TUPE: Service Provision Change - Do we need this provision?

by Pillsbury Global Sourcing Practice
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[author: Amina Adam]

Under the previous 1981 Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) and the EU Acquired Rights Directive (ARD) it was not clear whether the definition of a relevant transfer caught "outsourcing" activities where there was a change of service providers or a contracting in or out of services. The UK and European courts used a number of factors to decide whether there was a "transfer of an undertaking" within the meaning of TUPE 1981, which led to a number of conflicting case law decisions on this point.

TUPE 2006 Regulations sought to address the difficulties in applying TUPE 1981 to outsourcing activities by extending the definition of a relevant transfer to include situations where:

  • there was a "service provision change" for outsourced or in-sourced activities, or
  • there was a change of contractors (Regulation 3(1)(b)) and immediately before the change there was an organised grouping of employees situated in Great Britain which had as its principal purpose the carrying out of the activities concerned on behalf of the client (Regulation 3 3(a)).

As this definition goes beyond the scope of the ARD, the UK takes a more liberal view of what amounts to a "relevant transfer" than most, if not all the other EU countries. TUPE 2006 Regulations was seen by many as gold-plating TUPE to apply in nearly all outsourcing situations.

The UK government is now looking to review TUPE 2006 and launched a "Call for Evidence" on simplifying TUPE 2006, including amending or removing the "service provision change" definition under Regulations 3(1)(b). As part of this process, businesses, employers, organizations and unions can submit evidence on how TUPE 2006 has impacted them or their clients. The "Call for Evidence" is a precursor to formal proposals for legal change and further consultation.

One of the questions to be considered is whether the increased certainty about the application of TUPE to service provision changes (by virtue of TUPE 2006) has resulted in benefits or burdens for businesses. In particular, the Government asks whether the 2006 amendments have reduced the need for legal advice prior to tendering or bidding for contracts, and whether they have led to fewer tribunal claims.

In my view Regulation 3(1)(b) and the conditions set out in Regulation 3(3)(a) has led to businesses being more confident that TUPE will apply to the outsourcing activities unless it fell within the exceptions. Whilst the requirements of Regulation 3(1)(b) and Regulation 3(3)(a) appear to be more straightforward than the multi-factored approach required under TUPE 1981, recent cases decided by the Employment Appeal Tribunal (EAT) indicate that the appeal courts are taking a literal approach to the interpretation of Regulation 3(1)(b) and Regulation 3(3)(a). This may seem obvious but before these cases were decided many held the view that Employment Tribunals will interpret TUPE in a purposive way so as to find that it applies so that the individual's employment is protected by way of their employment transferring to the incoming service provider (as demonstrated by Employment Tribunal's decision in these cases).

For example, in the case of Eddie Stobart Ltd v Moreman (UKEAT/0223/11/) the EAT held that on the question of "the organised grouping of employees" the employees had to be organised intentionally by reference to the requirements of the client and not by a mere consequence of their shift pattern. If there was no planning or deliberate intent by the employer that the employees should work for the client, then TUPE did not apply. Also, in the case of Tauras Group Limited v Crofts (UKEAT/0024/12) and Hunter v McCarrick (UKEAT/0617/10) the EAT makes it clear that the test set out in Regulation 3(1)(b) will only be met if the activities carried out by different contractors before and after the service provision change are on behalf of the same client. Therefore, if there was a change in ownership of the building (as in these cases) at the same time as the service provision change, then TUPE did not apply. Although in these cases Regulation 3(1)(b) did not apply they do not rule out the possibility that in some circumstances there may be a relevant business transfers under Regulation 3(1)(a) effectively going back to the multi-factorial test applied under TUPE 1981.

It will be interesting to see what proposals come out of the Government's Call for Evidence and what revisions will be made to TUPE 2006. The Hunter case is also being appealed to the Court of Appeal, which may take a different approach. In my view, the service provision change definition should remain in place because it does provide a welcomed element of greater certainty than taking a multi-factored approach. However, there are clearly some grey areas where a review of the legislation would be welcome, such as whether TUPE should apply to the professional services industry and how it applies to split services where there are a number of providers. Recent case law is also a warning that, whilst TUPE 2006 provides increased certainty, it is not a guarantee that TUPE will always apply and companies should seek legal advice where there is a potential TUPE transfer situation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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