For our TUPE Club webinar, we focus on the two fundamental issues in managing a TUPE transfer. It is essential to know whether TUPE is triggered by the business proposal and, if so, who will transfer.
All the key TUPE related risks flow from these crucial questions.
- how to identify a TUPE transfer (and possibly avoid one)
- how to identify those people who are 'assigned'.
Our speakers, Jane Fielding, Hannah Swindle and Siobhan Bishop will also give you practical tips on successfully managing these issues and limiting risks.
Click here to listen.
Siobhan Bishop: Hello. Welcome to this Gowling WLG TUPE Club Webinar on The Key to TUPE - Back to Basics. I am Siobhan Bishop from the Employment, Labour and Equalities Team and I am joined today by Jane Fielding, a Partner in the team and Hannah Swindle, a Principal Associate in our team, both of whom have extensive experience advising on all aspects of TUPE in both the private and public sector.
The presentation will last approximately 45 to 50 minutes with time for some questions at the end. Before we get started, I will run through a few housekeeping points. The Webinar player has a few simple controls. The most important are the volume adjuster and the full screen option which are in the bottom right hand corner of the player. There are also some tabs along the top which you can click on to access details for today's speakers and the slides. You can also ask a question at any time just by clicking on the "ask a question" tab, type in your question and then click "submit". We will answer as many of those as we have time for today. There is also a poll tab. Do not worry about that too much at the moment but at a number of points in the Webinar these will automatically flash up on your screen and we would really encourage you to participate in those. Today we are going to be taking a slightly different approach with polls and I will be asking for your views on a given case study. If for any reason you cannot see the current slide at any time just, click on the "slide tab" to get back to it.
So, here is the overview of what we are going to be covering today. We are looking at the key aspects of TUPE and taking it back to basics. The two key questions are, firstly, how can you identify a TUPE transfer? Related to that, is it possible to avoid a TUPE transfer? Secondly, who is assigned or who transfers if there is a TUPE transfer? We are going to focus on these two fundamental issues because all of the key TUPE related risks flow from these crucial questions. I am now going to hand over to Jane Fielding.
Jane Fielding: Thanks Siobhan. Before we look at what constitutes a relevant transfer and what triggers TUPE, I just wanted to focus for a little bit on why does it matter that we are in a TUPE scenario or whether we know we are. So, I am sure everybody that dialled in knows that one of the fundamental principles of TUPE is that it applies automatically. And you cannot contract out of it and the reason for that is the "PE" bit of TUPE stands for "Protection of Employment" and the idea is that employees are best protected where the business they are working in is changing hands or the service that they are working on moves to a new provider. They are best protected by this automatic transfer principle so that employees who are assigned to that work go with the work to the new operator or the new owner of the business. So, the employees also are entitled to be informed and consulted with. So that is another fundamental principle of TUPE that if you are caught up in one of these situations, as an employee, you are entitled to be told about it; certain specified information and be consulted with if there are measures that are going to be taken in respect of your employment as a result of the transfer. So, unless you understand whether you are in a transfer situation, you will not know which employees you are about to inherit, if you are a transferee, and which employees you should be informing and consulting with; who is affected by this transfer. The third fundamental principle of TUPE that I wanted to mention is that employees transfer over to their new employer with all of their liabilities and rights attached. So, if an employee has got a grievance or they have brought a claim or they have got a promise of an increase in pay at some point in the future, the new employer, the transferee, will inherit all of that under TUPE.
So, because TUPE operates automatically you need to understand how it affects the scenario that you are dealing with so that, although you cannot contract out of it, you cannot agree with the transferor if you are the transferee that it will not apply, what you can do in your deal documentation, provided you can get this through commercially, is you can try and re-apportion those liabilities in the contract by way of indemnities between the parties. So it is important for a number of reasons to know that you are in a TUPE scenario and obviously you need to understand from a business planning perspective whether you are the transferor or the transferee what impact the application of TUPE is going to have on your workforce. Are you going to be losing a material chunk of it if you are the transferor, you may or may not want that. Similarly, if you are the transferee; how many people you are going to inherit, how are you going to fit them into your workforce going forward? So for all of those reasons it is important to know whether you are in a TUPE scenario.
Let us move on to looking at what is a relevant transfer. We currently under TUPE have two different definitions of a relevant transfer and as you can see from this slide they are overlapping. We have the old style business transfer which we have had since 1981 when TUPE first came in. That is the classic business sale, asset sale type scenario and then we have also got this overlapping definition of Service Provision Change (SPC) which we brought in in the UK in 2006. They are not mutually exclusive so whenever you are considering if you are in a TUPE situation you need to have a think about both of those definitions and whether you are falling in either of them.
