The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) widened the protection given to employees when a business activity changes hands by introducing a distinct ‘service provision change’ definition of a transfer to better deal with outsourcing situations.

There may be a 'service provision change' TUPE transfer where services are either:

  • contracted out from a client to a contractor; or
  • taken back in house by a client from a contractor; or
  • moved from one contractor to an alternative contractor.

In order for TUPE to apply in either of these scenarios, there must exist an organised grouping of employees immediately before the change in service provider which has as its principal purpose the carrying out of the services and the client must intend that those activities will, following the change, continue to be carried out for more than a single specific event or a task of short-term duration.  

We are now seeing the first significant reported cases addressing the scope and application of these provisions.

Earlier this year, the Employment Tribunal found in the case of Royden and others v Barnetts Solicitors that employees of a law firm, who spent the majority of their time on work for or referred by a particular client, transferred to another law firm that had taken over the work for the client.

However, in the case of Royden, only two solicitors transferred as the work in question was their main area of work and any other work which they carried out was considered to be “relatively peripheral.” Four other solicitors who also undertook some of the relevant work did not transfer, as they were not considered to have spent sufficient time on the work in question for them to be considered as being assigned to the work; i.e. it was not their principal purpose. Whilst this case shows that it is possible for employees engaged in professional services to fall within the scope of TUPE where work is re-tendered, in practice, if the work for a particular client is distributed between several individuals such that no individual has that client’s work as their principal purpose, the likelihood of TUPE applying is greatly reduced.

In Metropolitan Resources Limited v Churchill Dulwich Ltd and Others,the Employment Appeal Tribunal considered a case involving Migrant Helpline, who had a contract with the Home Office to provide accommodation for asylum seekers. Migrant Helpline contracted this service out to CD Limited who provided beds to asylum seekers in East Dulwich for periods varying between one or two nights and four weeks. Before this contract expired Migrant Helpline entered into a replacement contract with MRL. This contract was almost identical except that beds were to be provided for one or two nights only and at a different location in Croydon.

From 26 January 2007, no new asylum seekers were sent to East Dulwich and were instead diverted to Croydon. However, some asylum seekers remained at East Dulwich for a further period of time as they could not be moved due to ill health. Ten members of CD Limited remained working at East Dulwich until the CD Ltd contract expired on 31 March 2007. They then claimed that their contracts of employment had transferred to MRL by virtue of the service provision change.

The Employment Appeal Tribunal (“EAT”) upheld the finding of the Employment Tribunal that the ten CD Ltd employees had transferred to MRL under TUPE. The EAT held that the question it had to consider was whether, as a matter of fact, the service provided after the change was ‘fundamentally or essentially the same’ as that provided before and, in answering that question, a ‘commonsense and pragmatic approach’ was required. The EAT found that the only differences between the services provided by CD Ltd and MRL were the intention to provide beds for a shorter period of time and the change of location from East Dulwich to Croydon and that otherwise the contracts, and the services provided, were virtually identical.

In this case the EAT held that the transfer to MRL had taken place on 26 January 2007 when asylum seekers were sent there instead of to CD Ltd’s premises in East Dulwich. The EAT did not consider it problematic that the transfer did not take place entirely on one day; 26 January 2007 was when “the core activities diverted to MRL from CD.”

Clients should always bear in mind when tendering for new work that, if successful, they may acquire employees from the previous service provider. Similarly, clients should be aware that, where issues with the performance of a contractor leads to the appointment of a replacement contractor, it is possible that the same individuals will end up carrying out that work; good performance management of existing contractors, and robust terms of service provision, is therefore essential.