Transferring the blame?

Date: 
28 October 2016

John McMullen examines the conditions of TUPE

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  • The purpose of the organised grouping.
  • The “same client” rule.
  • Whether an employee is assigned to an organised grouping.

For a service provision change TUPE transfer under reg 3(1)(b) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (2006/246) a number of conditions must be met. First, the activities changing hands, the subject of the service provision change, must remain fundamentally the same in the hands of the new provider, as they were in the hands of the outgoing provider (TUPE, reg 3(2A)). Second, immediately before the service provision change, it must be established that the client intends that the activities changing hands will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short term duration (TUPE, reg 3(3)(a)(ii)). Third, the activities concerned must not consist wholly or mainly of the supply of goods for the client’s use (TUPE, reg 3(3)(b)). Fourth, there must have been, “immediately before” the change, an organised grouping of employees, the principal purpose of which was to carry out the relevant activities for the relevant client (TUPE, reg 3(3)(a)(i)). And, finally, the activities carried on by the old provider must be provided by the new provider on behalf of the same client.

The purpose of the organised grouping

In Amaryllis Ltd v McLeod UKEAT/0273/15/RN the Employment Appeal Tribunal (EAT) emphasised the condition that the principal purpose of any organised grouping of workers must be assessed at the point immediately before the change of provider, and not historically.

Millbrook Furnishings Ltd carried out work for the Ministry of Defence (MoD) for over 50 years, renovating wood and metal furniture. Between 2003 and 2008 it did so as a sub-contractor to Amaryllis who, for that period, took over the main contract from Millbrook. From December 2012 the MoD awarded new contracts under a framework agreement. In 2014 the furnishings renovations contract was retendered among four contractors on the framework agreement. Millbrook was unsuccessful on the retender and instead the contract was awarded to Amaryllis. The MoD considered that TUPE applied. If tenderers took a different view they were invited to submit two tenders on the basis of TUPE applying and not applying. Amaryllis chose not to submit an alternative (non TUPE) tender. Ultimately, however, on legal advice, it decided not to take any Millbrook employees under TUPE.

The question was whether there was an organised grouping of employees in place prior to the transfer of work to Amaryllis, the principal purpose of which was to carry out the activities concerned on behalf of the MoD. It was accepted that Millbrook’s employees were spending just shy of 70% of their time on the MoD renovations contract. Nonetheless the employment judge considered that it was appropriate to consider evidence relating to the past. The employment judge was satisfied that the department had originally been set up with the specific purpose of servicing the MoD contracts, and although that grouping now serviced other customers, the MoD was still the largest customer. He found TUPE applied.

The employment judge considered that: “Any commercial enterprise looking to maximise profit and utilisation of resources will and can quite properly seek out, and, in this case, secure, contracts from other sources…nevertheless…on the evidence…the department had not ‘morphed’ from being one dedicated principally to servicing the MoD renovations contract into one operated principally to service the needs of all customers, which happen to include the MoD as its major customer.”

Amaryllis appealed. The EAT upheld the appeal. It was not sufficient that a department carries out significant work for a client. It must be organised for the principal purpose of carrying out that work for the client. The relevant time is immediately before the transfer.

The employment judge was wrong to look at the matter on an historic basis. And it was incorrect to take into account work done on furniture renovation by Millbrook between 2003 and 2008 when Millbrook was a subcontractor of Amaryllis. During this time the MoD was not a client of Millbrook. Millbrook’s client for this work was Amaryllis. That period could not be taken into account as, even if there were, during that period, an organised grouping of employees, the grouping concerned was not dedicated to carrying out the activities for the relevant client.

The “same client” rule

In CT Plus (Yorkshire) CIC v (1) Black (2) Lincolnshire Road Car Ltd t/a Stage Coach UKEAT/0035/16/DM the facts were as follows.

CT Plus ran a “park and ride” service under a contract with the local council, by virtue of which it received a subsidy. Lincolnshire Road Car Ltd had also tendered for this contract at the time it was awarded by the council.

However, there is nothing to stop a commercial company setting up a commercial service on the same route as a subsidised company, provided the relevant notification is given to the Vehicle and Operator Service Agency (VOSA). If that happens, the council subsidy has to cease, and the operator of the subsidised service can decide whether to continue the service without subsidy, if it can afford to do so.