I am going to look a bit more closely at the business transfer test now.
In a business transfer situation you are essentially dealing with usually a sort of two party transaction. You have got a business that is being sold and for TUPE purposes the seller is called the "transferor". They are going to be selling the business to the buyer, who for TUPE purposes is called the "transferee" and they will be generally one transfer and TUPE will be dealt with in that contract between those two parties. So to the extent that any re-apportionment of liabilities needs to be done, it will be done in that contract. Looking a little bit more closely at the business transfer test what exactly do you have to show to be in a business transfer territory? Well, what case law tells us and the original directive that TUPE comes from is that you need the transfer of an economic entity that retains its identity before and after the transfer. It can be that you have to transfer of a part of an undertaking so it could be that you have got a business that is made up of a number of different functions or business units and only part of that is being sold. If that part retains its identity before and after the transfer, the fact that rest of the business stays where it is does not matter. But what is important and essential is that the undertaking that you are talking about is in the UK before the transfer. It does not necessarily matter if it ends up outside the UK afterwards as long as it overall retains its identity but definitely beforehand it needs to be in the UK. You need the transfer of this entity from one person to another, so there has got to be a transfer of ownership or responsibility for running the business to another legal entity. And importantly, we are not talking here about share transfers so those are excluded from the scope of TUPE but what I would say is if you are advising on a transaction you need to be careful to look around the circumstances of the transaction and check that what is on the face of it a share deal does not have a hidden TUPE sitting behind it. There have been cases, for example, where there has been a share deal but the new parent of the subsidiary company has basically put their own people in, taken over day to day management and effectively that has triggered a TUPE transfer after or around the same time as the share sale. So just be careful to look a little bit beyond that and ask the rights questions.
Looking a bit more closely at retention of identity; what do we mean by that? How will a Tribunal approach it? What you need to do if you are looking at these situations is to think forward to how a Tribunal might look at this and try and do the same exercise yourself to determine whether you are in a business transfer situation. What case law tells us is that you will need to approach this on a multi factorial basis. You look at all the circumstances surrounding the situation and then you sort of step back from that picture, which might be slightly bewildering like the picture on the screen, and you try and work out if stepping back from it it feels and look like a business transfer. No single factor in isolation is going to be determinative. You have got to take then all into account and depending on the type of undertaking the weight that you might attach to each of those factors or criteria will vary. So, for example, if you are looking at a manufacturing business where there is a heavy reliance on hard wearing kit to actually produce whatever is being manufactured allied to some quite complex IP, for example, the products are built according to and if you do not have either of those things then that is going to make you think twice about whether it is a TUPE transfer because those sorts of things are fundamental to that manufacturing process.
Just finally on business transfer, looking at what those factors are; all of these factors need to be considered. What type of business or undertaking are you dealing with? What sort of tangible assets and intangible assets does that business need to do what it does? Have the majority of employees transferred over? If we are in a labour intensive undertaking, perhaps security services or cleaning, or something like that, where, actually the kit that is needed to do the job is really very minimal, if the majority of employees have not transferred over that may be a factor against it being a business transfer. But if the rationale for not taking the staff is to try and avoid TUPE, you might need to dig a little bit deeper and have a look at that because, while the case law is a little bit confused around that, there is case law that says a deliberate avoidance of taking the staff in a labour intensive undertaking to thwart TUPE will not have that desired effect and it will still be a TUPE transfer. You will need to look at customers, customer goodwill, have they transferred and then the similarity of what the business does before and after the transfer particularly if there has been a temporary break in the operation of the business perhaps, in a retail environment, a shop might have closed down for refurbishment and then it re-opens. That is not necessarily going to defeat a business transfer application. You will need to again look at it all in the round.
I am now going to hand over to Hannah who is going to talk about the second limb of Service Provision Change.
Hannah Swindle: Thank you Jane. The SPC under Regulation 3(1)(b) of TUPE can apply in three circumstances:
- Where you have got an outsourcing of activities from a client to a supplier, where the client stops providing activities on its own account and the supplier provides them for the client going forward;
- Where the client moves the services from one supplier to another and that is often known as the second generation outsourcing; and
- Where the client takes the activities back in-house or insourcing.
To determine whether you have an SPC in any set of circumstances, you have got to first identify the services or activities that are being carried out. Next, there has got to be a transfer of those activities and then, finally, the separate conditions set out in the TUPE regulations for a SPC have got to be satisfied.
