TUPE service transfers

8 July 2009

Recently, the Employment Appeal Tribunal (EAT), in Metropolitan Resources Ltd v (1)Churchill Dulwich Ltd and others, provided further guidance to tribunals on how to approach the issue as to whether a service provision change has occurred for the purposes of regulation 3(1)(b) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Background
The case concerned the transfer of a contract to provide accommodation to asylum seekers and raised similar issues to those considered in Clearsprings Management Ltd v (1) Ankers and others which we reported on 2 April 2009. Unlike that case, the contract in this case transferred to one new contractor rather than to several contractors.

Churchill Dulwich, on behalf of the Home Office, provided accommodation services for migrants under a contract with Migrant Helpline. Migrant Helpline entered into a replacement contract with Metropolitan Resources Ltd (MRL) and, when the contract with Churchill Dulwich expired, it was not renewed. Churchill Dulwich was left with no asylum seekers. The ten employees argued that they had transferred to MRL under the "service provision change" rules in TUPE 2006. The Employment Tribunal agreed that there had been a relevant transfer. MRL appealed.

EAT Decision
The EAT observed that the rule on service provision change is both only Statutory and wholly new under TUPE 2006 Reg 3(1)(b). There is, accordingly, no case law on the issues raised.

The EAT had two issues to consider;

1) Were there activities that ceased to be carried on by Churchill Dulwich on behalf of a client, Migrant Helpline, which were then carried out by the subsequent contractor, MRL, on behalf of Migrant Helpline?

2) Were the conditions referred to in Regulation 3(3) satisfied, namely that:

(a) immediately before the service provision change:

(i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;

(ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and

(b) the activities concerned do not consist wholly or mainly of the supply of goods for the client's use.

The EAT stated that this should be "a straightforward and commonsense application of the relevant statutory words to the individual circumstances before them"; further that a formal list of factors is not required. It was also noted that:

"the Tribunal needs to ask itself whether the activities carried on by the alleged transferee are fundamentally or essentially the same as those carried out by the alleged transferor. The answer to that question will be one of fact and degree to be assessed by the Tribunal on the evidence in the individual case before it".

In this case, the Tribunal had adopted such an approach. It had not made the error of looking for a transfer of employees. Instead, it had looked for a change from alleged transferee to alleged transferor in the performance of the essential activity. The fact that: the transfer did not wholly take place on one day (as there was an initial phasing out of the services provided by the old contractor prior to the termination of its contract); the employees did not leave Churchill Dulwich on the date identified as the date of transfer; and the providers used different locations, were not individually or collectively fatal to the existence of a service provision charge. All these matters were considered and the Tribunal's conclusion was not flawed. In cases where there is an initial phasing out of the services provided by the old contractor prior to the termination of its contract, the EAT held that the date of the transfer for TUPE purposes is the date at which the "essential nature of the activity carried on by the alleged transferor ceases to be carried on by him and is instead carried on by the transferee".

The EAT confirmed that the fact that there are minor differences in the nature of the relevant activities and how they are performed post-transfer, as compared with the activities carried out pre-transfer, did not rule out a service provision change. The relevant question for the Tribunal is "whether the activities carried on by the alleged transferee are fundamentally or essentially the same as those carried out by the alleged transferor".

Comment
This case confirms that the definition of service provision change is much wider than the traditional test and that the Tribunals will assess the circumstances broadly.