New EAT case updates TUPE rules for service provision
March 2012
The EAT has now given useful guidance as to the principles surrounding service provision changes in the case of Enterprise Management Services Ltd v Connect-Up Ltd [2011
William Garnett and Joanna Stokes of Bates, Wells & Braithwaite have provided this useful guide which will be particularly useful to charities encountering transfer of undertakings situations - for example in taking over public sector contracts.
"You will remember that there are two different types of situation in which a Transfer of an Undertaking can occur, transferring the contracts of employment of the employees of one business to another, in their existing terms and conditions.
The first situation is historic and occurs when there is a transfer of an economic entity which retains its identity - this is known as a 'business transfer'. The second situation was introduced by the TUPE regulations in 2006, and extended the principle of the transfer of undertakings to situations where there is a transfer of the provision of services. This is known as a 'service provision change' and can occur when a client outsources services to a contractor, or reassigns an outsourced contract to another contractor, or brings the provision of services which had been outsourced back in-house.
It was thought that a service provision change would occur whenever services were transferred. However, case law has established that a service provision change will not occur if the services that are being provided after the transfer are materially different from the services that were provided before the transfer.
In the case of OCS Group v Jones [2009] services provided under a catering contract which was transferred from one provider to another changed, so that the new provider only provided cold meals rather than both hot and cold meals. In Nottinghamshire Healthcare NHS Trust v Hamshaw [2011] a care home run by the NHS was closed and the care of the former residents was outsourced to private contractors, with the care provided changing from 24 hour residential care to care in the residents' own homes, allowing them to live autonomously. In both these cases it was held that a service provision change had not occurred, because the services being provided after the transfer were not 'fundamentally or essentially the same' as those provided previously.
The EAT has now given useful guidance as to the principles surrounding service provision changes in the case of Enterprise Management Services Ltd v Connect-Up Ltd [2011], which is set out below:
Facts
From 2004 to 2009 a company called Enterprise Management Services had a contract with Leeds City Council to provide IT support services to schools in Leeds, under which it had ‘preferred provider’ status. In 2009 the Council put the contract out to tender again and a company called Connect-Up Ltd won the contract. The new contract had similarities with the previous contract but it also had significant differences, and only about 60% of the schools which had used Enterprise’s services under the previous contract signed up to use Connect-Up’s services.
Enterprise argued that the employees’ employment had transferred to Connect-Up, as there had been a service provision change. The tribunal, however, found that the claimants had been unfairly dismissed by Enterprise because no transfer of employment had taken place.
Summary of principles
The EAT upheld the decision of the tribunal that no transfer of employment had taken place because the activities carried out after the transfer were not 'fundamentally or essentially the same' as those carried out before the transfer.
The EAT summarised the main principles for a service provision change (“SPC”) as follows:
1. In order to identify whether a SPC has occurred where 'activities' cease to be carried on by one contractor and are carried on by another the tribunal should:
(i) First, identify the relevant activities carried out by the original contractor
(ii) Secondly, decide whether the activities carried on pre- and post-transfer are 'fundamentally or essentially the same'
(iii) Thirdly, decide whether fragmentation of the provision of the services (i.e. the contract being divided amongst numerous different contractors) has occurred to such an extent that no meaningful SPC can be identified
2. If the activities are fundamentally or essentially the same and fragmentation has not occurred, the tribunal must then consider, pursuant to regulation 3(3) of TUPE, whether the following three conditions are satisfied:
· There is an organised grouping of employees in Great Britain with the principal purpose of carrying out the activities on behalf of the client;
· The client intends that the subsequent contractor will not carry out the activities merely in connection with a single event of short-term duration; and
· The activities are not wholly or mainly the supply of goods (as distinct from services) for the client’s use. A SPC focuses on service provision, not the supply of goods.
3. If the above conditions are satisfied then a SPC has taken place and the tribunal must then decide whether the employee or employees in question were assigned to the organised grouping of employees."
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