TUPE service provision protections cannot apply where client also changes, tribunal says

Out-Law News | 23 Dec 2011 | 10:29 am | 2 min. read

Employees of a service provider cannot take advantage of legal protections designed to ensure their rights are not affected when the company they work for is taken over by a new owner when the client that services are being provided to changes at the same time, a tribunal has ruled.

The Employment Appeals Tribunal (EAT) held for the first time that there was no service provision change (SPC) because the client to whom services were being provided changed at the same time. This meant that the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), which protect the rights of employees whose companies are taken over by new owners, did not apply.

TUPE was expanded in 2006 to govern situations where work is outsourced, brought back in-house or the service provider is changed. However, the regulations will only apply in the context of an SPC where the activities carried out before and after a change in service provision are on behalf of the same client, the EAT said.

In her ruling, Mrs Justice Slade said that the original employment tribunal had made a mistake in holding that there had been an SPC when there was not only a change of contractor but also a change of client.

Property manager McCarrick was employed by a Mr Hunter to manage a property portfolio. The mortgagee of the portfolio, insurance company Aviva, appointed receivers to take control of the properties and appointed King Sturge as new consultants to manage the properties.

As the property management services were no longer being carried out by McCarrick's previous employer on the client's behalf but by King Sturge, on behalf of the Aviva and the receivers, McCarrick alleged that a TUPE transfer had taken place. This would mean he had the necessary continuous service to bring a claim for unfair dismissal.

However, Mrs Justice Slade said that if this was the case it would have been provided for specifically in the regulations.

"If the framers of the Directive or TUPE had intended the contractual terms of employees employed on an activity to follow that activity when it was undertaken for a different client they could have so provided. There would have been no need for the detailed consideration by the European Court of Justice of different elements constituting an undertaking if all that were needed was to establish that a group of employees or an employee assigned to an activity would transfer to a new contractor irrespective of whether the client for whom the service was performed changed," she said.

Employment law expert Maria Passemard with Pinsent Masons, the law firm behind Out-Law.com, said that the ruling was good news for those in the property investment and management field.

"Previously, where a property portfolio was sold and new managing agents or service providers appointed by the new owners it was safest to assume that TUPE would apply. New managing agents may now feel justified in refusing to take on staff arguing that TUPE does not apply," she said.

"It is likely that we will see an increased focus on 'business transfers' rather than on SPC transfers in light of this decision, and businesses may well try to find ways to ensure that a transfer involves a change of client in order to avoid TUPE applying."

Passemard said it was frustrating that the Government's attempt to clarify and simplify the 30-year-old regulations did not seem to have achieved its aims.

"The fact that the Government is currently seeking to potentially remove SPC transfers from the TUPE protections might lead some to think that we are going back to the pre-2006 position and that we have not made much progress in 30 years," she said.

The Government recently issued a call for evidence on the effectiveness of the current regulations as part of its package of 'radical' employment law reforms earlier this month.

"Whilst the Regulations implement a European Directive and provide important protections for both employers and employees, the Government is concerned that some businesses believe they are 'gold plated' and overly bureaucratic. Should the balance of evidence call for possible changes to the current Regulations there will be a formal consultation on any proposed changes in 2012," the Government said.

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