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TUPE - a special assignment - how to spot those employees who transfer, those who don’t and those who might!

This article looks at 2 specific issues in the world of TUPE transfers.

Introduction

This article looks at 2 specific issues in the world of TUPE transfers.

  • The definition of a service provision change and, within this, the requirement for “an organised grouping of employees…which has as its principal purpose the carrying out of activities on behalf of the client.” (Regulation 3(3)(a)(i) of TUPE)
  • Identifying whether an employee is “assigned to the organised grouping of resources or employees that is subject to the relevant transfer” (Regulation 4(1) of TUPE)

The issues are similar and closely related, but not quite the same. The first issue is a UK specific issue and only arose following the TUPE reform in 2006. The second issue is very much a European issue as the term “assignment” comes from the European Acquired Rights Directive.

These issues tend to arise as concerns at the bidding stage, when they might influence information provided by an incumbent contractor, as part of an upcoming bidding process. The issues also arise when the transferor and transferee are known and the parties attempt to reach an agreement (or not) as to what constitutes the undertaking/service which is transferring and which employees are sufficiently based in that service in order to transfer.

Issue one – what is an organised grouping of employees?

This is an essential component for a service provision change transfer. Without an organised grouping of employees there will be no service provision change. So, for example, where a team of cleaners carry out cleaning various offices belonging to different organisations, a change in cleaning contractor by one of those organisations, would not give rise to a service provision change transfer. The team does not have as its principal purpose the carrying out of activities on behalf of the client in question. Their purpose is to carry out cleaning services for a range of clients. (Note that it is theoretically possible, although unlikely, that it would give rise to a traditional transfer either)

Without a transfer then the original contractor is left with all their employees and the problem of finding them something else to do or the redundancy liabilities. Also, without an organised grouping of employees, a potential bidder, can look at a service afresh, recognising that there is not the potential restriction and cost of having to take on an existing workforce.

This issue of what amounts to an organised grouping of employees was brought in to sharp focus in 2012 in the case of Eddie Stobart Limited (“ES”) v. Moreman. This case concerned the loss of a logistics contract by ES. The contract had been serviced at one of ES’s depots. That depot had looked after just 2 customers. The day shift employees principally carried out work for one customer and the night shift employees for the other customer. ES lost one of the customers (the one serviced by the day shift) and said that there had clearly been a service provision change and that the day shift employees were assigned to the service transferring.

On appeal, the Employment Appeal Tribunal did not agree. It noted the requirement, first and foremost, for an organised grouping of employees and that the fact that the vast majority of the work carried out by the day shift was for that particular customer, did not of itself give rise to them being an organised grouping of employees.

"Taking it first and foremost by reference to the statutory language, regulation 3(3)(a)(i) of TUPE does not say merely that the employees should in their day-to-day work in fact (principally) carry out the activities in question: it says that carrying out those activities should be the (principal) purpose of an organised grouping to which they belong. In my view that necessarily connotes that the employees be organised in some sense by reference to the requirements of the client in question... The paradigm of an "organised grouping" is indeed the case where employees are organised as "the [Client A] team", though no doubt the definition could in principle be satisfied in cases where the identification is less explicit"

This is an important test for contractors to consider, not only at the point of contract review/procurement, but throughout the life of the contract. Is there an expectation, if a contract is lost, that the employees will transfer to a new contractor? If so, how is the workforce organised? Is there a “Client A team” as the paradigm position identified above? If not, is the identification of employees who might be considered as the “organised grouping” more sophisticated than a simple percentage of time spent basis? If not, then it is very unlikely that the definition of a service provision change will be met.

Issue two – who is assigned?

The Eddie Stobart case (above) highlighted the need to identify the relevant transfer before then considering the issue of which employees are assigned to the undertaking/service which is transferring.

The requirement for an employee to be assigned, goes back to the European Acquired Rights Directive from which TUPE originates. A 1985 European court decision (Botzen v. Rotterdamsche Droogdok Maatschappij BV) is still referred to in decisions on this issue. This case decided that only employees who are actually assigned to the department (or service or undertaking) transferring should transfer. It noted that it is not a question of looking at which employees spent all or most of their time but rather deciding to which part of their employing organisation, they are assigned. The applicability of this test was recently noted in the Employment Appeal Tribunal decision of London Borough of Hillingdon v. Gormanley (19 December 2014).

The test is a useful reminder to those who look at which employees should/should not transfer by applying a percentage amount to the work that employees carry out within a transferring service. The application of a percentage is commonplace and has been for a number of years. The percentage levels commonly used, also seem to have declined over the years. For example, under the CCT environment in local government in the 1990’s it was common to see percentages of 75-80% being applied. In the “Learning to Succeed” reforms of the early 2000s (by which Training and Enterprise Councils were abolished and their activities taken up by other bodies, most notably the Learning and Skills Council) the Government issued guidance which referred to a “two thirds principle.” More recently it has not been uncommon to see parties apply a 50 or 55% threshold.

Crucially though, the test of assignment has to be met. Whilst, in general terms, the greater the percentage of time an employee spends working on the service/undertaking which is transferring, the more likely it is that the test will be met, it is clear ( and must be remembered) that it is possible for an employee not to be assigned to a service even though they spend the majority (even the vast majority) of their time working in the service and visa versa.

Some conclusions and suggestions

  • Remember, when looking at service provision changes, that the organised grouping of employees (which has as its principle purpose the carrying out of the service) has to be identified. Otherwise there is no service provision change to which TUPE will apply.
  • Common sense conclusion - those employees who form part of that organised grouping of employees must also meet the definition of assignment.
  • It is possible though that there may be some employees who are not part of that organised grouping who also meet the definition of assignment.
  • Applying a percentage to try to identify the organised grouping of employees would be far too unsophisticated an approach (look at the Eddie Stobart case for example).
  • Applying a percentage to try to identify those employees who are assigned, might serve as a useful guide, but remembering always that it will not in itself determine whether an employee is assigned to the service transferring.

Note - TUPE means the Transfer of Undertaking (Protection of Employment) Regulations 2006.