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NOVEMBER 2014
TUPE or not TUPE –
your strategy for
approaching TUPE in
an outsourcing
context
KATHRYN DOOKS, VIRGINIA ALLEN
AND AMY DOUTHWAITE
An overview of TUPE
When TUPE doesn’t apply
Coffee break
Typical approach to TUPE indemnities
_2
Today’s session
Two tests:
Standard “multi-factoral” test
– Most common in sales of businesses
Service provision change
– Most common in outsourcing
_3
The critical question – TUPE or no TUPE?
Standard “Multi-factoral” test
Staff taken over
Customers
taken over
Value of
intangible
assets
Buildings or
moveable
property
“relevant transfer”
value of intangible
assetscustomers taken over
similarity between the
activities staff taken over
buildings or moveable
property
A transfer of a stable economic undertaking which retains its identity
4
Service provision changes
Client
Subsequent
contractorContractor
ba
Client Contractor
Client Contractor
1
2
3
5
Fundamentally the same activities
Caselaw codified in TUPE
Organised grouping of employees
Located in Great Britain
Whose principal purpose is the carrying out of the activities
Specifically organised by reference to the client, not grouped by accident
Assigned to that grouping
Immediately before the transfer
A question of fact, applying a multifactorial test:
– percentage of time spent
– title
– reporting structure
Costain v Armitage
Service provision changes - continued
6
Rights,
duties,
powers and
liabilities
transfer
Information
and
consultation
Notification
of
employee
liability
informationDismissals
automatically
unfair in
certain
circumstances
Changes to
terms and
conditions at
risk of being
void
No
contracting
out - right of
objection
Staff transfer on
same terms
“relevant
transfer”
_7
Informing and consulting
Inform and, if appropriate, consult appropriate representatives of “affected employees”
Long enough before the transfer to enable the employer to consult on any ‘measures’ that will be taken
Award of up to 13 weeks’ pay for failure
Transferee must provide details of any proposed measures
8
Employee liability information
Certain information has to be provided in writing or in another readily accessible form
At least 28 days before the transfer (used to be 14 days)
Just and equitable penalty having regard to any loss suffered by the transferee (normally no less than £500 per employee)
Eville & Jones (UK) v Grants Veterinary Services Ltd
9
Automatically unfair to dismiss if the sole or principal reason is the transfer unless it is
an ETO reason
ETO = economic, technical or organisational reason “entailing changes to the workforce”
Dismissals and TUPE transfers
_10
Changes are void if the sole or principal reason is the transfer unless:
– the contract provides for the change; or
– sole or principal reason it is an ETO reason and the employee agrees;
– Hazel and another v The Manchester College
– Enterprise Managed Services Ltd v Dance & others
– Smith and others v Trustees of Brooklands College
Options:
– Think of another reason!
– Delay the timing
– Settlement agreements
Changing terms and conditions and TUPE transfers
_11
Changes in location
_12
Prior to January 2014 not an ETO reason, so redundancy in this context automatically
unfair (e.g. Tapere v South London and Maudsley NHS Trust, Abellio London Limited v
Musse)
Now expressly an ETO reason so not automatically unfair BUT
– Usual unfair dismissal principles apply – need to go through a consultation process
including considering pooling and selection
– If pre-transfer, likely to still be unfair as transferor cannot rely on transferee’s need to
relocate
– If post-transfer, will need to incur employment costs in the meantime and pool with
transferee’s existing staff
Solutions – indemnity protection and / or settlement agreements
Managing offshoring and TUPE
Holis Metal Industries Limited v GMB
Two options for dealing with consultation obligations
Option one now expressly permitted where transferor consents
1
Transfer;
Collective consultation
Dismissal
2
Collective consultation;
Transfer;
Dismissal
_13
When TUPE doesn’t apply (1): no organised grouping of
employees
14
BIS guidance – are the employees “essentially dedicated” to providing the services?
Is a group of employees organised by reference to the client?
Are they identifiable as members of the client’s team?
If not, TUPE will not apply
Example:
– Warehouse and distribution operatives divided into day and night shifts
– In practice, day shift staff worked mostly for one customer, while night staff worked for
another. But no deliberate plan to divide work up in this way
– Held, TUPE did not apply because no organised grouping of employees
(Eddie Stobart Limited v Moreman and Others)
When TUPE doesn’t apply (2): – services not “fundamentally
the same”
_15
Are the activities “fundamentally or essentially the same as those carried out by the
alleged transferor?” (Metropolitan Resources Limited v Churchill Dulwich Ltd)
Examples:
– sandwich and salad bar a “wholly different operation” than greasy spoon (OCS Group
UK Ltd v Jones)
– Omission of 15% of work from IT contract after re-tendering enough to count as a
significant difference (Enterprise Management Services Limited v Connect-up Ltd)
Potential for TUPE avoidance
BUT – see also Qlog Ltd v O’Brien where TUPE was held to apply despite real changes in
the provision of services
When TUPE doesn’t apply (3): - fragmentation of the services
16
A service provision change can occur where the activities are distributed among a number of
contractors, provided that it is possible to identify with which contractor they end up
BUT: TUPE may be avoided where services are randomly distributed
Question is whether it is possible to identify the destination of the activities
See Thomas-James and Others v Cornwall County Council, Clearsprings Management Ltd v
Ankers
When TUPE doesn’t apply (4): single task / event of a short
term duration
_17
Example:
8 month contract for security services for business centre scheduled to then be
demolished (even though in fact demolition did not go ahead)
Horizon Security Services v Ndeze
See also Robert Sage t/a Prestige Nursing Care v O’Connell and others, Swanbridge Hire
& Sales Ltd v Butler
Finally, will not apply to a contract for the procurement or supply of goods
Note: no professional services exemption
COFFEE BREAK
What is happening on entry?
