Case update (2): TUPE – who’s the client in service provision change?

redundancy - group of skittles one of which has fallenSummary: Does TUPE apply where services have been subcontracted and the original client intends to bring the services back in-house?

Yes it can, says the EAT in Jinks v London Borough of Havering (available here) if the subcontractor’s client is the original client.

Background: TUPE covers two types of transfer: (1) the traditional “transfer of an undertaking” and (2) the “service provision change”.

A service provision change can occur in the following ways:

  • Outsourcing: where a client ceases to carry out activities on its own behalf and assigns them to a contractor to carry out on its behalf;
  • Second generation outsourcing: where the activities cease to be carried out by a contractor on the client’s behalf and are reassigned to a subsequent contractor to carry out on the client’s behalf; and
  • Insourcing/Bringing ‘in-house’: where the activities cease to be carried out by a contractor or a subsequent contractor (a subcontractor) on a client’s behalf and are instead carried out by the client on its own behalf.

The issue raised in this case is who is ‘the client’ in the above definitions?

Facts: The London Borough of Havering (LBH) outsourced the management of the Romford ice rink and an associated car park site to Saturn Leisure Ltd (Saturn). Saturn subcontracted the management of the car park to Regal Car Parks Ltd (Regal). Therefore LBH is the main client; Saturn the contractor; and Regal the Sub-contractor.

In April 2013 the ice-rink closed and Saturn gave up the site.   LBH converted the site to a public car park and took management of the car park back in house.

An employee of Regal whose job concerned the management of the car park, argued that under TUPE his employment should have transferred to LBH when they insourced the management of the car park. LBH refused to accept him and he brought an unfair dismissal claim.

The Tribunal struck out the employee’s claim on the basis that it was clear that Regal’s client was Saturn and not LBH. LBH appealed.

The EAT upheld the appeal, overturning the strike out decision. The EAT held that it was not clear that Regal’s only client was Saturn and remitted the claim to the Tribunal to decide who Regal’s client was for TUPE purposes.

In its decision the EAT acknowledged that the activities before and after an alleged transfer must be for the same client, however, it found that the employee had a reasonable prospect of showing that LBH was Regal’s client. The EAT held that the client of a sub-contractor is not necessarily the only party to which it is contractually bound to provide a service. In this case both LBH and Saturn could be Regal’s client.

So how do you determine the client/s of a subcontractor? The EAT held that three important principles had been established in previous cases:

  • the question of who is the client for TUPE purposes is one of fact, not law;
  • there can be more than one client; and
  • the insourcing provision in TUPE should be read together with the provision covering second generation outsourcing.

Together, these principles show that a subcontractor’s client will not necessarily be the contractor from whom the subcontract is held.  In other words, it could be the ultimate client – in this case, LBH.

Implications:

This is a useful reminder that the identity of the client in a service provision change is a question of fact for the Tribunal to determine. Employers should not assume that the “client” of the subcontractor will always be the contractor with whom the subcontractor has the direct legal relationship. The “client” could be the ultimate beneficiary of the service.

Therefore TUPE protection may extend beyond the employees of contractors, to the employees of sub-contractors with whom they do not have a direct contractual relationship. This is important as it potentially significantly increases employee liabilities on a transfer and transferors should consider obtaining appropriate indemnities from the contractor to cover liabilities relating to a subcontractor’s employees.