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TUPE does not always apply

TUPE does not always apply

Regulations known as TUPE are designed to protect the rights of employees on the sale of a business or where there is a service provision change. Service provision changes most obviously occur where activities like cleaning or security are outsourced to a third party.

Some of the most contentious cases involve large commercial service contracts where the incumbent provider loses its contract to a competitor and wishes the incoming contractor to either take its personnel or bear the cost of lay-offs.

Amaryllis v McLeod (2016) is a decision of the EAT involving a specialist supplier to the MOD who renovated furniture. The MOD was its main customer and in 2012 it lost its contract to a competitor. The new supplier contended that TUPE did not apply and so it should not be responsible for the 370 employees who would otherwise have transferred to it.

For the employees to transfer:

  1. There must be an “organised grouping of employees”. For example, where there is a client team dedicated to servicing the client’s account. But TUPE can also apply where employees are organised more informally.
  2. The group must be “carrying out activities on behalf of a client”. In this case, the activities in question were the renovation of furniture.
  3. The group must have as its principle purpose the carrying out relevant activities for the specific client. It is not enough that the group just happens to do work for one client but that must be its purpose. Provided that is the purpose of the group there is no need for the group to work exclusively for one client.
  4. The relevant time at which there is to be an organised grouping is the moment immediately before the transfer. Here the tribunal had considered timesheets showing that the employees spent 70% of their time over a 3 and 6 month period prior to the transfer.
  5. Where there is a relevant transfer, all employees who are assigned to the organised grouping of employees carrying out the activity, will transfer. This meant that employees engaged in aspects of the work which was not taken on the by new supplier (working on refurbishments in situ at MOD bases) could still transfer.

In this case the EAT said the employment tribnal had got it wrong because it had looked at facts relevant to carrying out the activities in general rather than to carrying out such activites for the relevant client. It had not addressed the principal purpose of the organised grouping of workers at the relevant time.

In order to give commercial certainty, commercial parties will often contract on the basis that assumes that TUPE applies but it should not always be assumed that the commercial understanding reflects the facts on the ground.

When entering into commercial service contracts it is important to include appropriate TUPE exit provisions to ensure that employees transfer to a replacement provider.