TUPE is an area of employment law that employers can find frustrating. The recent Employment Appeal Tribunal (EAT) judgment in the case of McTear Contracts Ltd & Mitie Property Services UK Ltd v Bennett and others (“McTear & Mitie”) is unlikely to have helped with that feeling.
McTear & Mitie is authority for the position that it is legally possible to split an employee’s contract of employment between two or more employers as a result of a service provision change type of TUPE transfer.
In this blog we briefly revisit what makes a service provision change before going on to consider how and why the EAT reached that position. We end with a consideration of the potential practical implications for employers.
What is a service provision change?
TUPE (Transfer of Undertakings Protection of Employment) originates from European law, specifically, the Acquired Rights Directive (ARD). The legislation aims to protect employees’ rights when a business transfers to new ownership.
These cases concern a service provision change under the TUPE Regulations 2006. A service provision change is a concept of UK law. It does not exist in the ARD, which focuses instead on business transfers (which are also covered in the UK regulations).
A service provision change tends to happen during a tendering or re-tendering exercise where a client looks to outsource certain services or change the contractor who is providing those services. It may also happen in circumstances where a client is looking to bring services back in-house. McTear & Mitie involved a retendering exercise in which an existing contract was reorganised and split between two new incoming contractors.
Whether there has been a service provision change is determined on an activity-based test. Is there an organised grouping of employees that has as its principal purpose the carrying out of the activities?
It is not necessary to see that that grouping retains its identity after the transfer, only that the activities are fundamentally the same.
If the service provision change test is fulfilled, then in accordance with the TUPE Regulations 2006, the employment contracts of those “employed by the transferor and assigned to the grouping of resources of employees that is subject to the relevant transfer” will automatically transfer to the transferee on their existing terms.
Therefore, contractors bidding to win new work need to be aware that if they take over activities which have previously been carried out by an employee or group of employees organised around the performance of that work then the likelihood is that those employees will have the right to transfer their employment to whoever wins the work.
But what happens where the client decides that it wants to organise the work in a different way, or splits the work into two or more new contracts? Who is responsible for the employees who have previously done the work in those circumstances?
Relevant earlier cases
Case law in the UK has provided some general principles in situations where there are service provision type transfers to multiple contractors. Firstly, there is no transfer if there has been a complete fragmentation (Clearsprings Management Ltd v Ankers and others). Secondly, the employment should transfer to the transferee who takes the majority of the work (Kimberley Group Housing v Hambley and others).
However, in 2020 the European Court of Justice (ECJ) reached a controversial decision in the case of ISS Facility Services Limited NV v Govearts and Atalian NV (“Govaerts”) which has proved to have important implications for how these sorts of cases should be approached in the UK .
In Govaerts there was a contract for cleaning and maintenance of buildings, which was made up of three separate lots. In a tendering exercise the lots were awarded to two separate new contractors. This meant that there were simultaneous transfers of parts of an undertaking to different transferees.
The ECJ had to consider the objective of the ARD to safeguard employees’ rights. However, the interests of the transferee also have to be protected.
The ECJ decided that it was unreasonable to place all of the liability on one transferee (meaning that one contractor would have to take on all of the associated employment obligations when they may only have won part of the work). The transfer of employment pro rata to each transferee makes it possible, in principle, to ensure a fair balance. It contemplates a division into part time contracts in proportion to the tasks performed by the worker provided that such a split was possible and did not negatively impact the worker’s rights and working conditions. In the Govaerts case, the facts meant the worker’s time was allocated to lots which leant itself to two part time contracts split between the two new contractors.
Facts of the McTear and Mitie case and the EAT’s decision
North Lancashire Council was re- tendering a contract for replacing kitchens in its housing stock. The contract was split into two lots on retender: north and south. One contract was secured by McTear, the other by Mitie.
In light of the re-tender, the outgoing contractor undertook a geographical analysis of the work carried out by its two teams. Neither of the teams was specifically assigned to an area. The outgoing contractor adopted a broad approach based on time spent by each team in the new north and south areas to allocate one team to McTear and one to Mitie. Both companies refused to take on any of the employees.
The Employment Tribunal decided that one team should be allocated to each of the new contractors based on where they predominantly carried out their work, applying the principles set out in the Kimberley case.
This decision was appealed to the EAT by McTear and Mitie in reliance upon the ECJ’s decision in Govaerts.
The EAT judge decided that domestic case law, including Kimberley must be read as subject to the ECJ case of Govearts, even though that case was about a business transfer. Each individual must be considered on a case-by-case basis. This means that in principle, following a service provision change transfer, there is no reason in principle why an employee should not work for different employers so long as the work for those employers is clearly separate and identifiable.
The McTear & Mitie case has been sent back to the Employment Tribunal to consider how the Govearts case will apply to each of the Claimants individually in those cases.
So what are the implications of the EAT’s decision?
Whilst the principle in Kimberley meant that an incoming contractor could face a situation where they had to take on a team of transferring employees which was greater than the work they had actually won, this at least had the benefit of simplicity. If employers now have to consider the possibility of transferring employees joining them on a part time basis proportionate to the lot or work they have won then this would seem to throw up some obvious practical challenges.
- What if the work is split between contractors who are competitors? Would either want a new employee who spent part of their working week with them and part of the week with their commercial rival?
- Connected to this, what if the employee’s contract contains obligations of whole time and attention, confidentiality and fidelity?
- What if there is no easy division of time – how does the employee who finds themselves with two part time contracts deal with their different employers who may make competing demands on their time?
- Can a transferee use this to their advantage? Is there scope for a transferee taking on the majority of the services to try to limit their employment related obligations post transfer.
- And what does this mean for the employee? In many cases dividing the contract will result in the worker’s rights / working conditions being adversely affected. A substantial change in their working conditions to their material detriment? If so the employee has the right to treat themselves as having been dismissed and claim unfair dismissal (Reg 4(9)).
If anything these cases only stress the need for contractors bidding for and winning work where there are TUPE implications to be live to the need to take a pragmatic approach in assessing the potential liabilities which arise. Our experienced Employment team would be happy to help so please do get in touch if you have any queries on this subject.
This blog contains a general overview of information only. It does not constitute, and should not be relied upon, as legal advice. You should consult a suitably qualified lawyer on any specific legal problem or matter.
