TUPE – splitting employment contracts between multiple employers

10 May 21 by Nina Robinson
TUPE

Where a single service provider ceases to perform activities for a client and multiple service providers take over those activities, Transfer of Undertakings (Protection of Employment regulations (TUPE) may apply to this service provision change (SPC).

Is it possible to split the employment contracts of transferring employees so that they go from working full time for one employer to working part time for multiple employers? Following the EAT decision in McTear Contracts Ltd v Bennett and others UKEATS/0023/19; Mitie Property Services UK Ltd v Bennett and others UKEATS/0030/19 the answer would appear to be yes. Our ESP Law director, Nina Robinson, explains more…

Prior to this line of case law, the position was that in cases where multiple service providers were involved in the SPC, and TUPE applied on the facts, liability for all transferring employees would generally pass to the new service provider which took on the greater part of the activities that were the subject of the transfer.

In 2020, the European Court of Justice (ECJ) ruled on a case concerning a business transfer involving a number of transferees. The ISS Facility Services v Govaerts case found that under the EU Acquired Rights Directive (ARD), the employment contracts of the transferring employees could be effectively split between multiple employers in proportion to the tasks performed by the transferring employee (pre-transfer) provided such a division was possible. However, if this application would adversely affect workers’ rights and working conditions, then the contract would be treated as terminated (with the transferee being liable).

It is important to note that the ARD relates to business transfers only, there is no equivalent of SPC transfers under our domestic law. Therefore, there was doubt over whether or not Govaerts could be applicable law in relation to SPC transfers under TUPE.

This doubt has now been resolved by the EAT in the Bennetts cases. The relevant facts in brief:

  • Amey Services Limited provided social housing kitchen installation services for North Lanarkshire Council;
  • Amey organised the work by splitting it between two distinct teams, there were also two individuals who did not fit within either team specifically, but worked on the contract;
  • The council re-tendered the contract and appointed two new service providers (McTear and Mitie) –one to provide the services in the north geographic area and one in the south;
  • Amey took a pragmatic approach to the question of TUPE transfer, performing an analysis of the work done by each team over the previous 12-month period, using it to determine which team would transfer to the new service providers covering the north and south respectively. They also allocated the two individuals who were not part of either team, one to each;
  • McTear and Mitie refused to take any of the employees who then brought claims in the Employment Tribunal against McTear, Mitie and Amey;
  • The Tribunal found that there had been two SPC TUPE transfers and concurred with Amey’s analysis of which team went to which transferee. The claims against Amey were dismissed.
  • McTear and Mitie appealed – which the EAT allowed. Govaerts pre-dates the Brexit transition period and therefore is retained EU law which must be applied in cases involving business transfers. The EAT considered that, while there was no requirement to apply Govaerts to the purely domestic SPC provisions of TUPE, it would be undesirable for there to be a different approach taken to SPC transfers, compared to business transfers.
  • The EAT held that there was no reason in principle why an employee may not, following a SPC, hold two or more contracts of employment with different employers at the same time, provided that the work attributable to each contract was clearly separate from the work on the others and was identifiable as such.
  • As a result, the question of whether the claimants had transferred to McTear or to Mitie would have to be remitted to be reconsidered by the Tribunal. Each claimant would need to be considered individually to see if they transferred to McTear, Mitie, or both. Potentially, on a proper individual analysis, it may be the case that TUPE did not apply to a particular employee, and therefore Amey retains liability.

The EAT’s judgment is binding on Tribunals in England and Wales and in Scotland. Employers involved in SPC TUPE transfers– whether as transferor or potential transferee – will therefore need to consider the potential for employment contracts of any transferring employee to be split between multiple new employers.

However, the practical implications for results of this nature are difficult to reconcile. It is hard to envisage many situations following a SPC where it would be practical for employees to work for more than one employer at the same time. How should the employee’s time be split? How would pay apportionment work? What if the employers’ needs do not marry up? How do you deal with additional costs and time incurred by the employee as a result of having multiple employers? What if the multiple employers are competing businesses creating potential issues with restrictions, trade secrets or confidential information?

Another major question mark relates to the conclusion reached by the ECJ in Govaerts that, where dividing a contract proved impossible or resulted in a deterioration in an employee's rights and working conditions, the contract may be terminated. The ECJ considered that the resulting termination would be regarded as being the responsibility of the transferee(s), meaning that for any employee with two years' service, the dismissal may be automatically unfair under TUPE (unless there is an economic, technical or organisational reason for it that entails changes to the workforce).

On a commercial level, this may mean that employers may find they have to try to agree between them which employees they will each take, where there are multiple potential transferees, in order to minimise the practical risk of claims by unhappy employees. Preparatory work could be done pre-contract at the re-tender stage, for example, organising employees into teams in such a way (to the current providers’ best knowledge regarding what is likely to happen on re-tender) as to make any later transfer more straightforward.

Time will tell as to how these scenarios will play out if they find their way into Employment Tribunals. In the meantime, the clear message is that the use of the fragmentation argument, in order to avoid a TUPE transfer, will not operate to defeat TUPE where the ingredients for a TUPE transfer are otherwise present.

 


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Post by Nina Robinson

Director, ESP Law Ltd

Nina is an accomplished employment solicitor with over 10 years’ post-qualified experience at leading UK law firms. Nina initially qualified as a corporate solicitor at Addleshaw Goddard and since 2006 practised employment law exclusively, providing advice to employer customers at both DAC Beachcroft and Ward Hadaway Solicitors. Nina has experience of advising a varied portfolio of employer customers, including retail and restaurant groups, financial services and media industry customers on all employment issues.