UK: TUPE Update - Mitigating The Risk

Last Updated: 28 February 2013
Article by Bob Mecrate-Butcher

Current Trends in Recent Cases Service Provision Change - what happened to the certainty?

In our previous updates (please click here to read the update) we have been emphasising the uncertainty now surrounding service provision changes and have considered four different strands resulting from EAT decisions where it has been successfully argued that there has been no service provision change transfer ("SPC transfer"). We now have the first Court of Appeal decision on one of these strands, Hunter v McCarrick, which confirmed that there is no SPC transfer where there is a change in client. This is particularly relevant where there is a sale of commercial property.

First decision on single specific event/task of short-term duration In Liddell's Coaches v Cook and ors we have the first EAT decision on the meaning of the exclusion from the SPC provisions where the transferring activities are "in connection with a single specific event or task of short-term duration". Here the EAT considered whether both the "single specific event" and the "task" must be governed by the requirement to be "of short term duration" for the exclusion to apply. Non-binding comments by the President of the EAT in another recent case, SNR Denton UK v Kirwan, had suggested that, in line with government guidance, this was the case.

The EAT specifically disagreed with the comments in Kirwan and clarified that the exclusion would apply where either there was a single specific event (which in Liddell , was a 12 month contract whilst a school was being built as opposed to normal coach contract of between 3 to 5 years) or a task of short term duration.

This means there will be some activities that will come within the exclusion which are not of short-term duration but are in connection with a single specific event and it appears the exclusion has a wider application than originally thought. Once again this limits the certainty that there will be an SPC transfer.

Pension loss on a transferee not taking on employees

Pensions are generally excluded from transferring under TUPE except as required under the Transfer of Employment Pension Protection Regulations where the transferee is required to match the employee's contributions to a money purchase scheme up to a maximum of 6% of earnings each year. However, the decision of the EAT in Adamson v BT serves as a warning to employers that they could find themselves liable for substantial compensation for pension loss if they make statements about the treatment of pensions without thinking through the consequences.

The case concerned an NHS IT contract lost by Atos and awarded to BT. BT wrongly believed there was no SPC transfer. At the main hearing the tribunal referred to evidence given by BT that it had regularly honoured pension provision arrangements following TUPE transfers in the past and concluded BT would have done so in this case. The EAT upheld the ET decision awarding pension loss on the basis of valuable DB benefits.

The EAT also upheld the ET's decision that the reason for dismissal was "redundancy", this being on the basis of evidence that part of BT's rationale for not taking on the staff was that it did not need them, thereby also entitling the employees to enhanced redundancy payments.

Practical impact of this decision

This decision is relevant when assessing the risk for a party which might be found to be a transferee in not taking on staff. In addition to unfair dismissal liability there may be a risk of a contractual liability for redundancy payments. When assessing unfair dismissal liability, pension loss could be significant if employees have enjoyed valuable DB benefits and the potential transferee has previously honoured such benefits following transfers. Potential transferees should, with a view to mitigating the redundancy risk, ensure that it is clear the reason for not taking on staff is solely because of a reasoned view that there is no transfer rather than any view that the staff would be surplus to requirements. They should also avoid statements about how they might treat pensions.

Unplanned in-sourcing was SPC Transfer

In Islington v Bannon , the EAT upheld a tribunal's decision that there had been an SPC transfer under TUPE where the Council had taken back the Independent Visitor Service it had a statutory duty to provide when negotiations on re-tendering the contract fell through. Although the Council operated a significantly reduced service, it took on the activities. This is a reminder that any gap between the outgoing and incoming contractors can result in a transfer back to the client even where a full service is not provided pending completion of the retendering process.

Spotlight on reform - Consultation on proposed changes to TUPE

The Government has recently published its consultation on the reform of TUPE following its call for evidence last year. These are wide-ranging proposals including removal of the service provision change. Please click here for more details.

TUPE Support

We have developed a TUPE support package designed to mitigate the risk of transfers for clients whose business involves frequent transfers. Please click here for details of our services and fixed fee pricing.

Indemnity spotlight - Employee Liability Information ("ELI")

Under regulation 11 the transferor is required to provide the transferee with ELI at least 14 days before the transfer. If it fails to do so the transferee can pursue an ET claim under regulation 12 against the transferor and seek a penalty of not less than Ł500 per employee. Generally, both in the context of a business sale and in any outsourcing scenario, the parties will want to provide a contractual remedy for any failure to provide information, rather than leaving it to the buyer or new service provider to pursue a statutory tribunal claim. However, providing for this in practical terms, is not straightforward. It is not possible to contract out of TUPE and, therefore, the parties cannot merely provide that the buyer/service provider, as appropriate, will not pursue a claim. Often, therefore, the mechanism used to achieve what is intended will be an indemnity from the transferee to the transferor against any liability the transferor faces as a result of the transferee pursuing a regulation 12 claim. It should be difficult for a transferee to object to this indemnity where the contract itself provides for the provision of TUPE information.

Key points to take away

  • No SPC transfer where there is also a change of client.
  • For the "single specific event" exclusion to apply, it need not also be of short term duration.
  • If adopting the approach that TUPE does not apply to a particular scenario, avoid making statements as to how pension provision would be treated, or that employees surplus to requirements. Such statements could lead to increased liability.

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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