The Transfer of Undertakings (Protection of Employment) Regulations are a reliable source of somewhat surprising judicial decisions, and the latest interpretation of the regulations does not disappoint. If you are involved in the workforce aspects of insourcing or outsourcing arrangements, then the case reported below will be of interest: it confirms that, on a service provision change, employees of sub-contractors may transfer back to the original client (notwithstanding that the original client may have no contractual relationship with the sub-contractor). Sarah Lamont reports on this important decision, which has provided helpful clarification of the correct position.
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply where there is a "relevant transfer". A relevant transfer may be a 'traditional' business transfer under regulation 3(1)(a) or a transfer of services, i.e. a 'service provision change' (SPC), and this will occur in any of the following circumstances:
- where a client ceases to carry out activities on its own behalf and assigns them to another person to carry out on the client's behalf (regulation 3(1)(b)(i));
- where activities cease to be carried out by a contractor on a client's behalf and are reassigned to another person to carry out activities on the client's behalf (regulation 3(1)(b)(ii));
- where the activities cease to be carried out by a contractor or a subsequent contractor on a client's behalf and are brought back 'in-house', to be carried out by the 'client' on its own behalf (regulation 3(1)(b)(iii), TUPE 2006).
The term 'contractor' in regulation 3 of TUPE is defined to include 'subcontractor' (regulation 2(1)). However, in order for TUPE to operate to transfer employees between entities, the underlying 'client' must always be the same – this was confirmed recently in the case of Horizon Security Services Ltd v Ndeze (EAT, 2014) – please see our September 2014 update for a summary of the Horizon decision.
In Jinks v London Borough of Havering, the Employment Appeal Tribunal (EAT) considered whether it was possible for an employee of a sub-contractor to be TUPE transferred to a Council, where the Council had taken back management of a car park from a subcontractor.
The London Borough of Havering (the Council) contracted out to a company called Saturn, the management of an ice-rink and its car park.
Saturn, in turn, subcontracted the management of the car park to Regal Car Parks Limited ('Regal').
Following the closure of the ice-rink, Saturn gave up occupation of the site and the Council took the management of the car park back 'in-house'.
Mr Jinks was originally employed by Saturn, and his employment transferred to the sub-contractor, Regal, when they took over management of the car park. Mr Jinks claimed that his employment then transferred under TUPE to the Council when they took the management of the car park back in-house.
When the Council refused to accept he was their employee, Mr Jinks brought a claim for constructive unfair dismissal.
At a preliminary hearing, an employment judge struck out Mr Jinks' claim, because the Council was not Regal's client; the Council was the client of Saturn, the original contractor. On the basis that the 'client' on a SPC must be the same throughout (as explained above), the claim was struck out for having no reasonable prospect of success.
Mr Jinks appealed.
The EAT upheld Mr Jinks' appeal and said that it was possible for Mr Jinks' employment to TUPE transfer to the Council, even though they had no direct contractual relationship with his employer, Regal Car Parks Limited.
The EAT said that the employment judge had taken an overly restrictive approach to the meaning of 'client' for the purposes of a SPC. The decision in Horizon (see above) had already established that the strict legal or contractual relationship with a subcontractor does not necessarily determine who is the 'client' when a service is brought back in-house. There can also be more than one 'client'. Furthermore, because the definition of 'contractor' includes 'subcontractor' (under TUPE regulation 2(1)), the person for whom services are provided by a subcontractor may not necessarily be solely the contractor who was awarded the contract.
What does this mean for me?
This case clarifies that TUPE may operate to 'leapfrog' over a contractor and transfer the employment of an employee direct from a sub-contractor to the original client.
As the EAT explained, employment tribunals (and, by extension, employers) should not take an overly 'legalistic' or technical approach to identifying the correct 'client' in subcontracting arrangements. And, in any event, the term 'contractor' includes 'subcontractor', within TUPE's specific lexicon.
Finally, the EAT provided a reminder in this case that the identity of the client in a SPC is a question of fact for a tribunal to determine. The answer to the question "who is the client"' will, therefore, vary from case-to-case and is rarely likely to be appealable (because appeals from tribunals can usually only be based on errors of law rather than fact). Accordingly, this potential risk needs to be factored into indemnities, but if you are unsure about whether any particular factual scenario with which you are dealing is covered by TUPE, please do contact me or your usual Bevan Brittan contact.