If we look at these in more detail, first of all you have got to identify the activities involved and those are the activities that have to transfer. Under TUPE the activities do not have to be identical but they must be fundamentally the same before and after the transfer. The Tribunal is saying that the parties have got to take a common sense approach here when deciding this and to ignore minor differences. In essence they have got to take a straightforward and common sense approach when applying the words that are used in the statutory test, so the words in TUPE for a SPC, when applying those to the individual circumstances. The Tribunal confirmed that an SPC does not involve a multifactorial approach which is used in the business transfer test, as Jane mentioned. I have also mentioned that TUPE sets out some specific conditions for a SPC that have got to be satisfied. They are on the slide. You need to have an organised grouping of employees situated in Great Britain whose principal purpose is to carry out activities on behalf of the client. What does that mean?
Employees have got to be deliberately organised by their employer into a distinct group which is specifically dedicated to providing services for a particular client. It is not just enough if the employee happens to be in a group carrying out work for a particular customer by circumstance or accident. The group has also got to be in Great Britain but it is not important to forget about employees based overseas because you could still have an employee assigned to an organised grouping that you have based in Great Britain. Finally, you have got to check whether any of the exceptions set out in TUPE apply. If so, then there is not going to be an SPC. I will come onto those in a moment.
Is there any way of avoiding an SPC? All of the conditions that I have talked about have to be satisfied for there to be a SPC. So if any of them are not present then you will not have an SPC. This could happen where the activities are not fundamentally the same before and after the transfer or if the services become too fragmented or split up after the transfer. Also if there is no group of employees that is deliberately organised into a group with the specific aim of providing services to that particular client or if the activities or services are provided to a different client before and after the transfer.
Also, as I have already flagged, there are specific exceptions set out in TUPE which if they apply mean that there will not be an SPC.
We have got some examples of each of these ways of avoiding SPC from case law. The first involve circumstances where the service has changed in nature after the transfer. The Tribunal had to look closely at the services provided before and afterwards to see what they consisted of and here it decided that the services were not fundamentally the same. Where they had a supplier running a canteen providing a full catering service including hot food prepared on site before the transfer but afterwards the new provider only sold pre-packed sandwiches. The Tribunal said that here it was a wholly different operation and therefore it was not a transfer of employees.
Another example looking at whether there was a transfer of services involved a framework agreement. Under this agreement the customer, who was a council could call off certain services from the supplier. Under the terms of the agreement neither party was contractually bound to either give work or accept it but the Tribunal focussed on what actually happened to the services in practice. Here, in reality the client did give regular work to the contractor and the contractor always accepted it when it was given to it. The Tribunal decided that there was a transfer.
Where services transfer to two or more contractors the activities may get so split up or fragmented that is no longer possible to identify where they have actually gone. If that is the case they are not going to be fundamentally the same anymore and there will not be an SPC.
There are two cases with similar facts involving temporary accommodation for asylum seekers which illustrate this principle but they have both got different outcomes.
In the first, it was decided that the contractor who had taken up the majority of the activities should inherit all of the outgoing contractors' employees so therefore TUPE did apply here.
However, in the second, it was decided that there was no discernible pattern of allocation of the services to the three new service providers. The Employment Appeal Tribunal (EAT) said that the asylum seekers were randomly distributed from the existing contractor to the replacement contractors and that had happened on a gradual basis. Here they said the activities were too fragmented and TUPE did not apply.
Moving on now to looking at the organised grouping. To make up an organised grouping the employees must be organised deliberately by their employer into a distinct group and that group has got to have as its principal purpose the carrying out of services for a particular client or customer and that grouping has got to exist before the loss of the contract. It is not enough that a group of employees just happen in practice to work mostly for a particular client because of the particular shift patterns each employee works, for example. It is possible for a grouping to consist of just one person.
For a SPC, the activities must be provided for the same client before and after the transfer. If the identity of the client changes at the same time as the service provider there will not be a SPC. This is often relevant in property transactions. We frequently get a situation where a building is sold and the seller terminates its service contract, for example, for cleaning or security at the same time. On completion of the sale, the buyer appoints its own suppliers to provide services at the property. As the client of the services has changed there will not be a SPC or a transfer of employees for the replacement provider of services. It is important to still be careful here because, in some cases, there may still be a business or old style transfer which would mean that TUPE could still apply. You are not necessarily home and dry using this case.
