Employment Law Update: When Does TUPE apply?


Employment Law Update

When Does TUPE apply?

Deciding when TUPE applies is often very difficult, but a number of cases over the last twelve months will hopefully help employers trying to interpret the TUPE regulations. In summary, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE for short) are intended to protect the employee’s continuing employment when a business is transferred and they set out the circumstances in which a business must take over the employment obligations of another employer.

For example, if a business is sold, the new owner of the business has to honour the employment contracts of the seller’s employees, or in other words, the buyer steps into the shoes of the seller as far as the employees are concerned.

Additionally, the TUPE regulations can also apply when there is a ‘service provision change’ which refers to the circumstances when a company cancels or does not renew a long term contract for the supply of services and either decides to take the services in-house or contracts with a different service-provider. Where this happens, the TUPE regulations may operate with the consequence that the employees of the original service-provider become employees of the new service-provider. Alternatively, if the contract is going in-house, then the employees may become employees of the company to which the services were provided.

This affect of TUPE can be a surprise to some employers and the impact of TUPE on service provision changes can produce interesting results. For example, a large customer decides it is not getting satisfactory service from Company X so it awards the contract to Company Y. It can then come as a shock to Company Y to discover that they may have to take on the very employees who provided the unsatisfactory service previously when they were working for Company X.

HOWEVER, it may not always be a foregone conclusion when TUPE will apply following a service provision change and these recent cases have helped to clarify the conditions that must be satisfied for TUPE to apply when a service provision change has taken place:-

i)    In Seawell v Ceva Freight (UK) Ltd, Ceva provided freight forwarding services to Seawell. One of Ceva’s employees only worked on the Seawell contract. When the contract was cancelled and Seawell took the service back in-house, Ceva claimed that TUPE applied and that Seawell were liable for unfairly dismissing Mr Moffat, the employee concerned. At the first employment tribunal hearing, this argument was accepted and Seawell were  ordered to pay Mr Moffat £25,000.  Then on appeal, the Employment Appeal Tribunal determined that this was wrong, highlighting that for TUPE to apply in a service provision change scenario, there must be a clear and formal grouping of employees brought together for the purpose of the client’s contract. Therefore, an employee who simply spent all his time working on a single client’s contract was insufficient grounds for TUPE to apply.

ii)    Similarly in Eddie Stobart Ltd v Moreman & others, Eddie Stobart provided storage and transport services to ASDA, amongst others. Staff were organised into shifts, one of which, because of the timing of orders from ASDA, worked mainly on the ASDA contract. Therefore, when ASDA awarded the contract to another company, Eddie Stobart dismissed the workers on the ASDA shift believing that the new company was now responsible for the employees under TUPE. However, both the Employment Tribunal and the Employment Appeal Tribunal found that TUPE did not apply, as the staff on the shift concerned dealt with other clients as well as ASDA and they were organised by shift, so therefore they could not be regarded as a recognised team working for a particular client.

iii)    Where a service activity is taken in-house or contracted to another supplier, the other element that must be satisfied for TUPE to apply on a service provision change is that the services must remain the same. In Johnson Controls Ltd v Campbell, the taxi administrator Johnson Controls lost their contract with UKAEA, as the company wanted its own staff to place bookings directly with taxi companies. Consequently, one of the employees was made redundant by Johnson Controls, as he was not taken on by UKAEA.  The employee then brought claims against both Johnson and UKAEA, but the tribunal found that under the new booking regime, the taxi booking services had been significantly remodelled and as a result, TUPE did not apply.

These cases highlight that any employers who are running teams that may be affected by TUPE should review their current employee contracts. In particular, where employees have been taken on to fulfil an important contract, and they service that contract exclusively, their employment contracts should reflect this position. There should then be a reasonable chance that, should the employer subsequently lose the contract, the employees involved will be in a secure position to be transferred and the employer may not need to make redundancies.

Please note that these comments are intended to summarise some of the employment issues arising from these cases, not to provide detailed legal advice, so if you need assistance with any employment issues you may have please contact Julie Taylor on: 01635 508181 or  [email protected]
Follow Julie on Twitter: @JulieT_GL

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