UK: Introduction To TUPE & Outsourcing

In this podcast, TUPE & Outsourcing: 10 years on, Jane Fielding, Partner in our Employment, Labour & Equalities team and Hannah Swindle, Principal Associate in the team, discuss the risks in the constantly developing area of TUPE and outsourcing.

It has been 10 years since the concept of 'service provision change' (SPC) was introduced by TUPE 2006, heralding a new era in TUPE developments and case law. 10 years on and the path is not always easy, especially when dealing with the commercial realities.

Our experts answer these questions:

  • It's 10 years since the SPC concept was introduced. Where are we now and what might the future hold for SPCs?
  • What are the other challenges to SPCs and the key trends in this area?
  • What advice do you give on the key question of assignment?

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Podcast Transcript

Siobhan Bishop: Welcome to our podcast on TUPE and outsourcing. In this podcast we're going to look at some of the key concepts in a service provision change, as outsourcing is one of the main areas where TUPE applies. Now, inevitably, outsourcing scenarios dither up some of the most complex legal issues but they also give rise to certain practical employment problems. It's been ten years since the concept of service provision change was introduced, by TUPE 2006, heralding a new era in TUPE developments and case law. So ten years on and the path is still not always easy, especially when dealing with your commercial realities. The risks can still be challenging in the constantly developing area of TUPE. So, I'd like to introduce Jane Fielding, a partner in the Employment, Labour & Equalities team here at Gowling WLG and also Hannah Swindle, a principal associate in the team. Firstly, Hannah, it's been ten years since the concept of service provision change was introduced by TUPE 2006, can you tell us where we are now and what the future might hold for SPCs?

Hannah Swindle: Although Acquired Rights Directive did apply to some outsourcing scenarios pre 2006 under TUPE 1981, as you've said Siobhan the concept of service provision change was only formalised into statute under the 2006 TUPE Regulations, so ten years ago now. TUPE 2006 sets out the conditions for a service provision change. It applies where a client stops providing services on its own account and they're provided by a contractor going forward (an outsourcing) or where a second contractor takes over from the first (which will be a second generation outsourcing). Finally, it's where a client takes the services back in-house (an insourcing). Service provision change and a TUPE transfer will apply if, at the same time, there's an organised grouping of employees in Great Britain providing services for the client as its principal purpose and none of the exceptions apply. Of course, it's also important to remember that an outsourcing can still be a business transfer even if it doesn't meet the service provision change test. In some ways, service provision change is actually gold plating what was required by the Acquired Rights Directive. This had the business transfer concept and so service provision change goes over what's required by Europe, and this has affected how the tribunals are approaching its interpretation. However, the principle of employees transferring can be helpful and organisations often prefer certainty and planning. The broad principles are generally well incorporated and understood by organisations who've adapted to TUPE, particularly in the outsourcing world. The government conducted a full scale consultation and review of the effectiveness of TUPE and that was relatively recently, 2011 to 2014, including whether we should keep the service provision change concept. The feedback was a resounding 'yes'. There was widespread business opposition, from businesses, to the proposed removal of the service provision change concept. 67% of those who responded to the consultation, and many of those were indeed businesses, did not want the service provision change provisions to be repealed. They wanted to keep the certainty as they were used to dealing with TUPE and service provision change in particular by then. Therefore, the only change made in the 2014 Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations was the clarification which reflected where case law had got to and it aimed to improve certainty. The services pre and post transfer now have to be 'fundamentally' the same. But it's also the case that we've seen increased instances of organisations looking to avoid the application of TUPE as this can be helpful if the incoming employer does not want to take on staff or want to improve their commercial bargaining position when agreeing contractual protections. The case law around service provision change is still developing and the challenges to its application arise on the different elements of the service provision change definition. For example, tribunals are being asked to decide whether the activities being done pre and post transfer are actually fundamentally the same and the focus here is being made on what was actually being done on the ground before the transfer. Also, they're having to consider what happens if the services are fragmented by several providers providing the service after the transfer. Can TUPE still apply in this case? The answer to this is 'yes' but it does depend on what happens in actual fact, as it's possible that the activity can become too fragmented to identify the provider that the activities have transferred to and if that's the case there is no service provision change.

Siobhan Bishop: Thanks Hannah. And Jane, picking up on some of the other challenges we've seen to SPCs what do you think are the key trends in this area?

