A recent EAT judgment has widened the circumstances in which a service provision change under TUPE (SPC) may arise.
Ottimo Property Services Ltd v Duncan concerned a large property estate comprising up to 12 residential blocks. Each of those blocks had a separate residents’ management company with a separate legal identity. Each of the blocks had individual management contracts; five of them were with the property management company (Ottimo) and there was one employee, Mr Duncan, who worked across these five contracts.
The contracts that Ottimo managed were acquired by Warwick Ltd. Warwick Ltd considered that TUPE did not apply as there was no SPC, on the basis of Hunter v McCarrick, and so they did not employ Mr Duncan. Mr Duncan considered that he had transferred under TUPE and brought an Employment Tribunal (ET) claim against Warwick Ltd.
The ET held that there was no SPC because on a literal interpretation of Regulation 3(1)(b) TUPE the references throughout were to “a client” and “the client”: in other words this was singular and so it was not permissible for a number of contracts with different clients to be added together to make one overall SPC.
The EAT decided that there was no reason in principle why “the client” must be a single legal entity. The SPC could involve a contract for the provision of services between a contractor and a group of persons who are collectively defined as “the client” under that contract.
However, the identity of the client or clients must remain the same before and after the SPC but might involve more than one legal entity provided that it is still possible to discern the intention of the client – this is a pre-condition for a SPC under Reg 3(3)(a)(ii) TUPE. The EAT stated that the common intention of the clients would be easier to discern if they had all entered into one umbrella contract but the absence of one single contract would not necessarily be fatal to the finding of a sufficient link between the clients so as to allow the identification of intention for those purposes.
The matter was remitted back to the ET to determine whether such a link and intention was present.
This decision is of particular importance for facilities maintenance arrangements and it was suggested in the case that such multiple contracting was common in the context of residential estates where separate residents’ management companies are utilised. The principle and the expanded interpretation is also likely to be relevant within Group structures where a Master Services Agreement is supported by individual FM contracts for individual group companies.
The case did not look at what would happen if four of the five management companies had been transferred but one had not. The decision states that the client or clients “have to retain their identity before and after the SPC”. The risk for incoming service providers may therefore be that in relation to appointments to assume multiple linked contracts TUPE may be asserted to apply even if some of the entities which constitute the clients elect to use a different provider. The EAT also acknowledged that in practice it may be very difficult to determine which employees are assigned to the SPC in question. Therefore, an outgoing provider will not be able inevitably to assume that staff will transfer under TUPE in such circumstances and still needs to consider the allocation/pricing of the risk of redundancy payments. Customers will need to be alive to this and the case reinforces that cost and risk allocation as regards the application of TUPE should be explicitly dealt with in the contract at the outset.