Scott McKinnell looks at two cases on the potential liabilities that replacement contractors in service contracts might unwittingly be taking on, which could even include civil liability for accidents on site before they arrived...
As is often the case, contractor number one has a service contract in place with a public authority, let's say for keeping the boilers in the town hall ticking along nicely. The service contract comes to an end and another contractor, contractor number two takes it over instead. The problem is that before the transfer of the service contract an operative from contractor number one was injured in an accident on site and now wants to make a civil claim.
You may think that because contractor number two wasn't even there at the time, and nothing to do with the accident was his fault, that contractor number two isn't responsible. Surely contractor number one should pick up the tab for the personal injury to the operative? Well, if a court case in the High Court (Bernadone v Pall Mall Services Group and others) is to be believed, which followed an earlier case in the county court (Taylor v Service Team Limited & Another), unless appropriate measures are in place in the legal contracts for the transfer, contractor number two may well end up holding the baby – even though the accident didn't happen on his watch. Why, is that you may ask?
The reason, both courts said, is due to a piece of employment legislation called the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) (now replaced by TUPE 2006), specifically regulation 5 (now regulation 4 of TUPE 2006), which says that (with a number of exceptions) on the transfer of a business (which would often include a services contract coming to an end and being taken on by a new contractor), all of the rights, powers, duties and liabilities under or in connection with any contract of employment are transferred. The courts said that this was wide enough to include civil liability for accidents in which operatives were involved in connection with their employment contracts, where their employer owed them a duty of care, which was transferred on the transfer of the business to contractor number two – even though he wasn't even there then and couldn't have done anything to prevent the accident from taking place.
In practice, this wasn't that much of an escape route for contractor number one as it might first seem, as the High Court case made it clear that his insurer wasn't off the hook. The court said that the other side of the TUPE legislation coin was that the benefit of contractor number one's Employer's Liability insurance policy had also transferred over to contractor number two. This would still presumably mean that contractor one would have had to foot the bill for higher insurance costs next year.
If you are involved in a service contract which is transferring over, it is easier to take advice, allocate the risks, price them and deal with them in the contract conditions concerning the transfer rather than spend more money later and end up in court. To avoid contractor two's problems, it may be worth taking advice on exactly what liabilities you may be taking on and how best to resolve them.
Are you involved in a service contract which is transferring over?
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.
