The EAT has held that TUPE did not apply where a company entered into administration and work previously done by an employee of the company transferred to the administrators' advisers. The EAT also gave useful guidance as to the scope of the carve-out to TUPE where the activity transferred is "short-term" or project-based.
Under the Transfer of Undertakings (Protection of Employment) Regulations 2006, TUPE applies on a "service provision change" (Reg 3(3)(1)(b), TUPE). A service provision change takes place where relevant activities carried on by, or for, a client, are either taken back in-house by the client, or passed on to another service provider. TUPE will not apply, however, where either the activities relate to the supply of goods rather than services, or where the activities relate to a "single specific event or task of short term duration".
In SNR Denton v Kirwan the EAT considered whether a service provision change took place in the context of an administration. In particular, did the activities and client remain the same where carried out on instructions from the administrator rather than directly for the benefit of the company? Although it did not form part of its decision, the EAT also looked at what constitutes a "single specific event or task of short term duration", avoiding the application of TUPE.
SNR Denton UK LLP v Kirwan
Jarvis Accommodation Services Ltd ("JAS") went into administration. The administrators instructed a law firm, SNR Denton UK LLP ("Dentons"), to provide legal advice. Their advice included work previously done by JAS's Legal Director, Ms Kirwan, who had been made redundant shortly before the administrators were appointed. Ms Kirwan brought a claim that her employment had transferred to Dentons by way of a service provision change. The Tribunal found in her favour, and Dentons appealed to the EAT.
The key issues for the EAT were as follows:
- Were the activities carried out by Dentons the same as those carried out by Ms Kirwan for JAS?
The EAT held that during the last four years of her employment, the bulk of Ms Kirwan's work related to selling off facilities management contracts, and that these activities were taken on by Dentons. The purpose of the work was only relevant where this "shaped" the nature of the services. Here, although the ultimate purpose of the work differed, (Dentons acting for the administrators whose primary duty was to creditors, Ms Kirwan working directly for the benefit of JAS), the nature of the work was fundamentally the same. This part of the service provision change test was therefore satisfied.
- Were the activities carried out for the same client?
The Tribunal had found that because the administrators were acting as agents for JAS, the result was that Dentons' client was in effect JAS. The EAT disagreed, holding that while Dentons may in some of their tasks have been acting directly on behalf of JAS as their client, this could not be the case across the board. The administrators' primary duty was to JAS' creditors, and so Dentons would have a conflict of interest if they were also in all respects seen as acting on behalf of JAS. The correct approach was to assess each contract entered into by the administrators separately. In respect of Dentons' appointment, their proper clients were the administrators rather than JAS. As such, the activities carried on by Ms Kirwan were for JAS, and by Dentons for the administrators. They were not carried on for the same client, and TUPE did not therefore apply.
- Did the “single specific event or task of short-term duration” exception apply, so that the service provision change rules were not triggered?
The point did not form part of the EAT's decision, as it had already decided there was no TUPE transfer based on the change of client. However, the President of the EAT gave guidance as to how the question should be approached. Firstly, in his view the exception would only apply if the work was short term - that was the case for both the "single specific event" and "task" exceptions. Secondly, and most importantly, the key is the parties' intention at the time the arrangement is entered into (and without the benefit of hindsight). This should be assessed from the employee's viewpoint, and taking into account the wider context. Factors to take into account might include the overall length of the employment relationship, and the particular relationship between the parties. This will almost always be a question for the Tribunal, ("a finding of fact and degree is unlikely ever to be wrong"), and so will be difficult ever to appeal.
It is now clear that a service provision change will only take place where services are provided to the same client before and after the change of provider, (confirmed this week by the Court of Appeal in McCarrick -v- Hunter).
The EAT in the Dentons case has however left administrators in an uncertain position, needing to assess each activity carried out by the company separately. Where the activity is being carried out on behalf of the administrators rather than the company, TUPE will not apply, but where the activity is essentially for the company's benefit TUPE may apply. In practice, insolvency practitioners and their advisers will look to the administrators or (if relevant) a solvent third party to indemnify them against the risk of employees transferring under TUPE.
More helpful is the guidance on when the exclusion from TUPE, for temporary or short term activities, applies. The key here is the intentions of the client who will receive the services, taking into account the circumstances of any employees involved. Given that there are no fixed timescales for when the "short term" exclusion applies, however, a Tribunal may be reluctant to interfere with the parties' reasoned statement as to their intention at the time of entering into these arrangements. As such, we recommend that when entering into a service change relating to a short term project or event, the parties clearly document their intentions and the resulting conclusion in terms of whether TUPE applies.