Deciding whether the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply to a service provision change can be a complex question for employers.There are three categories of service provision change; where a client outsources services to a contractor for the first time, where a client transfers services from one contractor to a new contractor and where a client brings services back “in-house” from a contractor.
In order for a transfer to apply in any of these circumstances, there must be an “organised grouping of employees whose principal purpose is to carry out relevant activities for the relevant client immediately before the transfer”. In the recent case of Amaryllis Ltd vs Mr McLeod and others, the Employment Appeal Tribunal (EAT) considered what this definition means in practice.
Millbrook Furnishings Limited renovated furniture for the Ministry of Defence and had done so for many years, save for a five year period between 2003 and 2008. In 2014 the contract was awarded to Amaryllis Limited and Amaryllis denied that any of the Millbrook employees would transfer to it under TUPE. The majority of Millbrook’s employees were therefore dismissed.
The employees lodged claims against both companies; one of the first questions for the Tribunal to decide was whether there had been a TUPE transfer from Millbrook to Amaryllis. The Tribunal Judge held that there was a service provision change; the client (the MOD) was transferring services from one contractor (Millbrook) to a new contractor (Amaryllis) and as a consequence the employees of Millbrook had TUPE transferred to Amaryllis. In particular, the Judge held that there was an organised grouping of employees because Millbrook had set up a department for the specific purpose of servicing the MOD renovation contract. The Judge also held that it was the “principal purpose” of that department to service the MOD contract as the affected employees, in the three to six month period leading up to the transfer, had spent 70% of their time working on that contract.
Amaryllis appealed on the grounds that the Tribunal Judge had reached a perverse decision on the facts and the EAT agreed. There was no evidence that the department had initially, a number of years ago, been set up only to service the MOD contract. The employees may have been working mostly on tasks for the MOD, but that was not enough to satisfy the test if there was no “deliberate planning or intent” for them to do so. The EAT found that there was no evidence that the employees had been consciously organised to service the MOD in this way. The Tribunal Judge had also failed to consider the impact of the period between 2003 and 2008 when Millbrook was not servicing the MOD contract at all. The decision that a transfer had taken place was therefore set aside.
The outcome in this case is not a one-off and follows the decisions made in similar cases; in the 2012 case of Eddie Stobart Ltd v Moreman and others the EAT held that, to constitute an “organised grouping”, it is not enough that employees carry out the majority of their work for a particular client. Rather, employees must be organised by reference to the requirements of the client and be identifiable as members of that client’s team.
Impact on employers
This case is a clear reminder that it is not enough to focus only upon the day-to-day tasks of employees when attempting to prove or disprove the fact of a TUPE transfer. It is also crucially important to question whether there is an “organised grouping”, which is not as easy as it sounds. The mere fact that a group of employees happen to service a particular client is not enough and a deliberate intention to create a team of employees with the primary purpose of servicing a particular client is required. If an employer wants to establish the fact of a TUPE transfer, whether that be to a new service provider or the Tribunal, it will need to demonstrate how and why the relevant employees were organised at the outset of the services being provided.
Practically this could include separating the relevant team from the rest of the department, making it clear in contracts of employment, job descriptions and other literature that they have been set up to service a particular client, ensuring the client is aware that it has a particular team designated to it and monitoring the amount of work provided to that particular client.
Blog posted 6 July 2016
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