Another related point is the need to work out the identity of the client in a SPC in actual fact. Where an outgoing service provider has subcontracted part of the services to a subcontractor the subcontractor's client could be either the contractor that it has entered into a contract with or it could be the ultimate customer of the services. There could also be more than one client in any particular situation. It is a question of fact for the Tribunal to decide and it is going to depend on how the services are actually structured and this could affect whether there is a SPC of any subcontractor employees where you have a situation when the services are taken back in-house by the ultimate customer and the customer terminates its original contract with the contractor.
I have mentioned that there are some exceptions or exemptions set out in TUPE detailing the circumstances where a SPC will not apply. For the first is where the client intends that the services are carried out by the transferee other than in connection with a single specific event or task of short term duration. TUPE is not intended to apply where a client buys in services on a one-off basis.
It has got to be both, so the single event has also got to be short term but what is considered short term in going to depend on the facts and the context of any particular case. It could be a few months but there has been one particular case where 12 months was considered to be short term enough for the exception to apply but it is all going to depend on the facts in any particular case.
Government guidance gives us an example where this would apply in practice and they use the provision of security services at the Olympic Games. For example, where the event organisers contract for security advice in the years leading up to the Games the exception will not apply because although it is a single event it is not short term. However, the guidance suggests that TUPE will not apply to the hire of security to protect athletes during the period of the Games itself. It is a one-off event and it is short term. The client has also got to intend the services to be short term and not just hope that they will be. For example, if the actual duration of the services is out of the client's control.
The second exception relates to the supply of goods. If the activity consists of the supply of goods then a SPC is not expected to apply and government guidance again gives an example for us. They have set out where they see this exemption applying.
If a client engages a contractor to supply sandwiches and drinks to its canteen every day for the client to sell on to its own staff, then they see the exclusion applying. However, if the contractor was engaged to actually run the canteen, then TUPE may apply. It appears that this would be quite an easy and obvious distinction to make but it can give rise to dispute and confusion in practice. I do advise that anyone looking to rely on it approaches it with caution.
Jane: Thanks Hannah. Before we go on to look at assignment we are just going to have a look at this case study about whether or not you are in a TUPE transfer situation. I am going to present you with some facts and then Siobhan is going to invite you, once we have done that, to take part in a poll as to whether you think TUPE applies or not.
The facts of this scenario are that the client is in the leisure and entertainment market and has commissioned a new project for developing a new state of the art development. It will be a leisure complex with a stadium, cinema, retail, food and drink outlets. Designing and building this development is going to be a five year project and it is critical that it is completed and ready to open on the planned opening day in five years' time. The project management for the development, including that design and build element, was originally outsourced to a company called First Construction Limited which has assigned a team of surveyors, architects, engineers, project managers etc. to the project and they have some other employees who help out that project team on an as and when basis.
Initially the project went well and First Construction Limited were doing a good job but three years into the project, unfortunately the client is not happy with them and they have fallen behind on key aspects of the project. This has led the client to terminate the contract with First Construction Limited and to appoint a new contractor, Second Construction Limited, with a contract to complete the project.
This new contract for Second Construction is going to be for the remaining 22 months of that five year project and they are responsible for it now until completion and opening of the development. Given the fact that we are now in the second phase of the contract the contract specs for Second Construction Limited is more closely related to implementing the final works completion and the associated project management tasks, rather than the design and the planning for the redeveloped site which were part of the original spec. This means some of the services provided by Second Construction will change and it is likely that the skills mix of the people who they need to work on the project will also reflect that change in services and some may need to be flexible and work on a number of projects as required.
So Siobhan, the poll.
Siobhan: Thank you Jane.
Based on the scenario that Jane has outlined we are inviting you to take part in the poll which should be flashing up on your screen now and we are asking you to decide whether you think TUPE will apply in terms of there being a transfer from the First Construction Limited to the Second Construction Limited company. Answer A: Yes, B: No or C: Do not know.
And just a reminder that there is the opportunity now to ask question and indeed at any time throughout the Webinar. We will be coming onto Assignment following this poll, so if you have any burning questions about whether or not there is a TUPE transfer, maybe you want to ask those now.
Just a few more seconds for the clicks to come through. People are still voting actually, I will give you a couple more seconds. Right, we will push the results out now for you to see on your screen.
We have a clear majority of over 50% saying no (53%). They do not think will be a TUPE transfer. We have seen a very decisive bunch; we have a very small minority, only 6%, saying that they do not know and the rest, 41%, saying yes, it is a TUPE transfer. So Jane, what are your thoughts on that?
Jane: Well, to start with, you need to be, hopefully, in that analysis thinking about both tests under business transfer and the SPC.
