Is the past 'prologue'? TUPE and SPCs

Anne Palmer explains this month's EAT guidance on whether historic structures should be taken into account.

30/06/2016

Anne Palmer

Anne Palmer

Senior Associate

For service provision changes under TUPE, "organised groupings" and 'assignment' are two separate, but linked, concepts. Anne Palmer explains this month's EAT guidance on whether historic structures should be taken into account when analysing the former, and explains how this interlinks with assessing whether employees are 'assigned'.

The background

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

  • a transfer of an economic entity; or
  • a service provision change (SPC): outsourcing, in-sourcing or a change from one contractor to another.

A service provision change only occurs where, prior to the transfer, certain conditions are met, including that immediately before the change, there must be an organised grouping of employees, situated in Great Britain, that has the principal purpose of carrying out of the relevant activities on behalf of the client (regulation 3(3)(a)(i) TUPE).

If TUPE applies, only those employees that are 'assigned' to that organised grouping will transfer. It is clear that employees temporarily assigned are excluded (regulation 2(i) TUPE); but the position is less clear if permanent employees divide their time between different functions.

The recent Employment Appeal Tribunal (EAT) decision, Amaryllis Ltd v McLeod, looked at how to identify whether an 'organised grouping' exists for the purposes of a TUPE transfer.

The facts

Amaryllis supplies and renovates furniture and, in 2014, it won a contract to renovate furniture for the Ministry of Defence (MoD).

Up until 2014, furniture renovation for the MoD had been undertaken under a Framework Agreement, where services were supplied by several companies – one of which was a company called Millbrook.  

Millbrook had previously had a long association with the MoD: it had been engaged to renovate furniture for the MoD for over fifty years, and had set up a team for that specific purpose (albeit that these services were sub-contracted to Amaryllis between 2003 and 2008). Although Millbrook was one of several suppliers under the Framework Agreement, the MoD remained the biggest customer for that group of employees.

The key question for the employment tribunal was whether there was an SPC on the transfer of work to Amaryllis in 2014 – in other words, was there an 'organised grouping of employees' in place at Millbrook carrying out the work for the MoD prior to the contract for that work moving across to Amaryllis?

Taking into account the arrangements in the past, in terms of the way in which Millbrook had set up its working practices to service the MoD contract, an employment tribunal found that there was an organised grouping in place.

Amaryllis appealed.

The decision

The EAT allowed the appeal. In doing so, the EAT said that the employment tribunal was wrong to consider how the MoD contract was serviced by Millbrook in the past; the relevant time is immediately before the change of provider. The fact that Millbrook had previously established a team for the purpose of servicing the MoD contract should not have factored in the employment tribunal's decision.

What does this mean for me?

When considering whether there is an 'organised grouping' prior to a transfer, employment tribunals - and, by extension, employers – are not entitled to look at historic arrangements, stretching back before the period immediately prior to the transfer. Given that an analysis of whether there is an SPC on a transfer requires a holistic approach, rather than a 'box ticking' exercise, some employers may be tempted to take the historical background into account. But the EAT has now confirmed that this is not the correct approach – as far as SPCs are concerned, Shakespeare was wrong: what's past is not prologue.

But, by contrast, what's past may be prologue when considering assignment. Since 2007 we have known that the test for whether an employee is 'assigned' is the same for business transfers and SPCs and that this requires a two stage approach:

  1. define the organised grouping that is transferring; and then
  2. consider whether the employees in question are assigned to that grouping.

The recent decision of London Borough of Hillendon v Gormanley confirmed that past arrangements can be taken into account when considering whether an employee is assigned to the organised grouping. This is however, just one of several factors, along with organisational structure and the tasks employees are required to undertake.

So, case law is now telling us that when considering whether there is an SPC at all, it is the position immediately prior to transfer that is relevant; but a longer view may be relevant to the question of whether the employees servicing the transferring contract are assigned. All the more reason to make sure that employers look at these two concepts separately in the two stage approach identified above.

Finally, the TUPE regulations originate from the EU, implementing the Acquired Rights Directive. As such, TUPE is one of the key areas which may be affected by the UK's recent decision that it should leave the EU. Please click the following links to read our analysis of what 'Brexit' means for employment law and data protection.

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