– Is there a current supplier?
– Are employees an organised grouping?
– Are they assigned?
– Will the current supplier reassign them?
– What are the client’s terms with the current supplier? (what protection will incoming
supplier get/expect?)
– Will incoming supplier need all the employees who transfer?
_19
Points to think about from the outset (1)
Will there be a transfer on exit?
– How will supplier organise its staff?
– Organised grouping?
– Will they be assigned?
– Likelihood of change to activities on termination?
– Ability/desire by the supplier to reassign its employees on termination?
_20
Points to think about from the outset (2)
_21
Typical approach on entry
- Client (on behalf of outgoing supplier) indemnifies incoming supplier for everything prior to the transfer
- Client (on behalf of outgoing supplier) liable for failure to consult (unless arising from default by incoming supplier)
- Incoming supplier indemnifies Client and outgoing supplier for everything on and from the transfer date
- NB: adjust third party rights clause
Standard split of liabilities pre- and
post-transfer
Existing supplier –employees in scope
to transfer
If anyone transfers:
- Supplier can terminate
- Client will indemnify for all liabilities
- [Client/outgoing supplier can offer employment before Supplier terminates]
Blanket indemnity
No existing supplier
_22
Alternative approaches to indemnities on entry (1)
_23
Alternative approaches to indemnities on entry (2)
- Who picks up redundancy costs?
- When does consultation take place and at whose cost?
Who picks up liability for unfair dismissal?
Redundancies
Transferee doesn’t need all the transferring employees
Requirement not to assign employees to the services during the term?
Provision of information for a re-tender
Obligation to reassign employees to other duties prior to the termination
Obligation to ensure all employees are 100% assigned?
_24
Provisions during the term
_25
Typical approach on exit
- Outgoing supplier indemnifies Client and incoming supplier for everything prior to the transfer
- Outgoing supplier liable for failure to consult (unless arising from default by incoming supplier)
- Client (on behalf of incoming supplier) indemnifies outgoing supplier for everything on and from the transfer date
- NB: adjust 3rd party rights clause
Standard split of liabilities pre- and
post-transfer
Employees in scope to transfer, activities
are the same
… you’ll be expected to give one back on exit
Fine if:
– Have allocated employees during the term so that they do not constitute an organised
grouping; or
– Able to reassign employees to other duties prior to/on termination. Depends on:
– contracts of employment;
– availability of other work.
_26
If you received a blanket indemnity on entry…
Increasingly seeing:
– Suppliers refusing to indemnify incoming suppliers on exit
– Client prefers not to be left standing in the middle (insolvency risk)
– Client doesn’t suffer loss itself (difficult to show loss suffered which is recoverable)
– Can draft around this
– Services ramp down over a period of time
– Built into contract pricing
– Change in activities
– Can be difficult to anticipate (change in tech)
– Depends on commercial bargaining power_27
Other issues on exit
Take legal advice early – there may be arguments TUPE doesn’t apply
Anticipate the end at the beginning
Who has control?
– Over what the employees do?
– Commercial bargaining power?
_28
Key points to bear in mind
What is not covered by TUPE?Prior to the transfer
Mutual understanding as to whether TUPE will apply
Obligation to provide information and documentation (at least more than 28 days before the transfer)
Lead up to the transfer
Obligation to ensure that staff are (or are not) assigned to other activities before the transfer
Obligation to limit changes to remuneration and other arrangements in lead up to the transfer
Transfer
Apportionment of:
– pre-transfer and post-transfer liabilities; and
– pre-transfer cost and expenses (e.g. holidays and salaries)
“Wrong pocket” provisions – if too many / not enough staff transfer
Special arrangements – such as:
Post-transfer reorganisations or relocations
Blanket indemnities to ensure that no staff transfer
Cherry picking provisions to allow the incoming contractor to retain selected staff
Different approaches if arrangement terminates for material breach etc.
No real change to service provision change regime
Changes just codified existing case law
Save that:
– Easier to change term and conditions of employment
– Easier to make dismissals
– Easier to change location
– Collective consultation easier and cheaper
Still need careful analysis at the start and end of the contract
_30
Have the 2014 changes met the government’s stated aims?
Annual update
Wednesday 28 January
Upcoming legislation, case update, everything you need to know about Shared Parental
Leave
8.30 til 10.30 am
Also, don’t forget our online web portal, HR Bytes which can be accessed at:
www.kemplittle.com/hrbytes
_31
Our next event
Kemp Little LLP is a limited liability partnership registered in England and Wales (registered number: OC300242) and is authorised
and regulated by the Solicitors Regulation Authority. Its registered office is Cheapside House, 138 Cheapside, London EC2V 6BJ. A
list of members is open to inspection at the registered office.
KEMP LITTLE
Cheapside House
138 Cheapside
London
EC2V 6BJ
TEL +44 (0) 20 7600 8080
FAX +44 (0) 20 7600 7878
—
kemplittle.com
KATHRYN DOOKS, VIRGINIA ALLEN
AND AMY DOUTHWAITE
Contact info
_32