Let us look at the SPC first. You have to think about all those elements that Hannah talked about. Have you got, immediately before the transfer, an organised grouping of employees in Great Britain? We know that First Construction Limited had assigned a project team to the contract and we know they were situated in Great Britain so those two elements are probably ticked. I would be focussing more on what is the principal purpose of that organised grouping and does the client intend that it will be followed through after the transfer and are the activities fundamentally the same? You need to be looking at things like what do the two contracts say? So, we know that Second Construction Limited's contract is likely to be more limited because the design phase and the planning phase of this project have been done. So, they are sort of picking up half way thought and the contract spec is reflecting that. That is relevant but, as Hannah said earlier, it is not just what the contract says. You also need to look at what is being done on the ground. Actually, is there stuff that is being done that is outside the contract and, where you have got a longer term project like this, you need to bear in mind that under the original contract it was always probably envisaged that the activities would change during the course of the project as different phases were completed and new phases moved into. The fact that Second Construction Limited are picking up part way through the contract and are necessarily not doing some of the work that has already been completed does not mean that the different spec will not constitute a SPC. It could be a partial transfer of the activities, for example, that is still allowed under a SPC, and it is not just relevant to the business transfer.
Looking at it from a business transfer perspective, as I mentioned earlier, you have got to be looking for an organised grouping of resources that constitute that economic entity that we talked about. Responsibility for that economic entity has got to transfer and it has got to retain its identity before and after the transfer. So, have you got a sufficiently structured, stable entity here before and afterwards? Again, we will be looking at what kind of business are we talking about, what kind of undertaking, what assets are transferring and on something like this clearly the employees are key. It is not a manufacturing environment, so we are not talking about a lot of hardware or kit, but there may be things like project plans and design specs and all of that which the Second Construction Limited will need in order to be able to deliver on this work and that may well have transferred over. Have the employees been taken on is another aspect. If not, why not? Is there a deliberate attempt to avoid TUPE, in which case that may count against TUPE not applying. And clearly in this scenario the customer is the same, so the customer has been taken on and then again we come back this what is the difference in activities that First Construction and Second Construction were doing and the fact that Second Construction have only picked up part of the activities is not necessarily going to defeat TUPE because it could be transfer of part of an undertaking.
In terms of exemptions, obviously this is only relevant to the SPC change aspect. Hannah talked about where there is a task of short-term duration, the fact that 22 months is still left to run on this contract is worth having a think about but, I would say, that is still nearly two fifths of the overall project and so I would not be looking at too closely. And of the two types of transfer, I would be looking more closely at the SPC. You need some more information to be absolutely sure so I would say the small percentage of people in the "do not know" category would probably make the right call on what we had but I suspect if you explored it more deeply you would end up finding that it was a SPC.
Siobhan: Great, thank you so much Jane.
So we are now going to move over the Hannah Swindle who will concentrate on the question of who is assigned to a transfer which is one of the most common queries we see in practice and also why that is such an important issue.
Hannah: Thanks Siobhan.
TUPE applies to employees or workers who are assigned to the undertaking of organised grouping of employees. As Siobhan said, working out who is assigned is important. The parties need to know who is going to transfer. For the transferor, or outgoing employer, it needs to know what its workforce is going to like post transfer and who it is going to be left with. Will it have enough employees to run its retained functions or does it need to back fill these functions, or move employees from other parts of its organisation into these areas after the transfer. It may need to move employees around before the transfer to make sure it stops essential employees from transferring. Alternatively, the outgoing employer may end up with over capacity if contract for services have transferred but the employees who worked on them have not. Therefore, it may need to make redundancies which, of course, will have cost consequences. The practical issues facing a transferee, or incoming employer, are similar. They also need to know who they are going to have to run the services from day one after the transfer. If they have got too many people there are going to be cost consequences and they will need to make redundancies. The transferee may also need particular staff with specific skills or knowledge in order the run the services effectively from day one. They have got to ensure that they give the client a smooth transfer and if they do not have these people they may need to recruit in good time before the transfer to get the necessary people in place. Any changes that the incoming employer wants to make to the transferring workforce after the transfer will be a measure. The incoming employer has got to provide details of all measures to the outgoing employer so that they can inform and consult with employee representatives. A failure to do so carries a hefty penalty. It is 13 weeks' pay if it is not done and it is likely the incoming employer will have to bear its share of any award made and especially if any failure to comply was down to the fact that it had not notified about measures.