Jane Fielding: Yes, that's right Siobhan, we've seen challenges in a number of other areas as well. The first one I wanted to flag is where there's been no organised grouping of employees for the purposes of the service provision change. So, we've had various cases around that, and what they're telling us is that the 'organised' word there is quite important. There has to be a deliberate element of planning or intent by the service provider to organise the grouping of employees by reference to the particular client in question and so those people have to be identifiable as members of that client's team, and that element of deliberate planning is important. It can't just happen by accident, by 'happenstance', as one of the cases says. The cases also say that, perhaps surprisingly, a single employee can be an organised grouping; you don't need more than one. But conversely, just because an employee happens to work solely for a single client that doesn't necessarily mean they're an 'organised grouping' and that there is that sort of deliberate intent there, that could just have happened by accident. So the second area where we've seen some case law focusing is on the fact that the client changes at the same time as the service provider and what the case law has shown us and there's been appeal cases on this now, the Regulations do talk about 'the client', so it's 'the client' before and after the transfer. And the cases have said that if the client changes at the same time as the service provider then that can't be a service provision change type transfer. It may be that it's an old style business transfer, you always need to check that, but it can't be an SPC. There've also been some cases looking at whether, in a subcontracting situation, where you've got a main contractor and then subcontractors below, who is the client in those circumstances and what's clear from the case law there is that the subcontractors' client isn't necessarily just the main contractor who they have the direct contractor relationship with, it could be depending on the facts which need to be looked at in each case, it could be the ultimate client of the main contractor, so the ultimate customer in that chain of contracts. And finally there have been cases looking at the exceptions, so where a service provision change can't occur because perhaps there's a short term exception, so the client intends the activities only to be performed on a short term basis in connection with the task of short term basis. And what those cases are telling us is that the client's intention that this is short term has to be something that is within its control, on the ground if you like. So if they just hope that it will be short term but actually given the scenario that's not really within their control then they're not going to fall within this exception. Now, as always with TUPE, which way a particular situation is going to go is very fact dependant and it's a question of fact for the tribunal but those trends that we've just highlighted do give an indication of some of the principles that a tribunal will take into account when they're looking at the facts, but it's always very fact specific.

Siobhan Bishop: Many thanks Jane. Hannah, we know that one of the most common problems is assessing whether an individual is actually assigned. We know that you have to consider the question of whether there is an organised grouping of employees before the question of assignment, but what advice do you give on that key question of assignment?

Hannah Swindle: The new employer, the transferee, takes over the contracts of employment of all employees who were employed by the transferor immediately prior to the transfer and also assigned to the relevant grouping of employees. Assignment is essentially a factual question taking into account a number of factors. Unfortunately, contrary to a common misunderstanding, there is no specific percentage of time that an employee spends on particular services or 'magic number' which means that they will be assigned. TUPE will apply to employees, including fixed term employees, and also importantly those temporarily absent, for example anyone on maternity leave or absent through sickness absence provided that it's intended that the employee will return to work at some point. So, to work out whether an employee is assigned, it's necessary to look principally at activities carried out immediately before the transfer and consider time they spend on the services, the nature of work that the employee does, what the employee's contract of employment says about the duties they can be required to do, do they have responsibilities to other parts of the business and how is their costs allocated, for example are they costed out to a particular client contract? What is the value of the work they do, and finally, is there a factual connection to the work in question, for example what do they do in actual fact notwithstanding what it says they do in their contract? Ultimately it's a question of fact for the employment tribunal and it will all depend on the facts in a given case. This means it's sometimes hard to determine which way a tribunal will decide. Once assignment has been established then it's necessary for the parties to consider whether they want a particular employee to transfer. If not, they'll have to consider alternative options such as asking the employee to opt out or moving them on to different duties.

Siobhan Bishop: Thank you very much to Jane and to Hannah. Clearly there are significant legal and commercial issues on many outsourcing scenarios and it can often be a close call whether TUPE will apply or indeed if someone is assigned and transfers together with all their rights and liabilities. As we've discussed, it is often the case of assessing the risk and then dealing with the issues in a commercial agreement, at least to the extent that this is possible. If you have any queries on TUPE, please do contact Jane Fielding or Hannah Swindle and they would be delighted to help you. Thank you very much.

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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