Imagine a scenario where one employee spends 100% of his time working for one client. That client takes its services back in house. Does the employee transfer to the client under TUPE?

The instinctive answer might be yes – but that will not always be right. A recent decision of the Scottish Court of Session demonstrates that it is always important to go back to the wording of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) and, specifically, always consider whether there is “organised grouping of employees […] which has as its principal purpose the carrying out of the activities concerned […]” (regulation 3(a) TUPE).

The facts

Ceva Freight (UK) Limited (“Ceva”) provided logistics and freight services to a number of clients including Seawell Limited (“Seawell”), who operated drilling platforms in the North Sea.

There were two types of operations undertaken by Ceva: ‘inbound’ services, which involved Ceva taking delivery of and storing goods purchased by Seawell; and ‘outbound’ services which involved the delivery of those goods to Seawell’s oil-drilling platforms.

Mr Moffat’s working time was almost wholly devoted to the Seawell contract, and in particular mainly to the ‘outbound’ work. Four other colleagues also undertook work for Seawell, devoting between 10% and 30% of their time to that contract.

At the end of 2009, Seawell took the services back in-house and, as is often the case in such situations, a dispute ensued about whether Mr Moffat should transfer with the services. With neither company taking responsibility for Mr Moffat’s employment post-transfer, his employment terminated and he brought a claim against both companies in the Employment Tribunal.

The Employment Tribunal found that Mr Moffat’s employment should have transferred under TUPE, but the Employment Appeal Tribunal (“EAT”) disagreed, and said it was Ceva who had responsibility for Mr Moffat’s employment.

And so we arrive at the Court of Session decision, out last week, which agreed with the EAT – Mr Moffat’s employment did not transfer.

The two opposing decisions

There was clearly a service provision change, in that the services were the same before and after transfer. The question was whether this service provision change constituted a ‘relevant transfer’ within the meaning of TUPE.

In order for this to be the case, there needed to be an “organised grouping of employees […] which has as its principal purpose the carrying out of the activities concerned […]”.

The Employment Tribunal found that Mr Moffat alone was that ‘organised grouping’: given that regulation 2(1) of TUPE expressly includes a single employee within the definition of an ‘organised grouping’, the Tribunal said it was only necessary to identify whether there was an individual whose principal purpose it was to carry out the activities. There was – Mr Moffat. He was in charge of the activities required for the Seawell account – it was not necessary, said the Tribunal, (and indeed would be erroneous) to include within the grouping any employee who may have been merely assisting.

The EAT, on the other hand, noted the fact (as found by the Tribunal) that the only deliberate grouping of employees by Ceva was the separation of workers into ‘inbound’ and ‘outbound’ teams. Mr Moffat was in the outbound team. It was clear that the Seawell contract was not the ‘principal purpose’ of that team – employees within the grouping did other outbound work for other clients, and only spent a minimal amount of time on the Seawell contract. Given there was no other grouping of employees which could be said to have the principal purpose of carrying out the Seawell contract, Mr Moffat’s employment did not transfer – Ceva was responsible.

Court of Session agrees with the EAT

The Court of Session’s reasons demonstrate that such a case should be looked at in distinct stages:

Firstly, the appropriate starting point is to consider the scope of the ‘activities concerned’ – i.e. what services were being provided by the contractor and then taken in-house by the client?

Here, this was both the inbound and outbound operations – they must be treated as a whole.

The second stage is to look at how the contractor carried out all these activities – how were the employees organised?

Here, the only conscious grouping (and it had to be conscious, according to the judgment of Eddie Stobart Ltd v Moreman) was in relation to work being ‘inbound’ or ‘outbound’. There was no grouping made based on the identity of the client.

Further, the ensemble of activities for Seawell (i.e. the inbound and the outbound operations) were carried out not just by Mr Moffat, but by the other employees as well – it was a ‘collaborative effort’. The Court of Session held that it was not legitimate to simply isolate one of those employees on the basis that he devoted all his working time to assisting this collaborative effort, and simply say that he alone is the ‘organised grouping’ with the principal purpose of carrying out the activities concerned. This is what the Tribunal had done, and this was the wrong approach.

Therefore, held the Court, there was no grouping of employees whose principal purpose was the carrying out of Seawell activities. Mr Moffat’s employment did not transfer, and his old employer would be liable for his dismissal.

Practical points to take away

Many employers will assume that an employee who spends 100% of his time on one contract must surely transfer.

Whilst this will sometimes be the case (imagine, for example, an advertising executive who has been employed specifically to only work for one client, and who is the only member of his firm working for that client), it is not because he spends 100% of his time on those activities, but rather because, genuinely following the wording of TUPE and the approach set out by the Court of Session, he does in fact constitute (alone) an “organised grouping of employees […] which has as its principal purpose the carrying out of the activities concerned […]”. As soon as there are other employees doing work for that client, it is unlikely that the ‘grouping’ will consist solely of that employee. It will then depend on the facts whether there is any grouping at all which has the ‘principal purpose’ of working for that client – if not, the employee will not transfer following a service provision change.

Employers who are concerned about losing key personnel following a service provision change should consider whether they can organise their workforce such that:

  1. the employee in question is not the only person doing work for a particular client,
  2. the employee is employed to do work for other clients, and
  3. the employees are not organised by reference to the client.

The inverse applies of course if there is a concern about being left with employees an employer cannot afford to keep after transfer. Employers should not rely on the fact that the employee only works for one client – that employee may still not transfer when that client takes his business away.