How do you determine who is going to be assigned? It may be obvious, for example, because all of an employee's work is for a particular service which is transferring but it is more difficult where an employee works on a number of different contracts or for different clients. Often, as a rough rule of thumb, we'll look at a percentage of time an employee spends on particular activities as a starting point but there is no magic number or threshold set out in the TUPE regulations after which employees become assigned. Assignment is a question of fact in any situation so you need to look at lots of different factors, not just time spent.
So, what is important? You need to look at the nature of the work that the employee does and how their duties are described in their contract of employment. What could they be required to do under the terms of their contract? Can the employer require them to work for other customers? You also need to look at what the employee does on the ground. What are their responsibilities in actual fact? Again, despite what it may say in their contracts, it might also be relevant to look at how each employee is charged out. Are their salary costs allocated to any particular contract or client, for example, and what is the value of their activities?
Case law has decided that you need to look at the activities that each employee carries out immediately before the transfer to work out if they are assigned. Even where activities have only changed fairly recently because other contracts have been terminated and the employee has ended up being dedicated to a particular contract as a result. The question of assignment can be quite complicated to work out and it can lead to dispute between the parties. Therefore, ultimately, whether someone is assigned could be a question for the Tribunal to decide and they will decide that looking at the facts and in the particular case.
Looking at some principles that have come from case law.
The Tribunal decided that a project manager who spent 67% of his time on a contract for a particular client was not assigned for the organised grouping of employees which transferred to a new contractor. As a project manager, he also worked on other projects for other clients. The EAT said here that it was important to identify, first, the organised grouping of employees and then who was assigned to it. It is also said that you cannot place too much focus on the time spent. That was quite surprising seeing as he spent the majority of his time on that contract.
In a case involving a contract for repair and maintenance work for a council the EAT emphasised that it was not automatic that if there was an organised grouping then assignment automatically followed. These questions were separate. They reminded us that you must look at the facts closely to work out when an employee is assigned including considering what the employees could be called upon to do under their contracts of employment as well as those that they were actually doing at a particular moment in time.
It was also important how the outgoing contractor structured its workforce. They looked at the question of what would have happened if there was more than one client. Here they thought it was just a question of happenstance or accident that there was only one customer so all of the employees had ended up working for it. However they could have been required to work for other customers had the contractor had any.
So, what practical tips can we give you?
Firstly, employees will not be assigned if they are attached to the services or undertaking on a purely temporary basis. This will exclude employees on secondment who are only working in the undertaking or services on a short term basis. But it is also important not to forget employees who are on secondment elsewhere in the business who may still transfer. Then, as we have said, only use time as an initial test only. It is only one of a number of factors that need to be looked at, although it is useful as a rough guide, we are looking initially at who may be in scope.
What factor is more important and should be given a higher weighting will vary depending on the particular circumstances of each case. For example, depending on how contracts are structured and how the contractor's workforce is organised. There are some grey areas where you need to be more cautious when working out who is assigned and spend more time here looking at the tests and individual factors.
It is more difficult to determine who is assigned where an employee works on a number of different contracts or for different clients, such as project managers or area and regional managers. These employees have responsibilities which mean they are not necessarily dedicated to any particular contract or part of the business. Even if at a particular point they are spending the majority of their time on a certain service area or service contract.
An organisation will often also have central support or head office functions that provide services such as HR or IT for all parts of the business. If one division or business is sold, staff working on shared services need to be looked at carefully to see if they are in fact dedicated to any particular part of the business or if they work equally across the whole business.
Jane: Thank you Hannah for that explanation of how assignment works.
We are now going to look at three case studies to illustrate how you apply these principles in practice and after each one we are going to invite you to take part in a poll to say whether you think the individual in question is assigned or not.
So, the scenario is that a provider has won a contract to provide IT services to a client and it is a second generation outsourcing so there is an incumbent provider, if you like, who has just lost the contract. When you consider this I want you to assume that there is an SPC. We have got an organised grouping of employees and all the other boxes are ticked, so the only issue we are looking at is whether each of these individuals is assigned to that organised grouping.
Looking at the first one. This is the IT Manager. She spends the majority of her time on the work that is transferring but the slight catch with her situation is that she is actually employed by a different group company from the entity that is actually delivering the services and employs all the other employees in the organised grouping. So Siobhan; the poll.
Siobhan: Thank you Jane.
Your poll should be flashing up on your screen and in this case we are asking you to make an absolute decision with only two options. Either yes, you believe she is assigned or no, she is not. If you are not sure in this case, you can choose the answer which you think it is most likely to be. Whilst you having a quick think I will just remind you again, there is still some time to ask questions. At the end of these three scenarios we are doing with a poll there will be time for questions.
