NOVEMBER 2014

TUPE or not TUPE –

your strategy for

approaching TUPE in

an outsourcing

context

KATHRYN DOOKS, VIRGINIA ALLEN

AND AMY DOUTHWAITE

An overview of TUPE

When TUPE doesn’t apply

Coffee break

Typical approach to TUPE indemnities

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Today’s session

Two tests:

Standard “multi-factoral” test

– Most common in sales of businesses

Service provision change

– Most common in outsourcing

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The critical question – TUPE or no TUPE?

Standard “Multi-factoral” test

Staff taken over

Customers

taken over

Value of

intangible

assets

Buildings or

moveable

property

“relevant transfer”

value of intangible

assetscustomers taken over

similarity between the

activities staff taken over

buildings or moveable

property

A transfer of a stable economic undertaking which retains its identity

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Service provision changes

Client

Subsequent

contractorContractor

ba

Client Contractor

Client Contractor

1

2

3

5

Fundamentally the same activities

Caselaw codified in TUPE

Organised grouping of employees

Located in Great Britain

Whose principal purpose is the carrying out of the activities

Specifically organised by reference to the client, not grouped by accident

Assigned to that grouping

Immediately before the transfer

A question of fact, applying a multifactorial test:

– percentage of time spent

– title

– reporting structure

Costain v Armitage

Service provision changes - continued

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Rights,

duties,

powers and

liabilities

transfer

Information

and

consultation

Notification

of

employee

liability

informationDismissals

automatically

unfair in

certain

circumstances

Changes to

terms and

conditions at

risk of being

void

No

contracting

out - right of

objection

Staff transfer on

same terms

“relevant

transfer”

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Informing and consulting

Inform and, if appropriate, consult appropriate representatives of “affected employees”

Long enough before the transfer to enable the employer to consult on any ‘measures’ that will be taken

Award of up to 13 weeks’ pay for failure

Transferee must provide details of any proposed measures

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Employee liability information

Certain information has to be provided in writing or in another readily accessible form

At least 28 days before the transfer (used to be 14 days)

Just and equitable penalty having regard to any loss suffered by the transferee (normally no less than £500 per employee)

Eville & Jones (UK) v Grants Veterinary Services Ltd

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Automatically unfair to dismiss if the sole or principal reason is the transfer unless it is

an ETO reason

ETO = economic, technical or organisational reason “entailing changes to the workforce”

Dismissals and TUPE transfers

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Changes are void if the sole or principal reason is the transfer unless:

– the contract provides for the change; or

– sole or principal reason it is an ETO reason and the employee agrees;

– Hazel and another v The Manchester College

– Enterprise Managed Services Ltd v Dance & others

– Smith and others v Trustees of Brooklands College

Options:

– Think of another reason!

– Delay the timing

– Settlement agreements

Changing terms and conditions and TUPE transfers

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Changes in location

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Prior to January 2014 not an ETO reason, so redundancy in this context automatically

unfair (e.g. Tapere v South London and Maudsley NHS Trust, Abellio London Limited v

Musse)

Now expressly an ETO reason so not automatically unfair BUT

– Usual unfair dismissal principles apply – need to go through a consultation process

including considering pooling and selection

– If pre-transfer, likely to still be unfair as transferor cannot rely on transferee’s need to

relocate

– If post-transfer, will need to incur employment costs in the meantime and pool with

transferee’s existing staff

Solutions – indemnity protection and / or settlement agreements

Managing offshoring and TUPE

Holis Metal Industries Limited v GMB

Two options for dealing with consultation obligations

Option one now expressly permitted where transferor consents

1

Transfer;

Collective consultation

Dismissal

2

Collective consultation;

Transfer;

Dismissal

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When TUPE doesn’t apply (1): no organised grouping of

employees

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BIS guidance – are the employees “essentially dedicated” to providing the services?

Is a group of employees organised by reference to the client?

Are they identifiable as members of the client’s team?

If not, TUPE will not apply

Example:

– Warehouse and distribution operatives divided into day and night shifts

– In practice, day shift staff worked mostly for one customer, while night staff worked for

another. But no deliberate plan to divide work up in this way

– Held, TUPE did not apply because no organised grouping of employees

(Eddie Stobart Limited v Moreman and Others)

When TUPE doesn’t apply (2): – services not “fundamentally

the same”

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Are the activities “fundamentally or essentially the same as those carried out by the

alleged transferor?” (Metropolitan Resources Limited v Churchill Dulwich Ltd)

Examples:

– sandwich and salad bar a “wholly different operation” than greasy spoon (OCS Group

UK Ltd v Jones)

– Omission of 15% of work from IT contract after re-tendering enough to count as a

significant difference (Enterprise Management Services Limited v Connect-up Ltd)

Potential for TUPE avoidance

BUT – see also Qlog Ltd v O’Brien where TUPE was held to apply despite real changes in

the provision of services

When TUPE doesn’t apply (3): - fragmentation of the services

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A service provision change can occur where the activities are distributed among a number of

contractors, provided that it is possible to identify with which contractor they end up

BUT: TUPE may be avoided where services are randomly distributed

Question is whether it is possible to identify the destination of the activities

See Thomas-James and Others v Cornwall County Council, Clearsprings Management Ltd v

Ankers

When TUPE doesn’t apply (4): single task / event of a short

term duration

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Example:

8 month contract for security services for business centre scheduled to then be

demolished (even though in fact demolition did not go ahead)

Horizon Security Services v Ndeze

See also Robert Sage t/a Prestige Nursing Care v O’Connell and others, Swanbridge Hire

& Sales Ltd v Butler

Finally, will not apply to a contract for the procurement or supply of goods

Note: no professional services exemption

COFFEE BREAK

What is happening on entry?

