Since coming into force in 2006 to alleviate the uncertainties of the ‘classic’ test of a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 1981, the concept of a ‘service provision change’ has been examined a number of times in the Employment Appeal Tribunal (EAT). In its latest outing in Ottimo Property Services Ltd v Duncan and another the EAT found that a change in the provider of services carried out on behalf of a group of clients, rather than just one client, can be a service provision change.

The background

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), a transfer may occur where there is:

  1. a transfer of an economic entity (the ‘classic’ test from the 1981 Regulations); or
  2. a service provision change in the three situations of outsourcing, in-sourcing and change from one contractor to another.

A service provision change only occurs where, prior to the transfer, certain conditions are met, including:

  • there must be an organised grouping of employees whose principal purpose is carrying out the activities on behalf of the client; and
  • the client intends that the activities will be carried out by the new provider.

The EAT has previously considered identifying the client in a service provision change in cases involving businesses going into administration (Hunter v McCarrick [2012] and SNR Denton UK LLP v Kirwan [2012]). It found that the client must be the same before and after the service provision change.

In Ottimo Property Services Ltd v Duncan, the EAT looked, for the first time, at whether the client has to be one client or if it could be more than one aggregated together. The reference to ‘client’ in the TUPE regulations is in the singular.

The facts

Mr Duncan was a site maintenance manager based at Brittania Village, an estate of twelve blocks of residential housing. Each of the blocks had its own residents’ management company and the estate had a general management company, which was responsible for the common parts of the estate. Mr Duncan’s employer, Chainbow Ltd provided property management services to twelve of the thirteen management companies, through separate contracts.

Over time, three of those contracts were lost. In early 2012, Chainbow Ltd engaged Ottimo as a sub-contractor to provide property management services to the remaining nine management companies, with whom it still had contracts. This change was treated as a TUPE transfer and Mr Duncan became an employee of Ottimo.

A further three contracts were lost in early 2012 but Mr Duncan carried on working solely at the estate providing maintenance services to seven of the management companies.  

Between May and August 2012, Warwick, another property management company took over six of the seven contracts from Ottimo. In anticipation of this new work, Warwick engaged a new manager and contractors. Working on the belief that TUPE did not apply, it did not take on Mr Duncan. Ottimo dismissed him in July 2012.
Mr Duncan brought a claim for unfair dismissal. The tribunal had to first find whether there had been a TUPE transfer. If there had been, liability for the dismissal would pass to Warwick. If not, Ottimo would be responsible for his claim.

The tribunal referred to Hunter and considered that where the regulations refer to “client” this means one client.  The conditions set out above require an “organised grouping whose principal purpose” is carrying out the activities on behalf of the client. An organised grouping can be a single employee as we reported in last month, in a case called Rynda v Rhijnsburger. However this did not help Mr Duncan as it could not be said that his principal purpose was carrying out the maintenance work for any one of the six clients, namely the six management companies, as his time was split between them. Only if the six clients were aggregated could his situation meet the first condition for a service provision change. 

Ottimo appealed and the EAT took a different view from the tribunal. It considered the Interpretation Act 1978 which states that usually any word used in legislation in the singular also includes the plural. It distinguished Hunter as this dealt with a situation where the identity of the client changed. Here the management companies remained the same before and after the change in contractor.

The EAT took the view that “client” could also mean “clients” and several contracts could in principle be aggregated together to create a service provision change. The next hurdle to be cleared was the requirement that the clients intended that the activities would be carried out by the new provider. Although it would be easier to find the necessary “common intention” if the clients had collectively entered an umbrella contract, the EAT considered that this would still be possible in the situation in Ottimo where the clients all had individual contracts with the provider.  The contract wording might reveal this intention or the surrounding facts.

The EAT referred the case back to the tribunal to consider in light of its decision.

What does this mean for me?

This decision is of particular significance for arrangements where multiple services users, such as residents’ management companies on estates, club together to engage property management services – in that scenario, it is possible that the staff employed by the outgoing contractor could be protected by TUPE, notwithstanding that the legislation only refers to services providers to 'a client', in the singular.  However, although this decision shows the general direction of travel in relation to services provided to multiple clients, the question of whether TUPE applies is always a question of fact for a tribunal to decide, so please do contact us or your usual Bevan Brittan contact for specific advice if required.

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