In this eNewsletter:

• The Facts
• The Dispute
• The Law
• Was there a TUPE transfer?
• Comment

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 “Will She Stay or Will She Go?”

An Employment Tribunal in Reading has recently handed down, what is understood to be, the first decision in relation to the new “service provision change” transfers under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (commonly referred to as “TUPE 2006”). The case is Hunt v Storm Communications Limited, Wild Card Public Relations Limited and Brown Brothers Wines Limited.

The Facts

Brown Brothers Wines Ltd decided to re-tender its contract for PR services and as a result, Storm Communications Ltd who had previously provided the services to Brown Brothers, lost the contract to Wild Card Public Relations Ltd.

Mrs Hunt, who was an account manager employed by Storm Communications Ltd, spent 70% of her annual time working on the Brown Brothers’ account and was responsible for the day-to-day running of the account. However, her job description made no specific reference to providing services to any particular client.

The Dispute

Storm considered that the change of PR service provider was a TUPE transfer and that, as a result, Mrs Hunt's employment should transfer to Wild Card. However, Wild Card did not accept this. They stated that TUPE did not apply, as the Brown Brothers’ account was not Mrs Hunt’s "principal purpose", which was necessary for TUPE to apply. Wild Card did not accept that Mrs Hunt spent 70% of her time on the Brown Brothers account.  They considered that Mrs Hunt was not "essentially" dedicated to the account and that there was no obligation in her contract of employment for her to work on the account.

As there was no agreement between Storm and Wild Card as to the applicability of TUPE 2006 to Mrs Hunt, her employment terminated at the same time as the termination of the contract between Brown Brothers and Storm.

The Law

One of the primary changes to the law effected by TUPE 2006 was to widen the scope of the definition of a “relevant transfer” to specifically cover “service provision change” transfers. Therefore, under TUPE 2006 a "relevant transfer" occurs where either Regulation 3(1)(a) or 3(1)(b) is satisfied.

Regulation 3(1)(a) provides that a "relevant transfer" occurs where there is a transfer of a business, undertaking or part of a business or undertaking which is a transfer of an economic entity which retains its identity. Now commonly referred to as a “standard business transfer”.

Regulation 3(1)(b) provides that TUPE will apply in the circumstances where a client engages the services of a supplier to do the work on its behalf, or reassigns such a contract or brings the work in-house. Now commonly referred to as a “service provision change”.· 

For a service provision change transfer to apply there must also be an organised grouping of employees whose “principal purpose” is carrying on the services for the client. An organised grouping of employees can be a single employee. Guidance from the DTI indicates that the term “principal purpose” means that employees must be essentially dedicated to the relevant activity. However, there is no specific proportion of an employee’s time that must be spent on the activity to be assigned. This is essentially an assessment that will need to be carried out in each individual case.

Was there a TUPE transfer in Mrs Hunt's case?

The Employment Tribunal considered both Regulation 3(1)(a) and 3(1)(b) of TUPE 2006. It found that there was no transfer of an economic entity retaining its identity and therefore there was no transfer under Regulation 3(1)(a). However, the Employment Tribunal found that Mrs Hunt was an organised grouping of employees given her dedication to the account and the conditions for Regulation 3(1)(b) were therefore satisfied. The Tribunal accepted that Mrs Hunt spent 70% of her time on the Brown Brothers’ account.

The Employment Tribunal held that there was a TUPE transfer and therefore Mrs Hunt’s claim for automatic unfair dismissal should proceed against Wild Card.

Comment

This case provides useful guidance on the approach that might be taken by Employment Tribunals to the new definition of a “relevant transfer”. It is also a stark reminder of the wide applicability of the service change provisions and of the fact that it is not possible for the incoming service provider to avoid TUPE 2006 by performing the services in a different way or by not taking over the workforce or other significant assets. There is no requirement for a service provision change transfer that the undertaking retains its identity post transfer.  It is, therefore, very hard to imagine an outsourcing situation where TUPE 2006 will not apply, unless one of the narrow exemptions is applicable i.e. where the contract is wholly or mainly for the supply of goods or where the activities will be carried out in connection with a single specific event or task of short term duration. 

It was originally planned that there would be a professional services exemption in TUPE 2006, which would have meant that there was no relevant transfer where there was a change in the provider of professional services. However, the exemption was dropped from the final version of the Regulations. This means that not only a change in PR agencies (as in the case above) will be subject to TUPE 2006, but a change to any of your professional advisers is potentially a "relevant transfer".

There has been concern for some time amongst providers of professional services that TUPE 2006 will apply to employees working on a particular account (as they will often devote the majority of their time to that account) where there is a change of service provider. This concern has been proven justified by the decision in the Hunt case. It would also mean that the client in such a situation, regardless of the change of service provider, would continue to deal with the same employees pre and post transfer. Depending on the relationships involved, this may be viewed as a good or a bad thing! This could also have a bearing upon the cost of the new service, where the terms and conditions of employment of the staff involved are preserved under TUPE.

As the Hunt decision is only a decision from an Employment Tribunal, it is not binding authority for future cases. Despite this, it still provides useful guidance on how Employment Tribunals might deal with similar cases. However, the story is not over yet as Wild Card have appealed the decision to the Employment Appeal Tribunal  …. watch this space!

This e-briefing is sent to you by Anderson Strathern's Employment Department.  We hope you find it useful.  If we can help with any matters arising from this e-zine, or any employment law matter please contact Chris McDowall, or any other member of our team.