TUPE not necessarily triggered by loss of significant client

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The EAT has emphasised that not every change in contractor triggers TUPE, and that it depends on how the employees are organised in the old contractor’s business. 


Background

‘Service Provision Changes’ (SPCs) are subject to the TUPE regulations, and require the new service provider to take on all of the employees assigned to the activities with almost all of their existing employment rights.

SPCs are defined by TUPE as situations where a client contracts-out activities, brings them back in house or awards them to a different contractor.  To qualify as an SPC, the activities must be fundamentally the same before and after the transfer and there must be an organised grouping of employees whose principal purpose is carrying out the activities on behalf of the client.

This latest case – Amaryllis v McLeod - turns on the ‘organised grouping’ part of the test.  Previous case law has clarified that, normally, this will mean that there is an identifiable team of employees who are dedicated to carrying out the relevant activities. It is not necessary that the employees work exclusively for the client, but the majority of their work should be for the particular client. Crucially, the employees must be deliberately organised to work for the particular client. It must not just happen by accident that an employee spends most of their time working for a particular client.

Facts

Millbrook’s furniture renovation department lost its biggest client, the MOD. The department had apparently been set up several decades ago to service the MOD contract. When it lost the contract, Millbrook had other clients but about 70% of the work was for the MOD.

The new contractor, Amaryllis, took the view that Millbrook’s employees would not transfer under TUPE.  Millbrook’s furniture renovation department closed down and the majority of Millbrook’s employees ended up losing their jobs. A group of them brought claims against both Millbrook and Amaryllis.

The Employment Tribunal concluded that this was a SPC which attracted TUPE. Amaryllis appealed, on the basis that Millbrook’s furniture renovation department was not an ‘organised grouping’ whose principal purpose was the MOD contract

EAT Decision

The EAT set aside the ET judgment. In their view, the ET had over-relied on the history of the furniture restoration department and had not properly focussed on the correct point in time, which was immediately before it lost the MOD contract.  The question was whether, at that point in time, there was an organised grouping whose principal purpose was the MOD contract.

Comment

The fact that the employees in the furniture restoration department spent 70% of their time on the contract rather than 100% was not the problem - the grouping does not need to spend 100% of their time on the contract.  The real problem was that the employees worked across contracts, rather than in any kind of identifiable teams. If Millbrook had organised its furniture renovation department so that 70% of the employees worked on the MOD contract and the other 30% on other contracts, the outcome might have been different.  Without identifiable teams, however, the courts had to look at the principal purpose of the furniture renovation department as a whole.  The EAT could not accept that the MOD contract was the department’s principal purpose (as opposed to its historic purpose).

This case is a reminder not to assume that winning or losing a new contract means that TUPE will apply.  It depends in part on the set-up within the existing contractor’s business. The ‘organised grouping’ test favours some set-ups over others – so, for example, the more deliberately organised are the employees, the more likely there is to be an organised grouping. The more client-account orientated, the more likely there is to be an organised grouping. Whether there is an ‘organised grouping’ must be judged at the time of the transfer, not looking backwards into history.

If you are involved in contracting, please come along to one of our TUPE seminars where we will be looking in more detail at what triggers an SPC, what to do when (as in this case) there is a dispute between the old and new contractors over whether TUPE applies, and at other practical TUPE issues.

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