsourcing situation where services are provided to the ultimate customer by a combination of a principal contractor and sub-contractor. In these arrangements, the sub-contractor’s client may be the principal contractor, albeit the services are for the benefit of the ultimate end-user customer. If the arrangement is terminated, the “client”, for the purposes of the sub-contractor, may (under the new arrangement) change from the principal contractor to the end-user customer or a new principal contractor. This change in client arises if the end-user customer procures the services directly or on a sub-contracted basis via a different principal contractor.

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  1. However, even though there will be no service provision change in these circumstances, TUPE will still apply if the outgoing provider can establish that there was an old-style “business transfer” (eg a lease transfer where there is an “economic entity” which transfers and retains its identity pre and post transfer) for the purposes of Regulation 3(1)(a) of TUPE. This does, though, require a different analysis based on pre-service provision change case law.  

It should also be noted that Hunter has been appealed to the Court of Appeal and is due to be heard in October 2012. It is possible (though we think unlikely) that the Court of Appeal will adopt a purposive approach to the relatively new statutory concept of service provision change in line with the broader aims of TUPE to protect the rights of employees when business transfers occur. Either way, it will be one of few Court of Appeal decisions on the service provision change rules and is therefore of some importance.

Watch this space and, in the meantime, check your existing contractual provisions.

Taurus Group Ltd v Crofts and another [2012] UKEAT 0024/12

Hunter v McCarrick [2011] UKEAT 0617/10

Metropolitan Resources Ltd v Churchill Developments (in liquidation) [2009] UKEAT 0286/08/RN