TUPE update

Sarah Lamont discusses two recent decisions arising out of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).

Dealing with service provision changes and the meaning of an “organised grouping of employees”.

The recent EAT judgment in the case of Eddie Stobart Ltd v Moreman and others (UKEAT 0223/11) provided guidance on the TUPE service provision change test.  Having considered what is required to constitute an “organised grouping of employees”, the EAT held that the employees in question must be organised by reference to the requirements of the particular client.  It is not enough that the employees work mostly on tasks which benefit a particular client in practice but "without any deliberate planning or intent".

Background

To meet the conditions of a service provision change under TUPE, there must be "an organised grouping of employees" whose "principal purpose" is carrying out the relevant activities on behalf of the client (Regulation 3(3)(a)(i)).  A “service provision change” may include a client engaging a contractor to do work on its behalf, reassigning a contract or bringing the work in-house.  Where the conditions of a TUPE service provision change are met, the employment contracts of those employees who are assigned to the organised grouping of employees pass from the transferor to the transferee.

This case involved 35 claimants who were employed by Eddie Stobart Limited (“ES”) at a Nottinghamshire depot.  In April 2009, the company decided to close the depot.  Up until that point, the depot had been providing warehouse and distribution services for two clients, Vion and Forza.  The way the depot operated was that day-shift staff worked principally for Vion and night-shift staff worked principally for Forza.  

When the depot closed, Vion awarded its contract to another logistics business, FJG.  ES took the view that its day-shift employees and those who spent more than 50% of their time on Vion-related work were:

• an organised grouping of employees whose principal purpose was to carry out the work required for Vion, and
• therefore assigned to the Vion contract, and
• had transferred to FJG, as a relevant service provision change had taken place with FJG as the transferee.

However, FJG disputed that a service provision change had occurred and that the employees working on the Vion contract had transferred.  The employees were subsequently dismissed by ES and some brought claims against both ES and FJG.  In its response to the claims, FJG argued that the claimants could not say they were "assigned" to any particular client of ES for the purposes of TUPE. 

At a pre-hearing review, the tribunal agreed to strike out the claims against FJG.  This was on the basis of what it called the “logically prior” question of whether there was an organised grouping of employees.  The Tribunal held that the claimants were not an organised grouping of employees: they spent the majority of their time working on the Vion contract because of the way ES organised its shift patterns, not because they were organised into a team whose principal purpose was to carry out work for Vion.
ES appealed against the decision. It argued that it was sufficient to show that the claimants worked mostly for Vion and that it was rare to have identified teams in the logistics industry so that the decision would mean that employees in that industry would never be protected under TUPE where a client moved to a different supplier.

Employment Appeal judgment

The EAT upheld the Tribunal decision and dismissed ES’s appeal. It held that:

• The two issues of whether there was an “organised grouping of employees” for the purposes of Regulation 3(3)(a)(i), and whether any of the claimants were assigned to that grouping, were "analytically distinct" issues. However, they do overlap to a considerable extent and so, to determine who was assigned to an organised grouping, it was necessary to look at what the grouping consisted of. 
• An “organised grouping” had to be more than simply a combination of shift patterns and working practices and “necessarily connotes that the employees be organised in some sense by reference to the requirements of the client in question”.  Here the claimants were working mostly on tasks which benefitted Vion, but without any “deliberate planning or intent”. The EAT added that the paradigm example here is a grouping of employees who are organised as “the [Client A] team” but acknowledged the test could be met where the identification is less explicit. 
• In relation to ES’ argument about the public policy and industry implications of the Tribunal’s decision, the language of TUPE should not be stretched in order to achieve a transfer of employees in as many situations as possible.

What does this mean for me?

This case provides useful guidance on how to identify an "organised grouping of employees" and how this relates to the question of assignment.  In practical terms, the case confirmed that when looking at service provision changes:

• the amount of time that employees spend working for a particular client is relevant to whether they are assigned to the organised grouping that is transferring. However, it must first be shown that the employees are deliberately organised into an identifiable client grouping
• to do that, it will be necessary for a transferor to show that the transferring employees are or were deliberately organised into an identifiable client grouping; and
• service provision changes will not be stretched to meet any number of circumstances.  As the government’s guidance suggests, service provision changes will be confined to situations where the outgoing service provider has in place a team of employees that are "essentially dedicated" to carrying out the activities that are to transfer, and cases where there is no identifiable grouping will be excluded.

Is a six mile relocation a ‘substantial change’ under TUPE?

In the recent case of Abellio London Ltd (Formerly Travel London Ltd) v Musse and others (UKEAT/0283/11) the EAT ruled that that a relocation of six miles because of a TUPE transfer was a substantial change in bus drivers' working conditions to their material detriment. 

On that basis, therefore, they had been entitled to resign and claim that they had been dismissed for the purposes of regulation 4(9) of TUPE. This states that an employee's resignation is deemed to be a "dismissal" where it is in response to “a substantial change to the employee's working conditions to their material detriment”. 

The claimants’ contracts provided that the employer:

• would endeavour to accommodate their preferred work location, but reserved the right at any time to require them to work "at any of its work locations as defined in the Contracts of Employment folder"
• had the right, after consultation, to vary any terms of the contract, except where a variation would diminish statutory entitlements

The claimants TUPE transferred in November 2009 and, as part of this, their location for work changed from Westbourne Park to Battersea. As this change in location would extend their working day from between one to two hours, they resigned.

The requirement to relocate was held to be a substantial change to the employee's working conditions to their material detriment as the change of the claimants' base was not permitted by the terms of their contract because Battersea was not one of the locations listed in the claimants' contracts of employment. Further, the letter telling them of the TUPE transfer was not a valid variation of the contract.  It would also have been a repudiatory breach of contract.

The change in location was held to be substantial. Key to this was the travel conditions involved in moving from north to south of the Thames in London and the fact that the claimants' working day would be extended by between one and two hours. From the employees' point of view (which is what should be taken into account), the proposed change was to their material detriment, and this was a reasonable position for them to adopt.

The EAT's decision is unsurprising in one sense as it simply follows the case of Tapere v South London and Maudsley NHS Trust. However this makes it difficult for transferees as they have the risk of automatic unfair dismissal claims on a change of location and so, from a practical point of view, it is important that, where possible, indemnity protection is inserted into contractual arrangements with the transferor.