25/02/2016
The background
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) operate so that when there is a change in employer, employees who are employed immediately before the transfer automatically pass to the employment of the incoming employer.
This covers two broad situations.
- A traditional ‘business transfer’: where there is a transfer of an economic entity that retains its identity. An 'economic entity' is defined as "an organised grouping of resources" pursing an economic activity.
- A ‘service provision change’ (SPC): where services are transferred, whether by outsourcing, insourcing or taking services back in house.
Again, there must be an identifiable organised grouping of employees carrying out activities on behalf of the client.
In relation to both types of transfer under TUPE, references to a contractor are deemed to include a sub-contractor.
In a 2014 case called Inex Home Improvements v Hodgkins, the EAT looked at the whether TUPE applied where employees had been temporarily 'laid off' pre-transfer, and held that an 'organised grouping' can still exist in those circumstances.
In Mustafa v Trek Highways Services Limited (published last month), the Employment Appeal Tribunal (EAT) looked at whether TUPE applied where activities had temporarily ceased pre-transfer because a sub-contractor was in dispute with its client.
The facts
Amey Services (Amey) was appointed by Transport for London (TfL) to carry out road maintenance services from 2007 to 31 March 2013. In 2011, Amey subcontracted the traffic management element of its services to Trek Highways Services Ltd (Trek). As Amey's main contract was due to expire on 31 March 2013, the traffic management services were re-tendered and the contract was awarded by TfL to two new contractors: Ringway Jacobs and FM Conway.
In early March 2013 a dispute arose between Amey and Trek, which progressed as follows.
- On around 8 March 2013 Trek suspended its operations and sent its staff home, telling them to wait to be contacted.
- On 20 March 2013 the subcontract was terminated by consent.
- Trek informed their employees that their employment would transfer to Amey with effect from 21 March 2013.
- On 27 March 2013 a group of Trek employees reported for work at Amey's premises but were turned away; and were then subsequently turned away by Ringway (one of the two new subcontractors).
Ringway argued that TUPE did not apply because the previous contract had been terminated due to a commercial dispute.
An employment tribunal held that TUPE did not apply because
- there was no business transfer or a SPC; and
- the employees in question were not employed "immediately before" the transfer because they had been dismissed on 20 March 2013.
The employees appealed to the Employment Appeal Tribunal (EAT) – the key question was whether the interval in activities between 8 and 21 March 2013 prevented TUPE from applying.
The decision
The EAT allowed the appeal and remitted the case back to the employment tribunal to be reconsidered.
Business transfer
The fact that services were suspended between 8 and 21 March 2013 did not preclude there being a business transfer under TUPE. The EAT highlighted that the employment tribunal had wrongly focussed on the question of whether activities were being carried out, and should have considered whether the entity remained intact. It was clear that the entity (i.e. Trek) still existed and, therefore, a business transfer under TUPE could take place.
Service provision change
Applying the Inex decision (above), the EAT said that there is no requirement under TUPE that employees providing a service must be actively undertaking the relevant activities in order for the entity providing the service to be subject to an SPC. The question is whether the entity itself is still active and, in this case, Trek was clearly still a viable ongoing concern at the time of the transfer of services.
Tribunals must apply a multi-factorial test to the question of whether TUPE applies to a change in service provision, and the impact of a temporary cessation of activities is just one factor to be taken into account.
In this case, the service in question was 'traffic management services in North London', which continued to exist in the form of dedicated staff, vehicles, equipment and the existence of the sub-contract. The employees had been sent home but, importantly, not dismissed.
Finally, the EAT gave short shrift to the argument that TUPE would not apply where a contract was terminated because of a commercial dispute.
What does this mean for me?
This decision builds on existing case law and confirms that a temporary cessation in activities pre-transfer will not prevent TUPE from applying. Rather, it is a question of fact as to whether an organised grouping of employees retains its identity pre-transfer, even though work has come to a halt. A temporary cessation of work does not mean, by itself, that a grouping of employees can no longer be said to be "organised"; it is just one factor for a tribunal to take into account and is not determinative.
That said, TUPE decisions are very fact sensitive, and there may be circumstances in which stoppages in work could erode the existence of the 'entity' or the organised grouping of employees in question to such an extent that it would preclude a transfer under TUPE. Therefore, as ever, employers will need to tread carefully when considering whether TUPE might apply if work has temporarily ceased. If you have any concerns about whether or not TUPE might apply in particular circumstances, please do contact me or your usual Bevan Brittan contact – we are advising clients on the complexities of the application of TUPE on a regular basis.
