UK: Service Provision Changes Under TUPE 2006

Last Updated: 11 December 2007
Article by Barlow Lyde & Gilbert LLP

TUPE 2006 provides two routes by which a relevant transfer can occur. The first is where an "economic entity" retains its identity post transfer (the traditional TUPE transfer, under reg 3(1)(a)). The second is a service provision change within reg 3(1)(b).

Under reg 3(1)(b), TUPE 2006 applies to a service provision change, provided that the conditions of reg 3(3) are satisfied, where:

  • activities cease to be carried out by a person (client) and instead are carried out by another (contractor) on the client's behalf;
  • activities cease to be carried out by a contractor (regardless of whether they were previously carried out by the client) and instead are carried out by another (subsequent contractor) on the client's behalf; or
  • activities cease to be carried out by a contractor or subsequent contractor (regardless of whether they were previously carried out by the client) and instead are carried out by the client on his own behalf.

Essentially, reg 3(1)(b) brings virtually all types of outsourcing, in-sourcing and re-tendering exercises within TUPE's scope, provided that various conditions are satisfied. The key condition under reg 3(3) is that:

"immediately before the service provision change there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client". [our emphasis]

The facts

Mrs Hunt was an account manager for Storm Communications Ltd (Storm), a provider of public relations services. Although her job description made no reference to working for any one client, she had spent the majority of her five-year employment with Storm providing PR services to Brown Brothers Wines (Europe) Ltd (Brown). She worked on the Brown account in conjunction with a freelance account director and an account executive who provided administrative support.

Following a re-tendering process in respect of its public relations requirements, for which Storm pitched unsuccessfully to retain the work, Brown awarded the contract to a new service provider, Wild Card Public Relations Ltd (Wild), with effect from 2 October 2006, having terminated Storm's contract on 28 July 2006. There followed a dispute between Storm and Wild as to whether Brown's change of service provider amounted to a service provision change, with the effect of transferring Mrs Hunt's employment to Wild. As a result, she was effectively left without an employer and she brought a Tribunal claim against Storm, Wild and Brown.

Employment Tribunal's decision

At a Pre-Hearing Review, the Tribunal considered whether a service provision change transfer had in fact occurred. It held that there had been a relevant transfer under reg 3(1)(b) of TUPE 2006, by which Mrs Hunt's employment transferred from Storm to Wild. The Tribunal made the following findings:

  • Brown's "change of contractor" from Storm to Wild constituted a service provision change transfer under reg 3(1)(b). Perhaps surprisingly, the Tribunal found that although Brown itself carried out the PR activities in the interim period between 28 July and 2 October 2006, this did not constitute a separate service provision change by way of an "in-sourcing" from Storm to Brown, on the grounds that the PR activities were specialist and were not capable of being carried out by Brown.
  • All of the conditions of reg 3(3) had been met:

  • First, the Tribunal found that Mrs Hunt alone constituted the "organised grouping of employees". Although Mrs Hunt provided PR services in conjunction with the account director, the latter could not form part of the organised grouping as she was not an employee of Storm. Similarly, the ad hoc assistance provided by the account executive was "peripheral and administrative and not part of [Mrs Hunt's] specialist provision of PR services".
  • Secondly, and significantly, Mrs Hunt's "principal purpose" was providing specialist PR services to Brown. Despite the fact that she worked on three accounts in addition to Brown's, and that according to documentary evidence only 52 per cent of Mrs Hunt's recorded hours were spent servicing Brown's account, the Tribunal accepted Mrs Hunt's evidence that, taking into account non-recorded time spent outside work hours, she spent 70 per cent of her time on the Brown account overall. In addition, it was found to be irrelevant that her contract of employment did not specifically oblige her to work for Brown.
  • Thirdly, Brown had intended the PR services to be carried out by the new service provider, Wild, other than in connection with a single specific event or short term task; and the provision of PR services did not consist wholly or mainly of the supply of goods for Brown's use.
  • Finally, the date of the transfer was 28 July 2006 (even though Wild's contract did not start until 2 October). The Tribunal found that 28 July 2006 was the date on which Storm's "services were dispensed with by [Brown] in the full knowledge that the service provision would thereafter be provided by [Wild]". This is somewhat confusing given that Storm did not pitch for the services until 8 August 2006.


While it was mooted during the consultation phase prior to the introduction of TUPE 2006 that these rules should not apply to a change in professional service provider, the Government concluded that such a carve out was not necessary. This case clearly adheres to one of the key aims behind the introduction of the service provision change concept - to ensure the protection and continuation of employment when there is a change of provider.

This case suggests that the scope for service provision changes in the professional services arena is fairly wide, given the Tribunal's findings that Mrs Hunt alone amounted to an "organised grouping of employees", despite being assisted by other workers, and that her "principal purpose" was carrying out activities on behalf of Brown, despite also working on three other client accounts.

While this case will be of concern for some employers, it is only a first instance decision, and it is understood that Wild has appealed to the EAT. A decision from the EAT on service provision change would be welcome, and it will be interesting to see how the EAT applies TUPE 2006 to this case and in particular to the issue of "principal purpose" and "organised grouping of employees".

It is also worth noting that many employers in Storm's position would have sought work for Mrs Hunt on alternative accounts within the company rather than arguing that her employment transferred to Wild. Had Storm done so, it is unlikely that Mrs Hunt would have felt minded to bring a claim.

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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