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Directors cannot form part of an "organised grouping of employees" for the purposes TUPE, tribunal holds

Out-Law News | 14 Aug 2012 | 9:42 am | 3 min. read

Directors of a charity cannot form part of an "organised grouping of employees" and so cannot take advantage of certain legal protections when the service they provide is taken in-house, the Employment Appeal Tribunal (EAT) has found.

In her ruling, Lady Smith said that the roles performed by the directors of Edinburgh Home-Link Partnership, a housing charity providing outreach services to a local authority, were "strategic"; concerned with the running and maintenance of the charity rather than providing the service. Because of this, they could not be assigned to the "organised grouping of employees" under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).

"The fact that a causal chain can be shown does not determine the issue," she said. "Rather, the question is: was the particular employee, prior to the transfer, assigned to the organised grouping of employees which was organised to have as its principle purpose the carrying out of the activities for which the client contracted, on the client's behalf?"

TUPE protects the rights of employees whose companies are taken over by new owners. It was expanded in 2006 to govern situations where work is outsourced, brought back in-house or the service provider is changed. Where TUPE applies, the employment contracts of those employees assigned to the group transfer to the new service provider.

There was no doubt, the EAT said, that the employees of Home-Link formed an organised grouping that had carried out work for City of Edinburgh Council for the purposes of TUPE. However, it agreed with an earlier tribunal decision that the two directors were not "sufficiently dedicated" to the provision of those services for the Council and therefore could not be assigned to that group.

Home-Link employed between 35 and 40 staff working solely for City of Edinburgh Council with two directors – Ms Morrison and McAleavy - working out of its head office. The Council decided that it would take the services provided by the charity in-house in April 2009. The job of the directors was to run the organisation itself including organising training for staff, dealing with the Care Commission, working on tenders and liaising with the charity's board of trustees. In addition, in the period running up to the transfer McAleavy also spent time working for another, unrelated, charity which provided services to the homeless.

Lady Smith agreed with the original tribunal judge in finding that there was an element of direct service provision in the directors' roles, particularly that of McAleavy. However, it was difficult to reach any conclusion as to the extent of this as both McAleavy and Morrison had "sought to exaggerate the direct service provision element, they having perceived it as being in their interests to do so". Regardless, the demands of the post were "heavily strategic which ... pointed to whatever the direct service delivery being carried out by [them] was, being small".

Earlier this year, in a case involving haulage company Eddie Stobart, the EAT held that a group of employees working on behalf of a particular client must be organised principally to carry out that client's requirements in order to be protected by TUPE. This was consistent with Government guidance (35-page / 188KB PDF) which makes it clear that TUPE will only apply where the outgoing service provider has a team of employees which is "essentially dedicated" to carrying out the activities that are to transfer.

As a result of this ruling, Lady Smith said, she had to consider individually the question of whether a particular employee belonged to the group.

"It is not to be assumed that every employee carrying out work for the relevant client is assigned to the organised grouping," she said. "Whilst at first blush it might be thought that all employees of the transferor in a 'single client' case would be assigned to the carrying out of the activities the client requires it may, on closer examination, be found that that is not the case. If, for instance, an employee's role is strategic and is principally directed to the survival and maintenance of the transferor as an entity, it may then not be established that that employee was so assigned. It will all be a matter of the facts and circumstances of the individual case."

She said that, if the opposite was true, a person employed as a "handyman" at the transferor's head office or a cook "there to maintain the nutritional status of the directors thereby enabling them to work efficiently" would fall into the assigned group, even though that person might be "wholly unaware of the identity of the client or the activities for which the client has contracted and it could not be said that they would have been 'organised' into the group providing the client service".