Lincolnshire Road Car Ltd had an extensive depot in Lincoln with a large route network. It was much bigger than CT Plus. It took the view that it could run the service commercially without a subsidy and it obtained approval from the VOSA. As a result the council gave notice to CT Plus to terminate the subsidised contract.

CT Plus as a result, stopped the service and Lincolnshire Road Car Ltd began to operate the service instead.

Lincolnshire Road Car Ltd provided its own buses and took over nothing directly from CT Plus. It also refused to take on the CT Plus drivers. It denied there was a service provision change under TUPE within the meaning of reg 3(1)(b) of TUPE.

The employment tribunal, with which the EAT agreed, held there was no service provision change. For the purposes of a service provision change the client for whom the services are provided (here the council) must remain the same. Although services were originally provided by CT Plus to the council in a provider/client relationship, Lincolnshire Road Car Ltd was not a service provider to the council. Services taken over by a new provider must be for the same client. This was not the case here.

Although this further aspect did not feature in the case there would also have been “formidable” difficulties in finding there was a business transfer under reg 3(1)(a) of TUPE. For a business transfer there would need to be a transfer of significant tangible or intangible assets (if the function were asset reliant) or failing that, a taking over of a major part of the workforce in terms of numbers and skills (if it were labour intensive). But as a bus service is an asset reliant undertaking (as pointed out by the European Court in Oy Liikenne Ab v Liskojärvi C-172/99 [2001] IRLR 171) the fact that Lincolnshire Road Car Ltd did not take over the buses used by CT Plus was fatal to the application of reg 3(1)(a) of TUPE.

Assignment

We turn from the concept, for the purposes of service provision change, of an organised grouping of employees dedicated to client service delivery, to the question of whether an employee is assigned to that organised grouping. In BT Managed Services Limited v Edwards [2016] EWCA Civ 679 the Court of Appeal was due to hear an appeal in a long running dispute concerning Mr Edwards, ruled by the EAT not to have been assigned to an organised grouping of employees on the ground that he was on long term sick leave.

The legal position has hitherto been that set out in the Court of Appeal decision in Fairhurst Ward Abbotts Limited v Botes Building Limited [2004] EWCA Civ 83, [2004] All ER (D) 225 (Feb). In considering the question whether an employee absent from the undertaking (or part) in question on the ground of sickness was assigned it examined an employment tribunal decision in that case. An employment tribunal had held that such an employee, if absent, would not be assigned: he had, it said: “become detached”. This was overruled by the EAT and the Court of Appeal. In the Court of Appeal, according to Mummery LJ: “If the [employee] was in fact employed in that part of the undertaking for the purposes of TUPE, the fact that he was away from work because he was sick would not of itself prevent the transfer from including him. A person on sick leave, like a person on holiday, on study leave or on maternity leave, remains a person employed in the undertaking, even though he is not actually at his place of work. The question is whether he was employed in the part transferred. That is a factual matter.”

In BT Managed Services Limited v Edwards UKEAT/0241/14/MC the EAT considered that an employee who was permanently off sick, and connected with the part of the service being transferred purely for administrative reasons, was not assigned to the organised grouping of employees concerned. According to the view of HHJ Serota QC: “The question of whether or not an individual is ‘assigned’ to the organised grouping of resources or employees that is subject to the relevant transfer will generally require some level of participation or, in the case of temporary absence, an expectation of future participation, in carrying out the relevant activities on behalf of the client, which was the principal purpose of the organised grouping.”

In Edwards , he considered that it could not be said that the claimant was assigned “in any meaningful sense understood by employment lawyers”.

The matter reached the Court of Appeal [2016] EWCA Civ 679 by way of an application to appeal the EAT decision to the Court of Appeal. Lord Justice Longmore granted the application. BT Managed Services Limited’s position was that there is nothing in Botzen v Rotterdamsche Droogdok Maatschappij BV: C-186/83 [1986] 2 CMLR 50 (the leading European Court authority on the meaning of “assignment”) to suggest that the question of assignment has anything to do with a person contributing economic activity to the undertaking or part concerned. It is enough, said BT Managed Services Limited, that the transfer takes place of the department to which the employee was assigned and which formed the organisational framework within which the employment relationship took effect. Also, it was submitted, there is nothing in Fairhurst Ward Abbotts to suggest that there is any requirement of substantial economic activity on the part of the person alleging assignment.

However, the case has now settled and, for the moment, the EAT decision is the final view.

Dr John McMullen is partner in Wrigleys Solicitors LLP and author of Business Transfers and Employee Rights.

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