Case update (3):  TUPE – Service provision change and fragmentation

Summary:  Can TUPE apply following a service provision change (due to a re-tendering) to split the contract of a transferring worker between multiple transferees?

Yes, held the Employment Appeal Tribunal (EAT) in McTear Contracts Ltd v Bennett & ors and Mitie Property Services UK Ltd v Bennett and others available here.

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

A service provision change (SPC) 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.

There is an SPC where:

  • prior to the transfer there is an “organised grouping of employees” whose principal purpose is to carry out the activities concerned;
  • the conduct of the relevant activities switches from one provider to another;
  • the client for which the activities are to be carried out remains the same and  that client intends that the activities in question will not, following the SPC, be carried in connection with a “single specific event” or “task of short-term duration”; and
  • the activities in question are “fundamentally the same” pre and post transfer.

Under previous UK case law, the established authority on transfers to more than one transferee (‘fragmented transfers’) has been that the employment contracts of the transferring staff should not be split between them.  The correct approach was to apply the long established test of assignment – i.e. deciding to which part of the relevant service the employee was “wholly or mainly assigned” and transferring the employee to the incoming contractor which took over the relevant service (if any).

However, the CJEU found in ISS Facility Services NV v Govaerts that under the Acquired Rights Directive employees may transfer to multiple transferees and that this also applies to a SPC.  Meaning that the contract of a transferring worker can, in principle, be split between multiple transferees in proportion to the tasks performed.

Facts:  The employees worked as kitchen fitters for Amey Services Ltd under a contract between Amey and North Lanarkshire Council to fit kitchens into the Council’s social housing stock. The kitchen fitters were divided into two teams, but these teams were not allocated to different geographic areas.

In 2017, the kitchen contract was re-tendered and at this point the Council decided to split the contract into ‘north’ and ‘south’ regions. The contract was awarded to two different contractors: McTear and Mitie.  Amey initially issued notice of redundancy to the employees, but later withdrew notice having decided that the SPC provisions applied.

Amey analysed the geographic locations of where the employees had worked over the past year, compared to the areas covered by the new contracts. On this basis, individual fitters were allocated either to the McTear or Mitie contracts. However, both McTear and Mitie refused to take on any of the employees.

The kitchen fitters brought various Tribunal claims against McTear, Mitie and Amey, including unfair dismissal, redundancy, notice pay, holiday pay and arrears of pay.  A preliminary hearing was ordered to decide whether there had been a relevant transfer under TUPE from Amey to either Mitie and/or McTear and, if so, to which employer the kitchen fitters transferred.

Tribunal decision

The Tribunal held that there had been a SPC under TUPE and that the kitchen fitters’ employment had been transferred to McTear and Mitie in accordance with the geographic analysis conducted by Amey.

McTear and Mitie appealed this decision on the basis that the Tribunal was wrong in concluding that liability for the employees could transfer to only one of the transferees, without considering whether some or all of the kitchen fitters may have transferred to both, or neither, entity.

EAT decision

The EAT upheld McTear and Mitie’s appeal.  It concluded that the approach adopted by the CJEU in ISS Facility Services NV v Govaerts should be followed in relation to SPCs. It considered that there was no reason in principle why an employee could not, after an SPC, be employed by different employers at the same time, if the work was clearly separate. On the facts of this case, the EAT considered that it was not impossible for individual employees to be employed by two different employers, according to the location of each job.

The question of whether the kitchen fitters had transferred to McTear or Mitie would need to be reconsidered by the Tribunal, taking into account the location of the work carried out by individual employees.

Implications:  This decision (subject to any appeal) raises practical and legal uncertainties when there are two or more incoming service providers. To date the solution has been to apply the assignment test (see Background), which, although not always straightforward (since simple percentage tests of time spent on a particular service is not necessarily conclusive) has provided some certainty that employees would either transfer to one of the incoming service providers or, if the individual was not assigned to either, the employee would remain in the original employer’s employment.

Parties involved in SPCs to more than service provider will now need to consider potential transfers that involve multiple transferees carefully.  Firstly, the fragmentation of activities between a number of new service providers will not necessarily mean that TUPE does not apply. Secondly, parties will need to put their minds to complex questions such as whether and how the employment of each employee can be split between the transferees. For example, can it be split in relation to the employees’ working time, geographical focus, and function etc. or might the division of the individual’s contract be regarded as impossible, or result in an adverse impact on the individual’s rights and working conditions (in accordance with the CJEU Govaerts decision).

Ultimately, we recommend parties work together well in advance to seek to reach agreement on how matters will be handled and who will carry the risk and liability if things go wrong.  As ever, the contractual provisions reflecting this agreed approach will remain a crucial focus.