In focus: round up of recent TUPE decisions

There have been a number of decisions this year relating to the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE").  We summarise 5 key ones and the points to take away from them when dealing with transfers in your business. The questions considered are:

1. In subcontracting relationships, who is the "client" for the purposes of a service provision change under TUPE?
2. Can there be a service provision change where there is a group of clients?
3. Can a single employee be an organised grouping for purpose of an SPC?
4. Can a client dictate who is assigned to an organised grouping of employees on a SPC?
5. Are employees who object to a TUPE transfer protected from discrimination by the transferee?

Quick TUPE overview

By way of a reminder, TUPE may apply where there is a "business transfer" or where there is a Service Provision Change ("SPC").  The SPC provisions provide that there will be a relevant TUPE transfer (subject to other conditions being satisfied) where:

1. A person (a client) ceases to carry out activities on its own behalf and assigns them to another person (a contractor) to carry out on the client's behalf (e.g outsourcing)
2. The activities cease to be carried out by a contractor on a client's behalf and are reassigned to another person (a subsequent contractor) to carry out on the client's behalf (e.g. change in contractor) or
3. The activities cease to be carried out by a contractor or a subsequent contractor on a client's behalf and are instead carried out by the client on its own behalf (e.g. bringing services back in house).

1. In subcontracting relationships, who is the "client" for the purposes of a service provision change under TUPE? Jinks v London Borough of Havering [2015]

Summary

A recent Court of Appeal decision has held that there will be no TUPE service provision change when the "client" of a service changes (Hunter v McCarrick [2012]).  This decision has led to parties analysing who the client is in outsourcing arrangements and whether the client changes post-transfer in order to determine whether there is scope for arguing that TUPE does not apply if this is in line with commercial needs.  However, the EAT has reigned this in by finding that in a subcontracting arrangement, when the ultimate client brought the service back in-house, there was a TUPE transfer even though the services transferred back to an entity which was not the contractual client of the claimant's original employer.  This means that TUPE may apply to more situations than originally thought following Hunter.

In this case, an ice rink and connected car park were owned by The London Borough of Havering (the "Council"). The Council had a contract with Saturn Leisure to manage the site, which in turn subcontracted the management of the car park to Regal Car Parks.  The claimant was employed by Regal and was assigned to the car park contract.  When Saturn gave up the ice rink and car park contract in April 2013, this terminated Regal's car park management contract with Saturn.  The Council then licenced the car park to the NHS for a short period before taking the management of the site back in-house and running it as a public car park. The tribunal found that the claimant's employment could not have transferred to the Council because his employer had not had a direct contractual relationship with the Council, and so the Council could not have been the "client".  The claim was struck out as a result on this basis as the tribunal considered it had no prospect of success.

However, the EAT found that the tribunal was wrong to strike out the claim and remitted it back to the tribunal.  In doing so it referenced the fact that TUPE defines the term "contractor" as also including "sub-contractor".  It held that it is necessary to look at the factual circumstances to determine who the ultimate client of an arrangement is.  It also confirmed that this would not necessarily be the legal or contractual client. This follows the earlier decision in Horizon Security Service Ltd v Ndeze and another [2014].  Although this case reached the opposite conclusion that TUPE did not apply (see below) it set down the following principles for determining who the client is in a service provision situation:

1. The question of who is the client is one of fact, not law
2. There can be more than one client in any given case
3. On reading the relevant provisions of TUPE, it is apparent that the person on whose behalf services are provided by a subcontractor may not necessarily be the contractor from whom the subcontract is held (for example, it may be for the ultimate beneficiary of the services)

In Ndeze, the EAT, applying Hunter, found that there had been no service provision change where a contract to provide security at a business centre was terminated by the company which managed the centre on behalf of a local authority, when the local authority engaged a different company to guard the site for an interim period.  This was on the basis that the service provision change definition requires the services carried out before and after the change to be on behalf of the same client. As the new provider was engaged directly by the local authority, rather than through a subcontractor, it found that there was no relevant transfer. The client of the two contracts was different. 

Key points to take away

This decision is a further reminder that, who the client is, for the purpose of determining whether TUPE applies, will depend on the facts of the particular situation.  An assessment of the circumstances to determine who the services are being provided for and who the client is in each case will be critical when determining if TUPE applies.  The case also highlights that liabilities for clients may extend further than originally anticipated and include the employees of parties (such as subcontractors) with whom the employer does not have a direct contractual relationship. This could significantly increase the costs and liabilities in a service provision change.  As well as addressing this in the price of the services, this should also be dealt with in appropriately drafted indemnities in any outsourcing agreements.

2. Can there be a service provision change where there is a group of clients? Ottimo Property Services Ltd v Duncan and another [2015]

Summary

As explained above, the Hunter decision has established that the same person has to be the client before and after any change of contractor for there to be a SPC. However, this had led to issues where there is effectively more than one client and the question of whether and how TUPE can still apply.  This was addressed in the recent case below.

