Hello and welcome to the latest in our series of employment videos. In today’s video we’ll be looking at when a change is a service provision change for the purposes of the Transfer of Undertakings Regulations 2006, known as TUPE.
The original 1981 Regulations were amended in 2006 to bring service provision changes within their ambit. Since then there’s been uncertainty over what constitutes a “service provision change”. But recent case law has shed light on some of the issues.
A transfer of an undertaking arises under TUPE firstly where there is the sale of a business or part of a business which is an economic entity which retains its identity. This is known as the standard transfer. Secondly, a transfer will occur where there’s a service provision change. This is defined under TUPE to cover the situation where there is either:
- the contracting-out of activities previously carried out by a company on its own behalf; or
- where there’s a change of contractor carrying out the activities; or, finally
- where the activities previously carried out by a contractor are brought back in-house
What is an activity?
TUPE defines a service provision change by reference to activities being carried out. So the first task is to identify the nature of the activities being carried out by the contractor.
Much of the case law surrounding service provision change has been to consider whether the activities carried on before the transfer are essentially the same as those being carried on after the transfer.
Case law has established that the activities must be fundamentally or essentially the same before and after the transfer. In the recent case of Enterprise Management Services Ltd v Connect Up Limited, the EAT held that there wasn’t a transfer because of the significant difference between the activities being carried on by the old and the new contractor. The case concerned the provision of IT services to schools for Leeds city council. When the new contract was awarded to the subsequent contractor there were significant differences in the way in which the services were provided. In addition there had been a fragmentation of the service.
The EAT gave guidance on how to determine whether there’d been a service provision change. Firstly, the tribunal must identify the activities being carried out by the original contractor. Next the tribunal should determine whether the activities carried out by the incoming contractor are essentially the same as those carried out by the original contractor. This will be a question of degree and fact for the employment tribunal and minor differences can be disregarded. Questions may also arise where there is a division or fragmentation of the service after the change in contractor - which will mean that the case falls outside the definition of service provision change.
Is there an organised grouping of employees?
In addition, even if the activities remain the same, the tribunal must then decide whether the individual was assigned to an organised grouping of employees carrying out those activities. In the case of Eddie Stobart Ltd v Morman the claimants were employed by Eddie Stobart at a depot in Nottinghamshire. Eddie Stobart was providing logistic services to two clients from the depot, one of which was Vion. Due to delivery needs, the day shift employees worked principally on the contract for Vion and employees working during the night worked on the contract for the other client. When the site was closed, the Vion contract was awarded to FJG Logistics and it was argued that the day shift employees were assigned to that contract and that their employment transferred to FJG. However, FJG argued that TUPE did not apply and refused to accept that there was a service provision change.
The EAT upheld the employment tribunal’s decision that there was no service provision change because there was no organised grouping of employees. Although the majority of the individuals’ time was spent on a particular contract, this was because of the shift pattern - and not because they were organised into a team whose principal purpose was to carry out the work for that client. The EAT considered that there had to be deliberate planning or intent on the part of the employer to assign the employees to that particular client.
This decision was supported in the recent case of Seawell Ltd v Ceva Freight (UK) Limited which again involved the logistics industry. In this case, an employee of the contractor, Ceva, spent 100% of his time working for a particular client, Seawell, while others also spent part of their time working for Seawell. When the contract was taken back in house by Seawell, Ceva asserted that TUPE applied to transfer the employee’s employment to Seawell. The tribunal agreed - but on Seawell’s successful appeal, reliance was placed on the fact that the organised grouping of employees had to be formed deliberately by the employer and that the employee concerned had to be assigned to it - which was not the case here. It wasn’t sufficient that an employee had merely ended up working principally for that client by chance.
Supply of goods
Even if there is an organised grouping of employees the service provision change rule won’t apply where the activity being carried out is wholly or mainly the supply of goods for the client’s use. In the case of Pannu v Geo W King, the claimants were all employed on an assembly line producing parts of vehicles. When the employing company went into liquidation and their client entered into a contract with another supplier to produce the parts, the employment tribunal held that there had been no transfer as the activities concerned consisted wholly or mainly of the supply of goods. The EAT agreed that the employees were providing a service to their employer, but the activity being carried out on behalf of the client was the supply of goods.
Who is the client?
Another line of decisions has considered whether there was a service provision change where there was not only a change in the contractor providing the service, but where the client’s identity had also changed. In the case of Hunter v McCarrick in 2011, the individual worked for a property management company which provided services to the owners of a property portfolio. There was a change of contractor providing these services at roughly the same time as the property portfolio was transferred to receivers. So, the question arose as to whether the client was the same before and after the change of contractor and therefore whether there was a service provision change. The EAT held that TUPE hadn’t intended that there be a transfer of the terms of employment where there wasn’t only a change in contractor providing the service but a change in the identity of the client to whom the services were provided. As a result there was no TUPE transfer in this case.
This case was followed in Taurus Group Limited v Crofton which involved a second generation outsourcing at the time of the sale of a property. In this case the employee was employed by the original service provider to provide security services at student accommodation. The ownership of the building was acquired by a new company, the agreement with the service provider was terminated and a new service provider was engaged. Once again, the EAT held that TUPE didn’t apply on the change of service provider since the service was subsequently provided to a different client - i.e. the new owner of the property.
TUPE 2006 extends further than the European Acquired Rights Directive which it seeks to implement - in that there is no concept of a service provision change in the Directive. In 2012, the Government published a Call for Evidence, seeking views on the effectiveness of TUPE and how the legislation might be improved, including a review of the concept of service provision charge. If the evidence shows a clear case for change, a formal consultation may follow.
This video is intended to give you a summary of some of the issues arising on service provision changes, but if you would like any further information or have any questions on any aspects of today’s topic, then please don’t hesitate to contact us.
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