One of the conditions necessary for a service provision change to occur under the TUPE Regulations is that, under Regulation 3.3(a)(i), there must be:
"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" (emphasis added).
It has taken some time for cases on the issue of "organised grouping" to come through the courts, but a number of recent cases in the EAT have turned on the meaning of the expression and the distinction between an "organised grouping" and a mere "group".
Seawell Limited v Ceva Freight (UK) Limited: Mr Moffat worked for Ceva who had a contract to supply logistics services to Seawell. Ceva employees were organised into an "outbound" group and an "inbound" group. Mr Moffatt was in the "outbound" group and spent 100% of his time doing Seawell work. However, other Ceva employees worked on other contracts.
The EAT found that Mr Moffat was not part of an organised grouping for the purposes of the TUPE Regulations. It held that an organised grouping required a deliberate attempt to put employees together to do the client's work. Ceva had not organised employees along client work lines, only into the inbound and outbound groups.
Eddie Stobart Limited v Moreman: Mr Moreman worked at an Eddie Stobart warehouse which serviced two main clients, A and B. Day shift employees primarily did work for client A, whereas night shift employees primarily did work for client B. Eddie Stobart lost the contract with client A and argued that the day shift workers who spent more than 50% of their time on that work should transfer to the new service provider by way of a service provision change.
However, the EAT found that Mr Moreman was not part of an organised grouping of employees capable of transferring under TUPE. The only reason that Mr Moreman and his colleagues spend most of their time on client A's work was because they were on the day shift, not because Eddie Stobart had organised them into a group whose principal purpose was to do client A's work.
Forming an "organised grouping"
From these decisions, it seems that forming an organised grouping requires the following:
- positive steps by the employer to organise employees along "client" lines;
- evidence that employees were treated as a "client group" in relation to their work;
- the identification of the employee with the particular client work must be more than merely an unintended result of their working pattern.
In many cases, such steps are not taken because they would be unnecessary or undesirable from an operational and/or HR perspective. However, failure to take them may give an incoming contractor a good argument that TUPE does not apply because there is no organised grouping of employees.
The fact that the TUPE Regulations expressly refer to an "organised grouping", as distinct from a mere "group", means that we should perhaps not be surprised by the EAT's decisions in the above cases. However, its granular and rather exacting approach does mean that groups of employees who might have transferred under the 1981 TUPE Regulations will not transfer under the 2006 TUPE Regulations for relatively insubstantial reasons.
This is similar to the way that recent case law on the meaning of "activities" in the context of a service provision change has made it easier to argue that a change in the relevant activities means that TUPE does not apply.
Arguably, both of these trends undermine the wider purpose of the TUPE Regulations and make the concept of the service provision change, which was supposed to introduce greater clarity to the application of TUPE to outsourcing situations, less easy to apply in practice.
Practical steps to create an organised grouping
Consider the following scenario:
A wins a contract to provide services to B. A has six skilled employees who will work mainly on the contract, with additional support when needed. They also do some other work for other clients, although the majority of their time is spent on B's work as they have skills and experience that are particularly suitable.
A does not treat or label them as a team, for a number of good business reasons: it wants them to remain flexible to work for other clients, if necessary; to be seen to be available to other parts of the business; to maintain a broad range of skills and knowledge; and not to become isolated within A's organisation.
Some time later, A loses the contract to a new bidder and argues that a service provision change will occur. The new bidder concedes that it is taking over the same activities, but argues that there is no "organised grouping" of employees capable of transferring.
Based on the cases discussed above, A will have some difficulty winning the argument. What could it have done to strengthen its position? Here are some suggestions:
- refer in the contract with the client to the "[client] team" that A will be deploying;
- at the beginning of the contract, inform the employees that they are being assigned to work in the new team;
- produce organigrams showing the team as a unit;
- use a team email address to communicate with them;
- provide updates on work to the team;
- provide training in team sessions;
- account for the team's costs as a unit;
- have a team management structure or reporting line e.g. a more senior employee who acts as team manager (even if they also manage other employees);
- locate the employees together physically, if possible;
- when recruiting new team members, internally or externally, frame adverts and job descriptions by reference to the team and the work for the client. For example, a job advert that says: "seeking experienced person to join a highly skilled team on a major client project", suggests that an organised grouping exists, whereas an advert that says simply "seeking experienced person", does not. Potential recruits may perceive the opportunity as more limited, but the benefits for the employer at the end of the contract could be significant.
Whether any or all of such measures will be sufficient to convince a tribunal that an organised grouping exists cannot be said with certainty. But they will surely put an employer in a better place to win the argument with an incoming provider or at tribunal.
Form or substance?
The courts and tribunals are always alert to superficial or insubstantial measures that are attempts to avoid the TUPE Regulations. Without doubt, measures that are disingenuous, artificial or belated will not pass scrutiny. So, for example, the technique of "re-badging" employees (informing them in the run up to the termination of a contract that they are assigned to particular work which they have already been doing for some time without any attempt to organise them) is likely to fail in this context. However, when it comes to the question of whether a group of employees are an "organised grouping", how they are treated is largely a question of appearance and genuine measures taken sufficiently early will be difficult to challenge.
The "organised grouping" issue is only one element of a service provision change. However, it is more within the control of employers than many other elements and is therefore one that should be addressed to ensure that it does not become the weak link in any argument about the application of TUPE.
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