Out-Law News 3 min. read

EAT: employee on 'permanent' sick leave did not transfer to new employer under TUPE

The job of a telecoms engineer on long-term sick leave with little prospect of returning to work did not transfer to a new employer as he was not "assigned" to the team when the team he worked as a part of was transferred to another service provider, the Employment Appeal Tribunal (EAT) has confirmed.

EAT judge Mr Justice Serota said that it was not enough for the employee, a Mr Edwards, to have a "mere administrative connection" to a particular team in order to be covered by the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). As the TUPE rules were drafted by reference to the "economic activities" performed by the group of employees, an employee who "plays no part in those activities and will never do so" could not be assigned to that grouping.

At the time of the transfer, Edwards had not worked for nearly six years and the employment tribunal was told that there was "no prospect of his ever returning to work". However, he had remained nominally an employee of BT Managed Services Ltd (BTMS), assigned to the same unit, so that he could continue to take advantage of a permanent health insurance (PHI) scheme. When liability under that scheme expired, Edwards continued to receive payments from BTMS which were treated as an expense of his team.

Edwards' team carried out maintenance services for mobile phone networks operated by Orange, which later became EE, under a domestic network outsource (DNO) contract. This team was originally employed by Orange, but had transferred under TUPE to BTMS in July 2009. Ericsson, the new service provider, took over the contract in July 2013.

Employment law expert Ed Goodwyn of Pinsent Masons, the law firm behind Out-Law.com, said that although the decision was "probably legally correct", it was a further "maddening" example of the courts' and tribunals' approach which again limited the situation when employees would transfer where there was a service provider change (SPC).

"Since the SPC provisions were introduced in 2006, service providers have bid for contracts on the basis that TUPE would usually apply to anybody working on that contract," he said. "This was certainly the stated intention of the then DTI when the amended Regulations were introduced. Since then, however, the courts and tribunals have interpreted the scope of SPCs and now the definition of which employees are 'assigned' in an SPC more narrowly than what was previously thought."

"The practical consequence of this is that a provider who bids for a contract on the basis that any liabilities, including those on long term sick, would pass to the new provider at the end of that contract could be left with costs that they had not anticipated. It appears from the case that  Mr Edwards' PHI cover  expired after 4 years.  Mr Edwards was off work for 6 years and BTMS appears to have had a contractual obligation to continue to support him.  Of course, if he TUPE across, BTMS would have escaped this continuing cost. Incumbent suppliers will now retain many of those on PHI even where TUPE applies and will need to look carefully to their own insurance provision as a consequence of this ruling," he said.

TUPE originates from the EU's Acquired Rights Directive, which protects the rights of employees in the case of a "transfer of an economic entity which retains its identity". In 2006, the UK amended the TUPE rules so that they would apply when activities are outsourced, brought back in-house or the service provider is changed. The protections will apply where the change affects an "organised grouping" of employees which has the "principal purpose of carrying out those activities on behalf of the client, and where those activities remain "fundamentally or essentially the same" after the transfer.

In Edwards' case, BTMS and Ericsson disagreed over whether he belonged to the organised grouping that carried out the DNO activities. The employment tribunal held that he did not. BTMS argued before the EAT that Edwards' participation in the economic activities of the grouping was irrelevant as he "would have been required to work in the DNO team if able to do so". However, the EAT backed the tribunal's findings.

"In order for an employee to be assigned to a particular grouping … something more than a mere administrative or historical connection is required," the judge said.

"The question of whether or not an individual is 'assigned' to the organised grouping of resources or employees that is subject to the relevant transfer, will generally require some level of participation or, in the case of temporary absence, an expectation of future participation in carrying out the relevant activities on behalf of the client, which was the principal purpose of the organised grouping," he said.

Whether the employee was assigned to that grouping was "a question of fact that must be determined by taking into account all relevant circumstances", the judge said. This meant that people on long-term sick leave or maternity leave could be assigned to the grouping "provided the absence is temporary", he said.

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