The Employment Appeal Tribunal held that because the services were considered to be too fragmented, TUPE did not apply when a services contract was re-assigned from an outgoing contractor to several new contractors. Jenny Wotherspoon reports on the implications.
Who: Clearsprings Management Ltd v (1) Ankers and others (2) Angel Services UK Ltd and others [UKEAT/0054/08]
Where: Employment Appeal Tribunal ("EAT")
When: 24 February 2009
Law stated as at: 27 March 2009
The EAT has held that TUPE did not apply when a contract was re-assigned from an outgoing contractor to several new contractors This was because the services were considered to be too fragmented.
TUPE applies to business transfers and since 2006 has also applied to 'service provision changes'. There will be a 'service provision change' where a service is outsourced, insourced or re-tendered, provided that before the change:
- There was an organised grouping of employees situated in GB;
- Which had as its 'principal purpose' the carrying out of the activities which transferred.
When a TUPE transfer takes place those employees assigned to the transferring business/service automatically transfer from the outgoing contractor to the new contractor on their existing terms and conditions.
It is possible for TUPE to apply even where the services are split between two or more new contractors. In this scenario the Tribunal will assess what services were carried out before the transfer and which employees were assigned to carry out those services as their principle function. Those employees who were assigned before the re-tendering exercise to a service which will transfer to a new contractor will be deemed to transfer to that new contractor automatically under TUPE.
This may be an easy test to reconcile where one contractor takes on the majority of the services. It has always been anticipated, however, that this is unlikely to be the case where the services are too diffuse to allow for this analysis to take place.
Clearsprings Management Limited ("Clearsprings") provided accommodation and other services to asylum seekers under a service contract with the Home Office.
As the result of a re-tendering exercise, three new contractors took over these services.
Following the re-tendering exercise a three month transitional period was implemented during which asylum seekers were distributed between the contractors on an ad-hoc basis. At the end of the transitional period Clearspring's contract was terminated. The ET and the EAT were asked to determine whether there was a TUPE transfer of the contracts of employment of the Clearsprings employees to the new contractors.
The EAT upheld the ET's decision that the activity carried out by Clearsprings was so fragmented that no relevant transfer took place. It took into account the fact that there was no discernable pattern of allocating the services to the new contractors during the transitional period. Furthermore, it took into account the fact that the transitional period made it difficult to pinpoint any potential transfer date which supported the view that the relevant services were difficult to identify clearly.
No precise division of the activities previously undertaken by Clearsprings could be identified. It was not therefore possible to determine to which new contractor the work previously carried out by Clearsprings' employees had transferred or which new contractor should become the new employer under TUPE.
Why this matters:
Employers in the marketing and advertising sectors are already familiar with the prospect that TUPE will apply when contracts are won and lost. This case may provide some comfort to those engaged in a re-tendering exercise where the services are transferred to several different contractors as it raises the possibility that TUPE may not apply if the services are fragmented.
That said, the fact that several new contractors share an account between them will not always mean that TUPE does not apply as each case will be judged on its own facts. Employers should be alive to the possibility that TUPE may apply when services are re-tendered (even to more than one contractor) and should seek legal advice before entering into new service contracts, so that the risks and can be identified and managed.