An employee was a Site Maintenance Manager for (X) at an estate made up of a number of blocks of houses.  Each block had its own residents' management company and there was a general management company for the common parts of the estate. 12 out of the 13 management companies entered into property management services contracts with X. Over a period of years, X lost six of these contracts and, in February 2012, it sub-contracted the remaining six contracts to Y. The employee was treated as having transferred from X to Y under TUPE. Shortly afterwards, these six contracts were then transferred to Z. Z did not accept that TUPE applied and employed its own site manager. Y dismissed the employee who claimed he had transferred to Z.

Although it has been previously established that a purposive interpretation of the SPC provisions is not required, the EAT rejected the tribunal's too literal view that the SPC provisions require a single client.  The EAT also rejected that the view that it was not permissible for a number of contracts with different clients to be aggregated to make one overall SPC.  Instead, it confirmed that the SPC provisions can cover "clients" in the plural. However, the identity of the clients must remain the same after the SPC.  An additional requirement for an SPC is that "the client intends" that the activities will be carried out by the transferee following the transfer.  Consequently, the group of clients must have this as their common intention. The case has been referred back to the ET to determine if there was an SPC here. 

Key points to take away

This decision has potentially widened the application of TUPE as, in principle there can be an SPC involving a group of clients. However, the identity of the clients must remain the same and there must be a common intention that the transferee takes over the activities in order for a single SPC to occur.  This decision will be particularly relevant where multiple service users group together to commission activities. This is common for tenants of commercial premises when commissioning facilities management services. The EAT pointed out that it may be more difficult to demonstrate a common intention where there are separate contracts, as opposed to a single umbrella contract between a group of clients.  However, this would not be an absolute bar to TUPE applying if there is a sufficient link between the clients for a common intention.  Clients should also note that, even if there is not a sufficient connection for there to be a single SPC, it could be argued that there are a number of individual TUPE transfers.

3. Single employee can be an organised grouping for purpose of an SPC Rynda (UK) Ltd v Rhijnsburger [2015]

Summary

One of the additional conditions for there to be a SPC is that there must be "an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client".  An "organised grouping of employees" may be a single employee. However, previous case law has established that it is not enough that employees carry out the majority of their work for a particular client.  Instead, employees must be organised by reference to the requirements of the client and be identifiable as members of that client's team (Eddie Stobart Ltd v Moreman and others [2010]).  It is also not the case that if one employee who forms part of a team spends all of his time working for a client that he will be an organised grouping for the purpose of TUPE. There must also be an element of conscious organisation by the employer of the team and not just a matter of pure chance (Ceva Freight (UK) Ltd v Seawell Ltd [2013].

This has recently been considered by the Court of Appeal which has held that a commercial property manager, solely responsible for managing a group of Dutch properties for a client, was an "organised grouping of employees".  Effectively the Claimant was a one-person department with no assistance from any other employee (unlike in Ceva she was not part of a team servicing a number of clients).  Her employer had deliberately assigned to her the management of the Dutch properties. It was a conscious decision and not a matter of pure chance.  This was in contrast to the Eddie Stobart decision where the connection to clients was a random consequence of the way day and night shift patterns worked.  As a result, when the client's entire portfolio transferred, she transferred with them.  This was the case even though she had, in the past, also assumed some responsibility for other properties as she had always devoted the majority of her time to the Dutch properties and this could still be said to be her "principal purpose".  

Key take away points

Whilst this decision does not take the law any further it does provide the CA's  analysis of the cases in this area and gives some useful guidance. The CA provided a four-stage process for tribunals to follow in such cases which is also useful to use to help determine whether an individual or team amount to an organised grouping of employees for the purpose of TUPE:

1. Identify the service which the transferor was providing to the client
2. List the activities which the staff of the transferor performed in order to provide that service
3. Identify the employee or employees of the transferor who ordinarily carried out those activities
4. Consider whether the transferor organised that employee or those employees into a "grouping" for the principal purpose of carrying out the listed activities

4. Can a client dictate who is assigned to an organised grouping of employees on a SPC? Jakowlew v Nestor Primary Care Services Ltd

Summary

Prior to the transfer of an outsourced service from one provider to another, or on the sale of part of a business, there is often much discussion of who is "assigned" to the business or services which are transferring.  This is because TUPE operates to transfer the employees who are assigned to the organised grouping of employees that is subject to the transfer.  The new service provider will want certainty as to which employees they will be taking on, and the old provider will often want assurance that they will not be left with any remaining employees who they will not have work for.  Connected to this is the right in many outsourcing agreements for the client to be able to require the service provider to remove a particular employee from the provision of services, for example, if there are performance or misconduct concerns.  A recent EAT decision considered the effect of a client making such a request  but the old service provider not effecting that reassignment of the particular employee before the service transferred to a new provider.