– Is there a current supplier?

– Are employees an organised grouping?

– Are they assigned?

– Will the current supplier reassign them?

– What are the client’s terms with the current supplier? (what protection will incoming

supplier get/expect?)

– Will incoming supplier need all the employees who transfer?

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Points to think about from the outset (1)

Will there be a transfer on exit?

– How will supplier organise its staff?

– Organised grouping?

– Will they be assigned?

– Likelihood of change to activities on termination?

– Ability/desire by the supplier to reassign its employees on termination?

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Points to think about from the outset (2)

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Typical approach on entry

- Client (on behalf of outgoing supplier) indemnifies incoming supplier for everything prior to the transfer

- Client (on behalf of outgoing supplier) liable for failure to consult (unless arising from default by incoming supplier)

- Incoming supplier indemnifies Client and outgoing supplier for everything on and from the transfer date

- NB: adjust third party rights clause

Standard split of liabilities pre- and

post-transfer

Existing supplier –employees in scope

to transfer

If anyone transfers:

- Supplier can terminate

- Client will indemnify for all liabilities

- [Client/outgoing supplier can offer employment before Supplier terminates]

Blanket indemnity

No existing supplier

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Alternative approaches to indemnities on entry (1)

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Alternative approaches to indemnities on entry (2)

- Who picks up redundancy costs?

- When does consultation take place and at whose cost?

Who picks up liability for unfair dismissal?

Redundancies

Transferee doesn’t need all the transferring employees

Requirement not to assign employees to the services during the term?

Provision of information for a re-tender

Obligation to reassign employees to other duties prior to the termination

Obligation to ensure all employees are 100% assigned?

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Provisions during the term

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Typical approach on exit

- Outgoing supplier indemnifies Client and incoming supplier for everything prior to the transfer

- Outgoing supplier liable for failure to consult (unless arising from default by incoming supplier)

- Client (on behalf of incoming supplier) indemnifies outgoing supplier for everything on and from the transfer date

- NB: adjust 3rd party rights clause

Standard split of liabilities pre- and

post-transfer

Employees in scope to transfer, activities

are the same

… you’ll be expected to give one back on exit

Fine if:

– Have allocated employees during the term so that they do not constitute an organised

grouping; or

– Able to reassign employees to other duties prior to/on termination. Depends on:

– contracts of employment;

– availability of other work.

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If you received a blanket indemnity on entry…

Increasingly seeing:

– Suppliers refusing to indemnify incoming suppliers on exit

– Client prefers not to be left standing in the middle (insolvency risk)

– Client doesn’t suffer loss itself (difficult to show loss suffered which is recoverable)

– Can draft around this

– Services ramp down over a period of time

– Built into contract pricing

– Change in activities

– Can be difficult to anticipate (change in tech)

– Depends on commercial bargaining power_27

Other issues on exit

Take legal advice early – there may be arguments TUPE doesn’t apply

Anticipate the end at the beginning

Who has control?

– Over what the employees do?

– Commercial bargaining power?

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Key points to bear in mind

What is not covered by TUPE?Prior to the transfer

Mutual understanding as to whether TUPE will apply

Obligation to provide information and documentation (at least more than 28 days before the transfer)

Lead up to the transfer

Obligation to ensure that staff are (or are not) assigned to other activities before the transfer

Obligation to limit changes to remuneration and other arrangements in lead up to the transfer

Transfer

Apportionment of:

– pre-transfer and post-transfer liabilities; and

– pre-transfer cost and expenses (e.g. holidays and salaries)

“Wrong pocket” provisions – if too many / not enough staff transfer

Special arrangements – such as:

Post-transfer reorganisations or relocations

Blanket indemnities to ensure that no staff transfer

Cherry picking provisions to allow the incoming contractor to retain selected staff

Different approaches if arrangement terminates for material breach etc.

No real change to service provision change regime

Changes just codified existing case law

Save that:

– Easier to change term and conditions of employment

– Easier to make dismissals

– Easier to change location

– Collective consultation easier and cheaper

Still need careful analysis at the start and end of the contract

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Have the 2014 changes met the government’s stated aims?

Annual update

Wednesday 28 January

Upcoming legislation, case update, everything you need to know about Shared Parental

Leave

8.30 til 10.30 am

Also, don’t forget our online web portal, HR Bytes which can be accessed at:

www.kemplittle.com/hrbytes

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Our next event

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and regulated by the Solicitors Regulation Authority. Its registered office is Cheapside House, 138 Cheapside, London EC2V 6BJ. A

list of members is open to inspection at the registered office.

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138 Cheapside

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EC2V 6BJ

TEL +44 (0) 20 7600 8080

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KATHRYN DOOKS, VIRGINIA ALLEN

AND AMY DOUTHWAITE

Contact info

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