We will push the results out now. OK, we have the majority here, well over 60% believing that this individual is assigned and the rest obviously saying no. Jane what are your thoughts?
Jane: This scenario is based on a real case, particularly the bit about the non-contractual employer. Clearly the amount of time this IT manager spends on the services is going to be a red flag to look at her more closely, although as Hannah has emphasised a number of times, timing, of itself, is not determinative. Assuming that when you look beyond time, the nature of the work that she does is all on this contract that she does not really have any responsibilities to other parts of the business, any other work she does is incidental, her costs are allocated to this contract, for example, so you do have that factual connection to the work that is being transferred. Assuming all of those things point in that direction, which they did in the case that this comes from, the real question is; does the fact that she is employed by a different group company, does that prevent her from being assigned to the organised grouping.
We have now got a couple of cases, one domestic and one European case, that indicate that, no, that is not a blocker to her being assigned. So it is possible for a non-contractual employer, if you like, for somebody to be employed by that different employer and still be assigned to the organised grouping. As long as they are permanently assigned they can transfer over and that is what happened in this case. Yes, she was assigned.
Let's look at the second scenario.
This person is clearly not the most enthusiastic or diligent employee, as you can see from the photo. The client had come to that conclusion as well and was not happy with this person being on their contract so they asked the incumbent provider to remove her from the services. It is very common, as I am sure you will know, for that contractual right to be built in for clients to say, "We want you to replace this person on the contract". They had exercised that right. The incumbent provider had suspended her, done a disciplinary investigation and given her a written warning but they had not reassigned her to a different contract. From the new provider's perspective do you think they are going to inherit this person or not?
Siobhan: Thank you Jane and again the poll is coming up with just the option of yes or no. Yes, she is assigned or no, she is not. If you click on those answers, do not be afraid because it is a real case but we are here to look at the principles as much as the correct answer. I will just give you a few more seconds to get your clicks coming through. I think these scenarios also indicate just how difficult it is to deal with assignment in a general way and it is very often the situation that you need to look at the actual circumstances in a particular case. There are a few more votes coming in now. We will push the results out for you to see what the audience think. We are even more decisive on this one that the employee is assigned with approaching 80% of you thinking that. Jane?
Jane: That is very good, that is absolutely right in this case. In this case, it was about a council and they had retained as we said this contractual right to say we want this person removed from the services, they exercised right but the original contractor, even though it meant it was in breach of its contract with the council, although they disciplined this lady they did not actually remove her from the contract by the time of the TUPE transfer. Unfortunately for the incoming employer and also for the client who did not actually want to run the contract she was assigned and could transfer over.
What the Tribunal were saying that although the contract deals with this scenario, only the contractor who is the employer at the time could actually remove her from the services and because they did not take that step she was still assigned to the services and so the transferee inherited her.
There is another case with very similar facts which went the other way but it went the other way because in that situation the contractor had actually carried out the client's instructions and removed the person in question from the activities and re-deployed them. As Siobhan just mentioned while we were looking at the poll, drilling down into the facts of exactly what is going on is going to be really important but the principle here is only the contractor who is the employer can remove somebody even if they have disciplined them and are in breach of contract.
The final scenario; this chap was working full-time on the services until he went on sick leave a few years ago. Unfortunately, he has never been well enough to come back to work. He has been benefitting Permanent Health Insurance/Income Protection benefit (PHI). His managers have taken the view that he is never going to actually be able to come back to work, so they have not dismissed him because they did not want to breach his contractual right to receive the PHI, so they have effectively kept him on the books purely so he can continue to draw on the PHI policy but they had taken a decision internally that he is never going to be able to come back to work.
Siobhan: OK, so for one last time we are asking you choose whether or not you believe this individual was assigned or was not assigned, based on the scenario that Jane has outlined. We will just give you a few seconds because we do not want to delay too long the questions which are coming up straight after this poll. Of course those of you who may have come across this case will be at an advantage compared to those who have not because, again, this is based on a real case.
We will reveal the results which show again a majority of 56% believe that this individual is assigned with the rest saying, no. So Jane, what happened?
Jane: OK, in this case the EAT looked at it and said that actually given that this individual had no prospects of returning to work and was simply on the books, if you like, in a sort of holding tank so that his PHI benefit was not impacted, he was not assigned. They said there has got to be more than just an administrative or historical connection with the work. There is either got to be some active participation by the individual in the activities in question or at least some expectation that in the future the individual will be able to participate again in the activities that are transferring and in this case the medical evidence that the managers had based their decision on was that there was no expectation that he would ever come back. He was effectively permanently on PHI. This case is not saying that any employee on PHI or on long term sick without the benefit of that type of insurance is never going to transfer but what it is doing is saying you need, again to dig deeper into the facts of the case and if there has been a decision that this person is never coming back then there cannot be any active participation and there cannot be an expectation that they will come back and so they are not assigned.