In this case, an employee (who was on suspension and subject to disciplinary proceedings) was assigned to the care services which were due to transfer from Saga Care to Westminster Homecare.  As a result of the ongoing disciplinary proceedings, the client, the London Borough of Enfield, asked for the claimant to be removed from assignment to the services, but Saga Care refused.  Following a previous decision (Robert Sage Ltd v O'Connell [2013]) the tribunal found that this request had effected a reassignment before the transfer so the employee did not transfer under TUPE.  On appeal, though, the EAT distinguished the Robert Sage decision on the basis that, in that case, the old service provider had effected the client's request to reassign the particular employee before the transfer took place. However, in the current case, that had not happened as Saga Care had refused to reassign the particular employee. This may have given Enfield a claim for breach of contract, but it did not reassign the employee. Only the employer at the time has the ability to reassign employees. In addition, the EAT commented that an employee on suspension remains assigned to the services in the same way as any other employee on leave from work, such as sick or study leave, at the time of the transfer.

Key point to take away

This case highlights the importance of thorough due diligence before entering into outsourcing arrangements and the correct contractual terms to protect against un-envisaged costs and liabilities for transferees and new service providers.

If you are a client to an outsourcing arrangement, ensure your outsourcing agreement not only contains a right for you to require the service provider to remove a particular employee from the services but also an indemnity to cover your costs and liabilities if the service provider does not effect the reassignment within a reasonable period. 

If you are a new service provider, ensure you know who is assigned to the services, whether the client has recently requested that anyone be removed from the services, whether such employees have actually been reassigned by the current service provider and whether any of the employees assigned are suspended. We would also recommend that the outsourcing agreement you enter into with the client contains a list of transferring employees and appropriate indemnity protection if any additional employees transfer other than those included on the list.  In practice, as it may be difficult to get this protection from the old service provider, new service providers may seek to require this from the client.

Although not dealt with in this case, new service providers should also consider asking whether there are any employees who have been dismissed but whose appeals are outstanding at the time of the transfer.  This is because a reinstatement of their employment on appeal could mean they were assigned to the services at the time of the transfer and transfer under TUPE.

5. Are employees who object to a TUPE transfer protected from discrimination by the transferee? NHS v Gunn [2015]

Summary

Under the Equality Act 2010 employers must make reasonable adjustments for job applicants.  The Equality Act also provides that an employer must not discriminate against a person a) in the arrangements it makes for deciding to whom to offer employment; b) as to the terms on which it offers employment and c) by not offering employment.  The EAT has recently considered the interrelationship of this discrimination protection with TUPE and whether a transferee effectively makes an "offer of employment" to an employee who transfers to them

Mrs Gunn, an NHS employee, suffered from rheumatoid arthritis.  To accommodate her disability, she worked reduced hours (8.5 hours per week) with her NHS employer, Shropshire Doctors,.  The 111 services for which she worked were TUPE transferred to NHS Direct.  NHS Direct indicated that all employees were required to work 15 hours per week after the transfer and rejected Mrs Gunn's compromise offer to work 10 hours per week. As a result, she objected to the transfer of her employment and did not transfer to NHS Direct (but remained employed by Shropshire Doctors on reduced pay). She also brought a claim arguing that NHS Direct failed in its duty to make reasonable adjustments.  As she was not an employee of NHS Direct, the issue was whether she was protected against discrimination under the Equality Act as a job applicant (on the basis that NHS Direct had asked her to work 15 hours per week).  The EAT rejected the tribunal's view that she had been offered employment. It noted that the premise of TUPE is that an employee's contract of employment continues with a transferee exactly as it has with the transferor.  Consequently, a transferring employee cannot be regarded as an applicant and a transferee cannot be considered to have made an "offer of employment" for the purpose of discrimination protection.

Key point to take away

The comments on the interrelationship of the Equality Act and TUPE will not be binding as the decision to not strike this case out was reached for on a separate point (namely that, due to a workplace redundancy situation, there had been an offer of suitable alternative employment for a new contract by NHS Direct which potentially could be an "offer of employment" for discrimination purposes in this case).  However, in the absence of earlier case law, this case provides "important guidance" that an employee transferring under TUPE on their existing contract will not be protected from discrimination under the Equality Act 2010 as a job applicant.  This will be welcome news for new service providers as, if it had gone the other way, it would have removed the certainty of employees automatically transferring on their original terms and conditions and could have required them to consider, prior to the transfer, what reasonable adjustments would be necessary. A potentially huge task for HR teams on large transactions. 

However, it is important to note that, if the employee had not objected and had transferred under TUPE, she would have potentially been able to bring a claim for failing to make reasonable adjustments against the Transferee as their employee.  She would have potentially also been able to argue that any changes to her contract of employment post transfer were void by reason of TUPE.  Pre-transfer employees can also argue that they have been effectively constructively dismissed or dismissed as a result of the transferee's intention to make substantial changes to their material detriment.  If, in addition to these claims, employees also object to the transfer, the liability for these claims could rest with the original provider. Consequently, to guard against this, clients and providers would be wise to require appropriate indemnities from any new providers to cover liability for claims arising from their proposals to amend the terms and conditions of employees affected by the transfer.

We would be happy to discuss these cases, the application of TUPE and how to draft appropriate wording in transfer agreements to protect your business.  For more information please contact the employment team at Foot Anstey.