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The Trouble With TUPE – A Look At The Service Provision Change Rules

Christopher Saunders - DAS Law

  1. 03 October 2013
  2. Employment
  3. 0 comments
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A guide to the Transfer of Undertakings (Protection of Employment) Regulations

To many, TUPE is a colossal creature of complexity and confusion, often resulting in sore heads and a surge in the sale of alcohol to employers. Within this article, we shall explore the Service Provision Change (SPC) rules in line with recent case authority, and endeavour to wrestle the dynamics of this awkward creature.

On 6 April 2006, TUPE (The Transfer of Undertakings (Protection of Employment) Regulations) 1981 was repealed and replaced by TUPE 2006 with the intention of clarifying the scope of the regulations, and in particular the applicability of in/outsourcing.

These in/outsourcing provisions are now known as the Service Provision Change (SPC) rules, with the full definition of a service provision change being found in regulation 3(1)(b) of TUPE and reading as follows:

  • “(i) activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client’s behalf (“a contractor”);“ – This is a first generation outsourcing
  • (ii) activities cease to be carried out by a contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf;” – This is a second generation outsourcing
  • “or (iii) activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf,” – This is bringing the work back ‘in-house’

Quite simply, TUPE will be applicable where a client instructs a contractor to do work on its behalf, engages a new contractor to carry out the work in place of the first contractor, or alternatively decides to bring the work back “in-house”, according to Reg 3(1)(b) of TUPE.

What next?

Provided that one of the above prerequisites is met, in order to validate the applicability of TUPE, it will be necessary to ensure that the preconditions set out in Regulation 3(3) are made out.

Our first hurdle will be to overcome Reg 3(3)(a)(i) which reads:

immediately before the transfer, there is 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.

Organised grouping

For there to be a SPC, there needs to be an organised grouping of employees. This is probably better described by the word ‘team’, with the BIS (Department for Business Innovation and Skills) guidance inflating this by explaining that such a team is ‘essentially’ dedicated to carrying out the activities that are to transfer.

The guidance makes it clear that the test will not be met in cases where there is no identifiable grouping of employees, i.e. where a courier company act for a specific client and utilise different ad hoc couriers, rather than a fixed team. Paradoxically, Reg 2(1) TUPE makes it clear that a single employee can, on their own, amount to ‘an organised grouping of employees’.

Nevertheless, recent case law has diluted this definition even further. In the case of Eddie Stobart Ltd v Moreman and others [2012] IRLR 356, the former president of the Employment Appeal Tribunal (EAT), Underhill P, explained that it is not enough that employees predominantly carry out the relevant activities on behalf of the client “without any deliberate planning or intent”. In this case, the employees spent the majority of their time working for a specific client, but this was found to be due to their shift patterns, rather than an intentional placement in line with the client’s instructions.

The most recent authority derives from the Scottish case of Ceva Freight (UK) Ltd v Seawell Ltd [2013] CSIH 59, where the Court of Session (the Scottish equivalent of the Court of Appeal) held that an employee who spent all of his time working for a client did not fall under the TUPE regulations as, on the facts, the employee was not ‘deliberately organised’ to that client account. Here, the team’s principal purpose was the provision of outbound logistics on a number of client accounts. It appears that, as in the Eddie Stobart case above, the employee’s placement was accidental, rather than deliberate, and this was enough to avoid the TUPE regulations being applicable.

Principal purpose

In order for Reg 3(1)(b) to apply, the principal purpose of the organised grouping of employees must be the carrying out of the activities on behalf of the client. This will very much depend upon the facts of the case.

Carrying out of the activities

Whilst there is no obligation under the regulations for the activities “to retain their identity”, the post transfer activities must be “fundamentally or essentially the same” as those carried out pre-transfer. (Churchill Dulwich Ltd (In Liquidation) v Martin Cambridge and others [2009] IRR 700 EAT).

On behalf of the client

A SPC will not be applicable where the client for whom the services are being carried out changes. As explained in the case of McCarrick v Hunter [2012] EWCA, there can only be a change in the person executing the work.

Is that it?

Unfortunately not! There are two further areas to consider.

Firstly, the SPC rules will not be operative where the client intends that the activities will be carried out “in connection with a single specific event or a task of short-term duration” (regulation 3(3)(a)(ii), TUPE).

In a recent case of Liddell’s Coaches v Cook and others UKEATS/0025/12, the EAT held that there will be no SPC where the transferring activities are either a “single specific event” or “task of short-term duration”. Here, a contract of duration of 12 months was held not to fall under the TUPE regulations as such contracts were commonly awarded over a much longer period (3-5 years).

Secondly, the SPC rules will not apply where the contract is wholly or mainly for the supply of goods for the client’s use, under Reg (3)(b) TUPE. This may be applicable where a client engages a contractor to supply sandwiches and drinks to its canteen every day to sell on to staff.

I would like to overstress that whilst this article can be used as a handy tool to determine the general applicability of TUPE, obtaining legal advice will be imperative in every scenario. TUPE is ever evolving and is likely to change within the foreseeable future.

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