The Employment Appeal Tribunal (EAT) has recently considered the requirement for the client to remain the same on a service provision change under TUPE.
The legal framework
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect the employment of staff not only where one business is purchased by another, but also where there is a service provision change.
Under TUPE, a service provision change occurs where an employer:
- outsources a particular activity e.g. payroll or HR;
- transfers an outsourced activity from one provider to another; or
- brings a particular activity back in-house (in-sourcing).
A crucial feature of a service provision change is that there must be a client: a legal entity for whom the relevant services are provided.
The recent case of CT Plus (Yorkshire) CIC v Stagecoach concerned a park and ride bus service operated by the contractor (CT Plus) under a contract with Hull City Council (the Council). The service it provided was subsidised by the Council.
Stagecoach set up its own commercial operation running buses on the same route but without subsidy from the Council. As a result, the Council cancelled its contract with CT Plus on the day Stagecoach started to provide its own service.
CT Plus argued that Stagecoach had taken over the service it provided and that there had been a service provision change for the purposes of TUPE. It argued that its relevant employees and all liabilities associated with them should consequently have transferred to Stagecoach from the time it started running the bus service.
An employment tribunal ruled that there had been no service provision change, taking into account the following facts:
- Stagecoach did not take over anything directly from CT Plus, it provided its own buses.
- There was no contract between the Council and Stagecoach
- Stagecoach did not receive a subsidy from the council.
- Stagecoach reduced the service from 10-minute intervals to 15-minute intervals outside peak periods.
- Stagecoach recruited its own team of drivers, mainly by internal transfer.
The EAT agreed with the employment tribunal's original decision that there had been no service provision change in this case. It found that Stagecoach was providing the bus service as an independent commercial venture unconnected with Hull City Council. As Stagecoach were not providing the service on behalf of Hull City Council, there was no client transferring the outsourced activity (the provision of a park and ride bus service) from one provider to another; TUPE therefore did not apply.
This case demonstrates that it is always worth doing a proper legal analysis of a situation rather than just assuming TUPE applies because the services look similar. For TUPE to apply, the transferring activity must continue to be provided on behalf of the same client. The EAT pointed out in this case that while a lay person might understand client to mean the beneficiary or end-user of a service (in this case, the passengers on the bus service) that is not the correct meaning for the purposes of TUPE. The original client in this case was the Council but they were not the client of Stagecoach.
Businesses which find themselves faced with a potential service provision change should take steps to establish the details of the new provider and the nature of the service it intends to provide as soon as possible in order establish whether or not TUPE applies. Providers of outsourced services should incorporate provisions into their service contracts which require the provision of such information on a in the event their client decides to outsource to an alternative provider.