Time after time, businesses are faced with (and use themselves) the classic argument in TUPE negotiations: “Of course the employee must transfer under TUPE – he spends more than 50% of his time on the transferring service”.

It is a very convenient and much rolled-out line of reasoning, which can work in both directions (“Of course he doesn’t transfer – he only spends 30% of his time on the transferring service…”). It is both a frustrating and a powerful argument in equal measure – an employer may be firmly telling his opposition in a TUPE negotiation that the argument is irrelevant, while desperately seeking to rely on it in a separate debate.

Can (and should) businesses really rely on this argument? In this article we examine the argument’s validity, and explore how the recent case of Costain Ltd v Armitage and ERH Communications Ltd may change its likely success in service provision change scenarios. We then consider some tips for businesses when using (or rebutting) such an argument in practice.

The classic argument – it boils down to percentages, doesn’t it…?

It is indeed a classic argument – and understandably so: the evidence is often easy to gather, readily presentable, and simple to understand (far easier to understand, usually, than convoluted and often technical and unclear descriptions of an employee’s actual duties).

But nevertheless, it is not (or should not be) true to say that an employee’s position under the transfer ‘boils down’ to this question alone.

Why not? It is such a classic argument, after all!

The argument that percentages should be determinative of whether an employee transfers is not accurate for two principal reasons, both of which have been reiterated and confirmed by EAT in the recent case of Costain.

Firstly, it ignores the fact that a two-stage process needs to be followed when determining whether an employee should transfer under TUPE. Secondly, it places too much emphasis on one single factor (the percentage of time spent on the transferring service), instead of taking a multi-factorial approach.

A two-stage process

In a service provision change scenario, if “immediately before the service provision change 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”, any employees “assigned” to that organised grouping will transfer under TUPE.

Parties to TUPE negotiations will often jump to the second part of the equation (whether an employee is “assigned”), before stopping to consider the rest of the test (whether there is a relevant organised grouping). They will say, for example, that an employee who carries out 75% of his work on the transferring service must therefore transfer under TUPE, as he is clearly ‘assigned’ to that part. This might well lead to the correct result under TUPE (or at least will often be enough to persuade the other side in negotiations), but not always.

In the present case, Mr Costain spent an estimated 67% of his time on the transferring part of a communications maintenance contract (the rest being spent on ancillary non-transferring works). The Employment Tribunal found that Mr Costain was assigned to an organised grouping of employees (the parties accepted that there was a service provision change), and therefore should transfer under TUPE to the new service provider.

The EAT, however, was less than impressed with the Tribunal’s handling of this question, finding that it had not properly considered the two steps in isolation. The Tribunal did not seem to have considered, first of all, whether there was an organised grouping of employees which had as its principal purpose the carrying out of the services in question – it just seemed to have jumped to that conclusion. Then, and only then, should the Tribunal have considered whether Mr Costain was ‘assigned’ to such a grouping.

Assignment and percentages

A further mistake which the Tribunal went on to make was to place too great a focus on the question of percentages when determining whether Mr Costain was assigned to the grouping of employees. The EAT was concerned that the Tribunal had not in fact made “a proper examination of the whole facts and circumstances” when determining the question of assignment, and had instead relied too heavily on the magic figure of 67%. The case was therefore remitted to the Tribunal to reconsider the question of whether Mr Costain was in fact assigned.

Established TUPE case law has always made clear that the percentage of an employee’s time spent on a transferring service will often be indicative of whether that employee is assigned to the service, but will not be determinative, and should be considered as part of the bigger picture. Costain confirms this.

The case does not say that percentages should never be used as an argument for or against a TUPE transfer, and indeed the EAT recognises what a useful and understandable argument it is. The case does, however, act as a warning to businesses intending to rely solely on this argument when attempting to avoid or push through a particular TUPE transfer.

How this case helps negotiations

The case does not establish any new points of law regarding TUPE, but does provide useful guidance and indeed ‘ammunition’ for TUPE negotiations. Businesses should remember the following when conducting TUPE negotiations:

  • Don’t jump to conclusions: Follow the TUPE steps carefully when setting out your arguments as to why a particular employee should (or should not) transfer – first establish whether there is an organised grouping of employees with their principal purpose of carrying out the activities for the client. Then, and only then, consider whether the employee in question is assigned to that grouping. Missing out the first step might still lead to the same result, but your arguments will be more convincing if you can show that you are following the same approach that a Tribunal would in resolving the dispute.
  • Don’t rely on percentages alone: It is often tempting to do this, but it is important to find further arguments to support or defeat the transfer. The higher the percentage in question is, of course, the harder this might be; but consider other factors such as the cost and value of the employee to each part of the business, and any managerial responsibilities the employee may have over various parts of the business.
  • But don’t ignore percentages completely: Often, in practice, TUPE negotiations are less about the legal technicalities established by case law, and more about the commercial realities of what employees actually do. The question of percentages can therefore be a useful and practical indicator of which business most requires the employee after transfer. If you are negotiating a TUPE transfer, do not be afraid to use percentages to prove your point: it is a clear and effective example that is hard to dispute, and the Costain case does not change that. Just remember, though, that if you have to continue the dispute in a Tribunal, the judge may now be more inclined to pick apart all other arguments before agreeing with you.