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Real estate companies, managing agents and facilities/services
providers alike have all been faced with uncertainty over the last
18 months as to the applicability of the Transfer of Undertakings
(Protection of Employment) Regulations 2006 (TUPE) to property
transactions.
This arose from first instance decisions in Hunter v
McCarrick and later in Taurus Group Ltd v Crofts and
another which each held that TUPE applied where there was a
change of both client, typically the property leasehold or freehold
owner, and a change to the provider of the services to the property
in questions, typically a managing agent, security or cleaning
contractor.
On appeal in the Employment Appeal Tribunal (EAT) in both
Hunter v McCarrick and Taurus Group Ltd v Crofts and
another, the EAT has held that this is the wrong approach and
that there is no service provision change under TUPE on a change of
services provider where there is also a change in the owner of the
property.
Facts
In Taurus, Mr Crofts was employed by Reliance as a security
officer at a student accommodation property known as The
Glasshouse. Reliance's contract to provide the security
services at The Glasshouse was with the property owner, Ely
Properties. Ely went into administration and The Glasshouse was
subsequently acquired by Mansion Group. Reliance lost the security
services contract to Taurus. Reliance informed Mr Crofts that his
employment had automatically transferred to Taurus under TUPE, but
Taurus disagreed and Mr Croft's employment was terminated. Mr
Crofts brought an unfair dismissal claim against Reliance and
Taurus.
Legal Issues
Under TUPE, a 'service provision change' will apply
where a contract to provide a business service (such as managing
agent services, cleaning or security) to the client is either:
Outsourced to a service provider having been provided
in-house
Re-let to a new service provider
Ended with the bringing in-house of the business service in
question
Mr Crofts argued that for the service provision change under
TUPE to apply, the client did not have to remain the same entity.
Any other interpretation would undermine the purpose of TUPE, i.e.
to protect the rights of employees when contracts transfer. Taurus
argued that since the client had changed, there was no service
provision change within the meaning of TUPE.
Employment Tribunal decision
The Employment Tribunal rejected Taurus' argument, finding
that, for the purposes of TUPE, the client was the person who from
time to time required the provision of security services in this
case firstly Ely Properties and latterly Mansion Group. The
Tribunal therefore ruled that Mr Croft's employment had
transferred to Taurus and consequently any liabilities for unfair
dismissal passed to Taurus under usual TUPE principles. Taurus
appealed.
EAT decision
The EAT focussed on its earlier judgment in Hunter v
McCarrick, where it was held that, for there to be a services
provision change under TUPE, the activities carried out by
different service providers before and after the transfer must be
carried out for the same client. The EAT therefore overturned the
employment tribunal's decision based on the Hunter
judgment. The EAT stated that the correct interpretation of the
service provision change definition required the services carried
out before and after the change to be on behalf of the same
client.
Impact
This is significant for real estate transactions and where
ownership of a commercial property changes and the facilities
services providers are changed, those facilities staff (such as
cleaners or security guards) will not transfer to the new provider.
Further, liability for termination of those individuals'
employment will remain with the existing services provider, unless
they can establish that there was a business transfer (i.e. the
economic entity to which the employee is attached is transferred to
a new business and retains it identity post-transfer) for the
purposes of TUPE.
It is important to note that Hunter has been appealed
to the Court of Appeal and is due to be heard in October 2012. In
the meantime, however, services providers should seek to address
their now considerable risk via indemnities in any services
agreements with the property owner. Likewise, property owners may
wish to consider renegotiating services agreements now before the
Court of Appeal hearing to exclude any indemnification of service
providers in respect of the TUPE liabilities.
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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