UK: TUPE – When Will The Uncertainty End?

One of the most significant changes made by the 2006 version of TUPE was to widen its scope to give us more clarity regarding whether TUPE applies where services for a client are assigned to a different provider, ie to outsourcing and insourcing (a service provision change (SPC)). Although this widening of TUPE brought more transactions within its scope, the clarity which it provided was welcome.

However, the past 18 months have seen a number of Employment Appeal Tribunal (EAT) decisions which have muddied the waters and created considerable uncertainty as to when TUPE applies on a change of service provider, with the result that the apparent benefits of having the SPC provisions appear to be dwindling by the day!

These cases mean considerable analysis has to be carried out on the following questions to determine whether a SPC actually occurs, with the result that many transactions, which may at first glance look like clear TUPE transfers, actually fall outside of TUPE:

  • Is there an "organised grouping of employees" prior to the transfer?
  • How similar are the activities before and after the transfer?
  • Are the activities fragmented on the SPC eg where there is more than one incoming contractor, or where run-off is not transferred, and can you identify what activities transfer, and where they go to?

By July this year, the number of EAT decisions in this area had averaged one a month and the latest one, SNR Denton UK LLP v Kirwan & others, was reported last week.

The uncertainty over SPCs was also one of the key issues identified in the Government's response to the Call for Evidence on the effectiveness of TUPE, which was published last month.

The latest EAT decision in SNR Denton – and further uncertainty

The decision in SNR Denton is a good illustration of the uncertainty over SPCs. It raised a further question which previously had been thought clear. Does the SPC occur where the same client ultimately benefits from the services in question, or does hiring a contracting party in between the client and the service provider (a middle man) mean there is no longer the same client benefitting from the services, because the middle man became the new client?

Most would have thought the answer was that having a middle man would not matter. As long as the same client ultimately benefitted from the services, the "one client" rule of SPCs would be met. Not the case here though! In this case, administrators of an insolvent company appointed SNR Denton solicitors to carry out work previously done by the insolvent company's in-house lawyer. The EAT said that there was no SPC, meaning the in-house lawyer lost her job and did not transfer to SNR Denton. The EAT said there was no TUPE transfer because the identity of the client had changed following the SPC: before the transfer, the work was done by the in-house solicitor for the insolvent company but after the transfer, the work was done by SNR Denton for the administrators of the insolvent company. Just to confuse the situation further, the EAT emphasised that there may be circumstances where a SPC will occur where professional advisers are instructed by administrators.

So here, even though the entity ultimately benefitting from the services was the same, the EAT found there was no longer the same client, due to the middle man. Clearly this case needs to be treated with care but, again, further uncertainty is cast on a previously patently clear provision.

The general uncertainty and the Government's consultation

While over 50% of respondents to the Government's Call for Evidence felt that overall the changes introduced by TUPE 2006 had brought greater clarity, employers broadly shared concerns over the uncertainty in relation to:

Service Provision Changes:

  • Whether TUPE applies where services are split between a number of contractors
  • Which employees are assigned to the transferring group

ETO Reason:

  • What constitutes an 'economic, technical or organisational reason entailing a change in the workforce' (ETO reason) – 'entailing a change in the workforce' has been restrictively interpreted to mean only changes in the numbers employed or functions performed

What next and when?

The Government's consultation hints at a number of key areas for reform and an overriding objective to achieve greater certainty, through new legislation and issuing guidance.

This will be very welcome, although we note that one of the areas identified for consultation in the future is whether the current provisions relating to SPCs should be kept at all. We believe this would be a step too far, and that in practice business in the UK has got used to SPCs; all that is required is for the law to try and get back to the intended certainty and clarity for which SPCs were originally created. For this, TUPE will need to be amended (but we suspect this may take some time...).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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