Service Provision Changes and TUPE

Feb 23, 2012

A recent decision in the Employment Appeal Tribunal has reviewed the law that applies when a business loses a major customer and attempts to transfer the employees who did work for that customer to the new service provider.

Some thirty five employees of Eddie Stobart Limited were affected in this way when their site in Nottinghamshire was closed in 2009. The company argued that the Claimants’ contracts of employment transferred, by virtue of regulation 4 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), to another employer and that the 35 staff ceased to be their employees. 

The new service provider, FJG Logistics, did not however accept that the employees should transfer to their employment and refused to treat the 35 staff as having become employed by them.  The 35 staff were therefore not in employment after the loss of business suffered by Eddie Stobart Limited. and the Employment Tribunal thus was asked to decide whether the Claimants were dismissed by either Eddie Stobart Ltd or FJG: the question was which one was liable in law.  That question was decided in FJG’s favour at the original Employment Tribunal hearing and was the subject of an appeal by Eddie Stobart Limted. 

The law in this area is reasonably concise and is set out as follows. A service provision transfer is defined in the TUPE Regulations as:

          “a situation in which activities cease to be carried out by a contractor on a client’s behalf … and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf and in which the conditions set out in paragraph (3) are satisfied.”

Paragraph (3) states that, for a transfer to exist,  

(a) immediately before the service provision change

“(i)       there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;

(ii)        the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and

 (b)       the activities concerned do not consist wholly or mainly of the supply of goods for the client's use.”

In the case of a service provision change, the TUPE regulations operate to transfer the contracts of employment of any employee “assigned to the organised grouping of … employees that is subject to the relevant transfer” from the contractor (the transferor) to the subsequent contractor ( the transferee).

The question to be asked in this case as in all similar situations of this nature was then whether the 35 staff were assigned to an organised grouping of employees. The Appeal Tribunal upheld the original decision that they were not and Eddie Stobart Limited’s appeal therefore failed.

The organisation of work at the site that closed was found to be in no way by reference to the customers, but was principally set up  by way of a shift system and job functions within that shift.  Since the nature of the warehousing and distribution work undertaken for all of its customers essentially required a twenty-four hour operation, a shift system of some sort was inevitable.  The fact that many of the staff  found themselves, working exclusively on work for one particular customer did not form a basis for saying that the workforce was an organised  group of employees, whose principal purpose was to carry out work for any particular customer.  The employees carried out any work set before them. 

As the Tribunal put it, “They were simply a group of staff working for all the contracts, albeit that the vast bulk of some of the contracts (for some customers) fell to be done at the time that they were engaged to work.”

If your business is considering, or is involved in, a service provision change, please contact us