TUPE: who is the 'client' in a service provision change?

For there to be a service provision change within the scope of TUPE, a number of factors need to fall into place.

For there to be a service provision change within the scope of TUPE, a number of factors need to fall into place.

The factors are set out in Regulation 3(1)(b) and have caused a number of problems. Problems such as what constitutes “activities” and what is meant by “an organised grouping” are well documented.

Successive excessively literal interpretations of these terms have narrowed down the scope of the service provision change rules, leading to a number of surprising cases where TUPE has been held not to apply.

Another problem, which was less apparent until it came to the fore in the case of Hunter v McCarrick, is the problem of the changing client. The issue is this, the Regulations refer to the client in a number of places, such as: “the activities cease to be carried out by a contractor on a client's behalf and are reassigned to another person (a subsequent contractor) to carry out on the client's behalf” (Regulation 3(1)(b)(ii)). That implies commonality between the client as mentioned in the two places. Yet what if the client changes?

Assume, for example, that a function is being outsourced by a local authority. Following an administrative restructure, responsibility moves to a central Government body. Upon the change of responsibility, the service is retendered. The specification and other circumstances of the service are identical to the service currently being delivered – so a “nailed on” case of TUPE applying, one would have thought – save that the fact that responsibility has moved from one client to another means that TUPE does not apply for that reason alone. These circumstances can arise with remarkable frequency – in situations where responsibility shifts from one group company to another or in insolvency situations where a receiver steps into the shoes of the procurer of the service as in Hunter, making this a frequent problem in the world of property management.

The Employment Appeal Tribunal has found a way round this problem in the recent case of Ottimo Property Services v Duncan. Mr Duncan was a maintenance manager on a housing estate. The company for which he worked had property maintenance contracts with a number of management companies which were in place in relation to different housing blocks. In other words, the services were being performed for a number of “clients”. So when the services were transferred to Ottimo, they argued that there was no transfer of services for a common client: there was a group of clients procuring the service. However, the EAT was having none of this argument and found that there was a transfer. HHJ Eady explained that a service provision change can take place where there is a group of clients, provided that the group remains the same before and after and provided that the group shares a common intention.

One might have thought that the EAT would have taken a narrower approach given past decisions such as Hunter and given that the courts do not have to adopt a purposive approach to this part of TUPE. It may yet be appealed, but it is refreshing that the EAT has taken a step back from the literal interpretations of the service provision change regulations which have done so much to curtail their application, contrary to what the legislators originally had in mind. It should be noted that there was not a single contract in this case, but a number of individual contracts between the service provider and individual management companies, making it more difficult to establish the commonality. What is ultimately decisive, however, is the shared purpose.

Michael Ryley is a partner and TUPE specialist in the London Employment, Pensions and Immigration Team (michael.ryley@weightmans.com).  

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