EAT: workers must be engaged in 'principal purpose' immediately before TUPE transfer

Out-Law News | 17 Jun 2016 | 2:34 pm | 3 min. read

Whether a group of workers consists of an 'organised grouping' which will automatically transfer to a new service provider when the work that they do is taken over by that provider will depend on their activities "immediately before" the transfer, the Employment Appeal Tribunal (EAT) has confirmed.

The scope of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) was expanded in 2006 to govern situations where work is outsourced, brought back in-house or the service provider is changed, as well as traditional business sales and takeovers. For TUPE to apply, the change must affect an "organised grouping" of employees which has the "principal purpose of carrying out ... activities on behalf of the client", where those activities remain "fundamentally or essentially the same" after the transfer.

The original employment tribunal judge in the immediate case had relied on "facts relevant to carrying out such activities in general" rather than carrying out activities for the relevant client, and had not adequately addressed "what the principal purpose of the organised grouping of workers was at the relevant time", EAT judge Mrs Justice Slade said. He had not been entitled to reach the conclusions that he did on the facts before him, she said.

Employment law expert Stuart Neilson of Pinsent Masons, the law firm behind Out-Law.com, said that the application of TUPE to a change in service provider was often a complex question which depended on the evidence available.

"The TUPE regulations do not specify what evidence you should look at," he said. "The EAT has now issued some guidance in its decision in this case to the effect that what matters is the position immediately before the transfer – the historical position is not relevant."

"This is useful guidance, which will help clients and advisers narrow the focus – however, it is perhaps less helpful if your concern is a departing employer deliberately structuring an organised grouping immediately before the transfer with a view to transferring surplus staff. This case would suggest that TUPE would apply – although whether the restriction on narrowing the focus to 'immediately before' applies where some element of fabrication is at play may be open to question," he said.

For over 50 years the company at the centre of this case, Millbrook Furnishings Ltd, had held renovation contracts with the Ministry of Defence (MoD). However, between 2003 and 2008 it did not have a renovation contract in place but instead provided similar services as a subcontractor of another company, Amaryllis, which held a different contract with the MoD. In 2012, the MoD restructured its contracted services under a framework agreement which included both Millbrook and Amaryllis as contractors. In 2014, it retendered its renovation contract to Amaryllis.

The original employment judge had to consider whether there was an organised grouping of employees in place, the principle purpose of which was to carry out the renovation work on behalf of the MoD, at the point at which the work transferred from Millbrook to Amaryllis. Referring to time sheets provided by Millbrook employees, he found that they were spending around 70% of their working time on the MoD contract. However, he ruled that the fact that the relevant department had originally been set up for the specific purpose of working on the MoD contracts, and that the workers still spent the majority of their time on work for that client, was enough for TUPE to apply with the result that those employees transferred from Millbrook to Amaryllis along with the contract.

Mrs Justice Slade disagreed. She said that it was important not to "lose sight of" the actual words of the regulations. It was not sufficient for the purposes of TUPE that a "department" carried out certain work. Rather, "it must be organised for the principal purpose of carrying out that work for the client in question, in this case furniture renovation for the MoD". It was also a "necessary condition" of satisfying the regulations that this grouping must be carrying out the activities concerned "immediately before the transfer", she said.

"The [employment judge] reached conclusions about the original purpose for which the department was set up some 50 years earlier, yet in paragraph 35 he accepted that there was no evidence of the intention of Millbrook from that time," she said. "In my judgment this challenge is but one example of the difficulty in reading the judgment."

"The reference ... to 'the material time' does not give me confidence that the EJ reached his decision being satisfied of all the elements in [the regulations] at the correct point in time... Further, the EJ erred in deciding that it was the constant purpose of the department to carry out furniture renovation work for the relevant client, the MoD, when in the period between 2003 and 2008 the MoD was not a client of Millbrook," she said.