TUPE: a tale of one man two guvnors?

EAT decides employees can transfer to more than one employer in a service provision change.

TUPE can be complicated. Particularly so where a service is fragmented between multiple contractors on retendering.  An employment tribunal judge recently described the process of working out how a fragmented service impacted on employees as being “like trying to disentangle a bowl of spaghetti”. When a service becomes so split after a provision change that it is impossible to trace where an employee should transfer, a tribunal will usually find that no service provision change TUPE transfer (SPC) has taken place.

On the other hand, if the tribunal can track the transfer of an employee’s activity to a new provider, they will usually find employment has transferred to that provider (or at least the liability for the employee’s dismissal).  In an important recent case, the EAT has changed the way tribunals should approach this tracking exercise and made it more likely that an employee will find themselves the servant of two masters after a transfer.  

What is a service provision change?

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), a SPC will occur where one of the following takes place:

1. Outsourcing: activities cease to be carried out by a client on its own behalf and are carried out instead by a contractor on the client's behalf;
2. Re-contracting: activities cease to be carried out by a contractor on a client's behalf and are carried out instead by a subsequent contractor on the client's behalf; or
3. Insourcing: activities cease to be carried out by a contractor on a client's behalf and are carried out instead by the client on its own behalf (often known as “taking the service back in house”).

Additionally, a SPC will only take place if:

- The client is the same before and after the transfer;

- Activities are fundamentally the same before and after the transfer; and

- There is an “organised grouping of employees” specifically dedicated to carrying out the activities for the client (and employees will transfer if they are assigned to that organised grouping).

In some re-contracting scenarios, the organisation of the service after the transfer is so fragmented between new providers that the tribunal will decide that the activities before and after the transfer are not fundamentally the same and that a SPC has therefore not taken place.

Can an employee transfer under TUPE to more than one employer?

Until recently, the case of Kimberley Group Housing Ltd v Hambley (2008) established that it was not possible to split employment (or liability) between two transferee contractors in proportion to the way work was split between them under the contracts. Instead, the EAT made clear that the correct approach was to work out which organised grouping each employee was assigned to, looking at the link between each employee and the activities performed by the new service providers. In this case, the contractor which took the majority of the work to which the claimants were assigned was found to have taken on the whole of the liability for the claimants’ unfair dismissals.

In an important ruling, the EAT has now changed this approach, applying last year’s decision of the European Court of Justice in ISS Facility Services v Govaerts to SPCs.

Case details: McTear Contracts Ltd and others v Bennett and others

North Lanarkshire Council (the Council) contracted with Amey Services Ltd (Amey) for the provision of a service replacing kitchens in its social housing. The contract was run with two parallel teams of tradespeople who worked across the region. An operations manager and a project surveyor also worked on the contract.

On retendering, the Council decided to split the contract into North and South regions and to award these contracts to two separate contractors, Mitie Property Services Ltd (Mitie) and McTear Contracts Ltd (McTear).

Amey undertook an analysis of the work each team had carried out in the North and South regions in the last 12 months to identify which contractor the employees assigned to those teams should transfer to under TUPE. It also allocated the operations manager to one team and the project surveyor to the other.

Mitie and McTear did not agree that TUPE applied to transfer any of the employees. They did ultimately take on some of the employees, but under new contracts of employment.

The employees brought claims including for unfair dismissal, redundancy pay, notice pay, holiday pay, arrears of pay and protective awards under TUPE.

The employment tribunal followed the decision in Kimberley and agreed with Amey’s allocation of employees to transferring teams. The team which was identified as spending more time in the region awarded to Mitie was found to have transferred to Mitie. And similarly, the team which spent most time working in the region awarded to McTear was found to have transferred to McTear.

Employees can TUPE transfer to more than one employer

However, by the time the case reached the EAT, the ECJ had determined in Govaerts that it was possible for employment to transfer to more than one employer for the purposes of the Acquired Rights Directive (the European legislation which TUPE implements in the UK). Govaerts was decided before the end of the Brexit transition period and is therefore part of EU “retained” law which must be applied in UK courts. The Acquired Rights Directive and Govaerts concern only business transfers and not SPCs (which are a creation of UK law under TUPE). However, the EAT made clear that it would be “undesirable” for there to be a difference in the approach taken to business transfers and SPCs, particularly as some transactions will meet both definitions.

The EAT concluded that: “There is no reason in principle why an employee may not, following such a transfer, hold two or more contracts of employment with different employers at the same time, provided that the work attributable to each contract is clearly separate from the work on the other(s) and is identifiable as such. The division, on geographical lines, of work previously carried out under a single contract into two new contracts is, in principle, a situation where there could properly be found to be different employers on different jobs.”

The EAT remitted the cases to the employment tribunal to reconsider whether particular claimants had in fact transferred to one or both of the new contractors.

What are the practical implications of the judgment?

The process of working out which new contractor an employee will transfer to can be very convoluted where there are multiple transferees. However, this case confirms that where there is a fairly clear split of work between two new contractors (for example by geographical area), it is possible for the employees to transfer to more than one transferee contractor.

In practice, this decision may create more problems than it solves. In Govaerts, the ECJ stated that in cases where the split of employment contracts was impossible to achieve in practice or where it would adversely affect the rights of the employee, the transferees would be regarded as being responsible for any consequent termination of the employment relationship, even if that termination was initiated by the employee. This may mean that contractors take on unexpected liabilities for part time employees where the parties had expected the employee to transfer wholesale to another contractor.

Where pragmatic solutions are found in an SPC and employees are content to transfer to a new provider, it is unlikely that a tribunal will ever need to decide whether their contract should rightly have split between different contractors. It will be in those situations where employees fall between the gaps, are made redundant, or are asked to accept less favourable terms that this ruling will have its significant impact.   

Organisations which may be taking on part of a service following a SPC should be alert to the possibility that they could take on liability for employees for part of their employment contract, including redundancy and notice payments where applicable. The risks of this should ideally be factored into negotiations on the contract or the tender response. Where a contract is being entered into, consideration should be given to including indemnities to apportion this potential liability.