In Hunter v McCarrick, the appointment of a property receiver to take control of a building at the same time as a change in the property management defeated the application of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).

Key background facts

Mr McCarrick was employed by Waterbridge Group Limited and then WCP Management Ltd as a property manager from 2005 until August 2009. In August 2009, Aviva, the lender on the property to which Mr McCarrick provided services, appointed a Law of Property Act Receiver and assumed control of the property. Mr Hunter (a former director of Waterbridge), personally engaged and paid Mr McCarrick from August 2009 to March 2010 to provide the property management services in respect of the property to Aviva and the receivers.

The decisions of the Employment Tribunal and Employment Appeal Tribunal

The key issue was whether there was a transfer of Mr McCarrick's employment under TUPE from WCP Management to Mr Hunter. Without that transfer of employment, Mr McCarrick did not have sufficient continuity of employment to claim unfair dismissal.

The Employment Tribunal (ET) held that Mr McCarrick's employment did transfer from WCP Management to Mr Hunter under TUPE, as this was a 'service provision change'. Mr McCarrick continued to provide the property management services, albeit to Aviva and the receivers. The ET held that this was a service provision change under regulation 3(1)(b), even though there was a change in the identity of the ultimate client.

However, on appeal the Employment Appeal Tribunal (EAT) disagreed. It held that Mr McCarrick's employment did not transfer to Mr Hunter under TUPE, as the services were provided to a different client. The EAT decided that a 'service provision change' under TUPE only applied when the client is the same before and after the change of contractor or service provider. In this case, as there had been a change in the ultimate client, there was no service provision change under TUPE. This decision appears to cut across the purpose of TUPE which is intended to protect the continuation of employment. TUPE is derived from the European Acquired Rights' Directive and, as such, would normally be interpreted to take account of this purpose. However, the EAT held that the requirement to interpret TUPE purposively did not apply in respect of a service provision change, as this is a UK addition to the requirements under the Directive (now commonly referred to as a 'gold-plating' of the obligations under the Directive). These provisions, therefore, should be interpreted strictly and not with regard to the underlying purpose of the Directive.

As the service provision change provisions only make reference to one underlying client, on a strict interpretation of these provisions, there could not be a service provision change when the client changed.

Specifically, the EAT said:

"If the framers of the Directive or TUPE had intended the contractual terms of employees employed on an activity to follow that activity when it was undertaken for a different client they could have so provided".

It is important to note that this decision only affects the interpretation of the service provision change provisions in TUPE under regulation 3(1)(b). The parties could still seek to argue that a transaction (or series of transactions) amounted to a business transfer (under regulation 3(1)(a). However, whether this was the case would be determined on the basis of a multi-factorial test and the outcome is much less certain than would be the case under the service provision change rules. Indeed, in Hunter, the EAT held that the particular circumstances of that case did not amount to a business transfer under regulation 3(1)(a).

The upshot of this was that Mr Hunter's employment with Mr McCarrick was not continuous with his previous employment with Waterbridge or WCP Management Ltd. He therefore did not qualify for unfair dismissal protection when he was dismissed in March 2010.

Implications for the outsourcing sector

The application of the service provision change provisions in the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) where the client also changes is now clearly in doubt.

This will have knock-on consequences for the outsourcing sector, and particularly for real estate transactions. Many outsourcing agreements have been drafted in the expectation that TUPE will apply to transfer staff whether or not the end client changes. That can no longer be assumed.

To take a fairly common example: if a large complex office block is sold and at the same time as the sale of the property, the property manager or facility manager is changed, the application of Hunter would mean that onsite/dedicated staff provided by a property management company will not transfer to the new property/facility manager under the service provision change provisions of TUPE.

This will leave the old property/facility manager with, at worst, a potential redundancy liability, or, at best, an argument that this is a business transfer under the first limb of TUPE. It may also leave the new property/facility manager with a problem if it was counting on TUPE to transfer to it some or all of the staff who know the property well.

The inconsistency with the approach taken by the Employment Appeal Tribunal (EAT) in Hunter is that if, to use the same example, the property or facility manager is not changed at the time of sale (e.g. the old property/facility manager is retained for three months, one week, or even a day, to allow for transition to the new property/facility manager) then on a later change in property/facility manager the service provision change provisions of TUPE will apply.

Wragge & Co's employment experts provide some practical action points in light of the decision.