Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the Regulations), employees’ employment will be protected where there is either a transfer of an undertaking, or a service provision change, where that transfer or service provision change meets certain criteria. This bulletin will focus on the second kind of transfer which will trigger the Regulations, that of a service provision change (SPC).

An SPC may occur in one of the following three situations:

  • Out-sourcing – where activities originally carried out by a person (the client) will be carried out instead by another person (the contractor), also called contracting-out;
  • Reassigning – where activities carried out by a contractor on behalf of a client are carried out instead by another contractor; and
  • In-sourcing – where activities carried out by a contractor on behalf of a client are carried out instead by the client on their own behalf, also known as in-sourcing or contracting-in.

For one of these situations to give rise to a TUPE transfer, three further conditions must be satisfied:

  • Organised Grouping of Employees – there must have been, immediately before the service provision change, an ‘organised grouping of employees...which has as its principal purpose the carrying out of the activities concerned’.
  • Duration – the client’s intention must have been that, after the change had taken place, the activities would not relate to a ‘single specific event or a task of shortduration’.
  • Supply of Goods – the activities must not relate wholly or mainly to the supply of goods for the client’s use.

If these conditions are satisfied, the Regulations will operate to transfer the contracts of employment of the staff working in the business from the original employer or “transferor” to the new service provider or “transferee”, so that the employees become employees of the transferee on precisely the same terms and conditions as existed between them and the transferor. Any attempt to alter these terms and conditions will be void, and the employees will have a claim for unfair dismissal if they are dismissed for a reason related to the transfer.

Recent Cases on SPC Transfers

The Regulations came into effect in 2006. The SPC provisions were a new concept in English law, in which a number of issues have been raised.

Two cases have been decided recently which give clarity on when an SPC transfer may occur, and may assist employers in avoiding liability for TUPE-related dismissals.

Royden & Others v Barnetts Solicitors

In this case, the contracts of two employees of Lees Lloyd Whitley, a firm of solicitors based in Birkenhead, were found to have transferred to Barnetts Solicitors. Barnetts had tendered for and won a contract to carry out conveyancing work referred from branches of Britannia Building Society, which had previously been carried out by Lees Lloyd Whitley.

Six employees of Lees Lloyd Whitley had carried out work for Britannia, and had been offered positions working for Barnetts from Barnetts’ offices in Southport, among other locations. This was unacceptable to the employees, who resigned and went on to claim unfair dismissal, on the basis that their employment had transferred automatically to Barnetts under the Regulations on exactly the same terms as existed between them and Lees Lloyd Whitley. Accordingly, they argued, a requirement to change locations was a breach of their contracts of employment, giving rise to a constructive dismissal.

The Liverpool Employment Tribunal held that two of the six employees, Mr Royden and Ms Ross, had transferred to Barnetts under the Regulations. Mr Royden and Ms Ross had spent the majority of their time working on cases referred from Britannia branches, to the extent that work for other clients was a “relatively peripheral element” of their workload. This was held to be an ‘organised grouping’ for the purposes of the Regulations. On the contrary, the remaining four employees had spent less than half their time working for matters referred from Britannia branches, and did not transfer to Barnetts.

The Tribunal went on to find that, given that there were no mobility clauses in their contracts of employment, and the location of their homes, the requirement to relocate from Birkenhead was a substantial change to Mr Royden and Ms Ross’s working conditions, and that accordingly, their claims for unfair dismissal would succeed.

This case shows clearly that an SPC transfer may occur when a client changes its provider of professional services. This decision could be alarming for both professionals, who face a risk of acquiring new employees whenever a new client is taken on, and for clients, for example, who wish to change providers because they are not happy with the level of service provided.

Clearsprings Management Ltd v (1) Ankers & Others (2) Angel Services UK Ltd & Others

In this case, the Employment Appeal Tribunal (EAT) upheld a decision of the Manchester Employment Tribunal that no SPC transfer had taken place as a result of a transfer of a contract to provide accommodation and support services to asylum seekers. This was because the services in question were too fragmented to constitute an SPC.

Clearsprings had provided accommodation and support services to asylum seekers under a contract with the Home Office. When a fresh tendering process was carried out, Clearsprings failed to secure a contract to provide services in the North West of England. Instead, contracts were awarded to three new contractors. The services were transferred over a transitional period from March to June 2006. Clearsprings’ contract terminated on 30 June 2006.

Seventeen employees of Clearsprings complained to the Manchester Employment Tribunal that they had transferred to one of the new contractors, as a result of an SPC transfer under the Regulations. The Tribunal found that no employees had transferred, on the basis that there was no ‘organised grouping of resources or employees’.

There were two reasons why an organised grouping of employees could not be identified. The first was that no potential transfer date could be identified, except that such a date would have been between 31 May and 30 June 2006.

The second was that none of the claimants was dedicated to a part of a service which transferred to the new contractors. The allocation of asylum seekers to Clearsprings employees followed no discernable pattern of re-allocation to incoming contractors. In addition, the properties with which the claimants dealt were distributed between the new contractors or retained by Clearsprings to be used for other purposes.

On appeal by Clearsprings, the EAT upheld the Tribunal’s judgment. It held that in this case the services being provided by Clearsprings was so fragmented that it did not constitute an organised grouping of resources or employees, and accordingly, an SPC situation did not arise.

The EAT referred to the judgment of the Court of Appeal in Fairhurst Ward Abbotts Ltd v Botes Building Ltd (a case decided under the previous legislation) and noted that “circumstances may be envisaged where the degree of fragmentation might be such that what emerged was not recognisably the same entity”.

Conclusion

It is clear that there is now a degree of risk when contracting to provide a service, as it is possible that a business may unwittingly acquire liabilities to transferring employees under the Regulations. How far this should be investigated is an area which will no doubt develop. For example, should potential contractors conduct a form of due diligence to determine the previous provider of the service, and the scope for an SPC taking place?

However, recent case law provides some comfort to would-be contractors. The Royden case reiterated the line seen in previous cases, that whatever the nature of the service and the employee, the employee will need to devote a substantial amount of his or her time, certainly more than half, to the services for an SPC to occur. In addition, the Clearsprings case makes clear that although an SPC transfer can take place where there is more than one transferee, there needs to be a clear transfer of an identifiable service in order for an SPC transfer to take place.