If they are on long term sick because they have had an operation and there is every expectation that they will recover in due course, then they may be assigned. So again, the principle is really you have got to dig into the facts and understand what is going on to really make the call.
If you said no here, you were right and if you said yes, have a bit of a think about that if you come across PHI in practice.
Siobhan: Thank you very much to both Jane and Hannah and thank you also to the audience who have been sending in their questions. We have got time to look at some of those now so Jane would you like to pick up one of the questions that has come on?
Jane: There is one here that says; how do you deal with TUPE when the services are going abroad? Yes, that is something that I sort of mentioned right at the start that in a business transfer situation then you have got to have the undertaking in the UK before the transfer and if it is a SPC the organised grouping of employees has got to be in Great Britain but where it ends up afterwards is unspecified under TUPE under both definitions. We have got fairly limited case law on this actually but what we do have says that TUPE may still apply. You have to look at all the elements of the two tests and the fact that the undertaking or the service ends up abroad after the transfer does not automatically preclude TUPE from applying. Of course, if the transfer results in the undertaking being in another EU country, then there may a TUPE equivalent that you need to take account of as well but if it is going abroad to somewhere, such as the Philippines or India or an offshoring type of situation, then it can still apply and often the question is how do you actually deal with that in practice? Sometimes you get the odd employee who wants to transfer. Most of the time you are going with a majority of people who want to stay in the UK or Great Britain. There has been a recent case Xerox –v- Zeb which looked at if somebody wants to transfer, what terms and conditions do you have to offer them? Mr Zeb, in this case, was trying to argue that he could transfer under his TUPE rights but transfer on his UK terms and conditions, in the Philippines, which would mean that he was going to earn something like ten times more than the local hires and the company said, no, if you want to go across you have got onto local hire terms, otherwise that defeats quite a large part of the object of doing this exercise. The EAT, when they looked at this, they actually agreed with the company and said, yes, he has got the right to transfer but he has not got the right to vary his contract unilaterally, to vary his place of work and the terms that apply. They said it does not mean that somebody who moves abroad must retain UK pay rates because while TUPE applies, so do normal redundancy principles. And so the employer could say, well, this is the alternative employment that is available and it is on the local terms and conditions. So, TUPE can apply where you have got relocation but often there will be redundancy considerations as well which may be the larger concern in terms of how you deal with individuals on the ground.
Siobhan: Thanks Jane. Hannah are there any questions there that spring out to you to be either repeated a number of times or of particular relevance at the moment?
Hannah: Thanks Siobhan, there is one here, this is an interesting one. The question is what is the best way to deal with a situation where someone claims that they should transfer but you do not want them to? I suppose looking at that that could apply equally to both the incoming and the outgoing employers.
There is a technical answer to this but I think in any situation you are going to have to also think about the commercial and employee relations issues as well. Legally you can apply the analysis, see whether someone is assigned according to the test. You can take a view to see whether an individual is in scope to transfer or not but then I think taking a step back, you are also going to have to consider whether the transferee wants this person to transfer. They may have identified that the individual has got key skills which are needed for a successful transfer but then if the transferor, the outgoing employer wants them to stay, then you need look at why they want them to. If they do want them to stay, then there are steps that the outgoing employer can take to keep the employee, for example, you can re-assign them onto other duties on different contracts but that could be open to challenge depending on the reason and the timing of the reassignment. I think overall what is really key is engaging with the employee here. If you are the outgoing employee and you want them to stay then you need to be very on the ball, talk to them to see why they to want to transfer and see if they can be persuaded to stay. If they do want to stay but they are at risk of transferring then again there are steps that you can take to avoid that outcome and avoid that if it is in the interest of both parties.
Siobhan: Thank you very much Hannah and thank you to everyone for joining us today. I am afraid that is all we have time for but do remember you can get the slides from the slide tab on your screen. Thank you also for taking part in the polls. I hope you found those interesting and if you do have a moment please complete the feedback form and that will help us see if this approach worked for you and also let us know any particular topics you would like to cover in the future.
Finally, if there is anything you want to go over on today's Webinar the recording and the transcript will be available shortly and we will let you know when they are or do please contact Jane and Hannah in the meantime.
Many thanks to everyone and thank you for taking the time to join us today.
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