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Doing the splits: EAT decision makes TUPE even more complex

The UK Employment Appeal Tribunal supports that ‘splitting up’ of an employee’s contract can apply to ‘service provision changes’ under TUPE, as well…

TUPE is notoriously complicated, and often difficult to apply to ‘real-life’ commercial transactions. However, over the last year or so, that complexity has stepped up a gear.

Late last summer we reported on the case of ISS Facility Services NV v Sonia Govaerts and Atalian NV, where the European Court of Justice (ECJ) held that when an undertaking is ‘fragmented’, and work passes to multiple transferees, an employee’s contract could be split up, and the employment divided between several new employers. The ECJ also stated that if the division of the contract proved impossible or would adversely affect the working conditions and rights of the employee the contract may be terminated and the transferee(s) would be regarded as being responsible for any consequent termination of employment. At the time, it was unclear exactly how this would impact on UK businesses.

However, the UK Employment Appeal Tribunal, has now stepped in to comment, holding in McTear v Bennett that this ‘splitting up’ of an employee’s contract can apply to ‘service provision changes’ under TUPE, as well as to ‘business transfers’.

Govaerts: A reminder

To briefly re-cap, the ECJ in Govaerts held that the employment contract of a Belgian employee, engaged to project manage the cleaning and maintenance of public buildings in the city of Ghent, transferred to two separate transferors (in proportion to the tasks she performed for them). Importantly, this decision applied to ‘business transfers’ only, and not to ‘service provision changes’ (which are a construct of UK domestic law and are not specifically mentioned in the Acquired Rights Directive, the EU legislation that underpins TUPE). It was unclear whether UK courts and tribunals were required to follow this case, and whether the same ‘fragmentation’ could apply to service provision changes.

McTear: What happened?

The EAT in McTear has confirmed that the answer to both these questions is yes; Govaerts applies to UK transactions, whether they are business transfers or service provision changes.

The case involved 23 employees of Amey Services Ltd, which had a contract with North Lanarkshire Council to replace kitchens in the Council’s social housing. When the Council re-tendered the kitchen contract, it decided to split it by geographical area (north and south). One contract was awarded to McTear Contracts Ltd, and the other to Mitie Property Services UK. Amey took the view that TUPE applied and that each of its staff would transfer to either McTear or Mitie. To decide which transferee the employees should transfer to, Amey carried out a careful analysis of the amount of work performed by each employee over the preceding 12 months. However, both transferors objected to this and refused to take on any of the employees.

The EAT held that as Govaerts pre-dated the end of the Brexit ‘transition-period’ it had the status of ‘retained EU law’ and should apply to any aspects of the Acquired Rights Directive incorporated into domestic UK legislation by TUPE. Although, there was no absolute requirement to apply the case to the ‘purely domestic’ provisions of TUPE, such as service provision changes, the EAT held that it was wise to do so, as it would be undesirable for separate approaches to apply to the two different types of transfer. There was no reason why an employee could not, following a service provision change, hold two or more contracts with new transferee employers at the same time, as long as the work attributable to each contract was separate and could be clearly identified.

Regarding the Amey employees, it was necessary for the employment tribunal that first heard the case to reconsider the position of each of them in detail, to decide which transferee(s) they should move to and how their time should be split up.

What does this mean for you?

One positive aspect of the McTear decision is that the same rules regarding the potential ‘splitting up’ of contracts will apply to both business transfers and service provision changes. As the EAT identified, it would be potentially messy and confusing for different regimes to apply.

However, the unorthodox decisions in Govaerts and McTear immediately raise a number of problematic practical issues. If, for example, a full time contract is split up in to a number of separate part time contracts for different employers, how in practice will the employee split their time? Working for multiple employers is unlikely to be an attractive prospect for the transferring employee, and in most cases will be detrimental to his or her working conditions.

In these circumstances, the ECJ in Govaerts suggested that the contract could be terminated, and that the transferees would then bear responsibility for the termination.

This seems a heavy burden for the transferee(s), who would potentially be liable for the cost of any unfair dismissal claims.

Comment

It currently appears unlikely that McTear will be appealed further to the Court of Session (although we let you know if anything changes). Therefore, UK employment tribunals are bound to follow the case for the foreseeable future.

It is important to note that Govaerts and McTear mark a huge departure from the approach formerly taken by UK Courts, which have previously rejected any such ‘splitting up’ of employment on transfer.

The ‘new’ regime of assessing the extent of an employee’s assignment to a number of potential new employers is likely to involving challenging judgement calls for both transferors and transferees, both pre and post transfer.

Against this background, it is more important than ever for contractual arrangements on transfer to be clear and robust. In particular, transferee employers will need to make sure that agreements with the transferor include adequate protection against any liabilities they may inherit as a result of the transfer.

Please remember that the Weightmans Employment, Pensions and Immigration team is on hand to support your organisation with any employment aspects of a business transfer or service provision change, at any stage of the transaction. Please do not hesitate to get in touch.

If you have any questions, please do not hesitate to contact our employment law solicitors. We are able to provide expert advice on employment tribunal litigation.

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