In the recent case of Edinburgh Home-Link Partnership v The City of Edinburgh Council, the EAT considered whether the directors of a charity which provided outreach services and support to a local authority were assigned to the “organised grouping of employees” such that their contracts of employment would be transferred pursuant to the 2006 TUPE Regulations.
A service provision change is one of the two types of transfer under the TUPE Regulations. A service provision change can take place where a client engages a contractor to do work on its behalf, where a contract is re-assigned to a replacement contractor, or where work being done by a contractor is brought in-house.
In order for there to be a service provision change for the purposes of TUPE, there must be an “organised grouping of employees” which “has as its principal purpose the carrying out of the activities concerned on behalf of the client”. In those circumstances, the employment contracts of the employees assigned to the organised grouping of employees that is the subject of the relevant transfer will pass to the transferee.
The claimants were directors of a charity who asserted that they had TUPE transferred from that charity to the Council. The charity had provided outreach services and support to vulnerable people on behalf of the Council, until the Council decided to take those services in-house.
The parties agreed that there had been an organised grouping of employees which had as its principal purpose the carrying out of the activities concerned for the Council. The matter for determination, then, was whether those two individuals in particular had been “assigned” to the organised grouping.
The EAT found that the two individuals were not part of that grouping and so their contracts would not transfer. This was so even though at the time of transfer the transferor charity had no other clients than the Council - and nor had it for the four years prior.
An important factor in the EAT’s reasoning was that directors were carrying out a strategic role in the charity, rather than being involved in the frontline services which the charity actually provided and which were being brought back in-house by the Council. The directors had strategic roles “principally directed to the survival and maintenance of the transferor [in this case, the charity] as an entity” rather than being connected to the front line services being provided to the Council. Accordingly, they did not transfer over to the Council.
A trend against SPCs?
The decision in the above case serves as another indication to clients that all may not be as first seems when it comes to considering whether TUPE applies and highlights a recent trend of scepticism by the tribunals and courts as to the application of the service provision change concept.
In another recent case of Seawell v Ceva, the EAT similarly had to decide whether an employee’s contract transferred under a service provision change.
The circumstances were that the claimant, a logistics co-ordinator, had been employed by Ceva and had spent 100% of his time working for a particular client account, that client being Seawell. Other employees also did work for Seawell but not exclusively. Seawell then ceased being a client of Ceva and the activities formerly carried out by Ceva were thereafter carried out by Seawell on its own behalf.
The decision of the EAT was that there was no TUPE transfer. The EAT made clear that an organised grouping of employees for the purposes of TUPE (which can in principle be a single employee) is not a “matter of happenstance” – rather, it is a deliberate putting together of a group of employees for the purpose of the relevant client work. The mere fact that a particular employee happened to spend all of his time on one client’s contract did necessarily mean he was an organised grouping for the purposes of TUPE. The employee must still show that grouping was organised for the purposes of the particular client contract, which was not the case in this instance.
These cases are further examples of a recent trend by the courts to interpret the TUPE wording for service provision changes more restrictively which, depending on your position in a transaction, will be welcome or unwelcome news but does highlight the importance of closely analysing the position in advance of any potential transfer.