9 Mar 2016

The Employment Appeal Tribunal (‘EAT’) has determined that an interruption in services, prior to a new service provider being appointed, did not necessarily prevent a TUPE transfer.

TUPE – a brief reminder

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) aims to protect employees’ rights where there is a change of employer arising from either: (a) a business transfer; or (b) a service provision change.

For TUPE to apply to a business transfer, there must be an economic entity which retains its identity following the transfer. This involves a detailed analysis of all the relevant factual circumstances including, for example, the extent to which tangible assets (such as buildings, stock and equipment), goodwill and customers transfer and the duration of any interruption in those activities.

A ‘service provision change’ occurs where a business outsources certain functions or services to an external service provider, changes external providers or brings activities back in-house. TUPE will only apply in narrow circumstances, where: (a) previously, the activities were carried out by a designated team which was deliberately put together for the principal purpose of performing that work; and (b) the activities carried out by the new provider are fundamentally the same and do not relate to a single specific event or task of short-term duration.

In either scenario, TUPE will only apply to employees who are assigned to the relevant business or team performing those activities immediately before the transfer.

Background

In Mustafa v. Trek Highways Services Ltd, Mr Mustafa was employed by Trek to perform road maintenance work in north-east and north-west London. The work was outsourced by Transport for London (‘TfL’) to a contractor, Amey, which in turn sub-contracted the work to Trek. Following a retendering exercise, Amey lost the work. TfL awarded it to two new contractors: Ringway in north-east London and another contractor in north-west London. The Amey contract was due to terminate on 31 March 2013.

In the meantime, a dispute arose between Trek and Amey. On 8 March, Trek suspended work and told staff to go home and wait to be contacted. On 20 March, the subcontract between Trek and Amey was terminated by mutual consent and Trek wrote to Mr Mustafa and his colleagues to inform them that their employment had transferred to Amey. In the period between 8 and 31 March, Amey put in place some contingency measures in order to fulfil its commitments to TfL. Trek went into administration on 26 March. The contract between Amey and TfL terminated on 31 March and the new service providers took over the work on 1 April.

Mr Mustafa and his colleagues tried to turn up for work at Amey’s premises and subsequently at Ringway – on both occasions, they were turned away.

The Employment Tribunal was required to consider a number of possible TUPE scenarios, including whether TUPE applied to transfer employees either:

(a) from Trek to Amey on 20 March (with a subsequent transfer to Ringway on 1 April) – either as a business transfer or a service provision change; or

(b) from Trek directly to Ringway on 1 April – again, either as a business transfer or a service provision change.

It decided that TUPE did not apply to any of those potential situations, principally because Trek stopped doing the work on 8 March and, in the judge’s view, the employees were effectively dismissed before Ringway started work on 1 April. Mr Mustafa appealed to the EAT.

EAT decision

The EAT upheld the appeal.

In particular, Trek’s suspension of work on 8 March appeared to be a temporary cessation in activities only, whilst the dispute was resolved. This meant that the Tribunal had been wrong to conclude that this had prevented a service provision change or, for the purposes of a potential business transfer, effectively destroyed the Trek economic entity performing the work. Although the dispute resulted in Trek ceasing work temporarily and Amey taking over some of the activities, these were only two relevant factors and not, in themselves, determinative of whether TUPE applied.

There was nothing to suggest that the Trek entity or designated team of employees did not continue to exist after 8 March and could not have resumed activities immediately if required. There would, however, need to be consideration of whether the cover provided by Amey was intended to be of short-term duration (which would otherwise preclude a service provision change from Trek to Amey).

Because the Tribunal had concluded that there was no transfer from Trek to Amey, it had not considered a possible onward transfer from Amey to Ringway on 1 April.

There were also errors of law in considering whether there might have been a transfer from Trek to Ringway on 1 April (assuming that employees had not already transferred to Amey). For example, the Tribunal had been wrong to conclude that the employees had been dismissed on 20 March (and therefore not employed immediately before any potential transfer on 1 April). Again, although Trek’s activities had temporarily ceased, this did not of itself preclude a TUPE transfer. There was no requirement for employees to be working immediately before the transfer on 1 April.

In summary, it was possible that any one of the above TUPE scenarios could, in fact, apply. The EAT sent the case back to the Employment Tribunal for reconsideration.

Comment

In some cases, it will be unclear whether a potential TUPE transfer might fall within the definition of a ‘business transfer’ or a ‘service provision change’ (or neither). This case confirms that where activities stop temporarily (meaning that the employees are absent from work at the time of the transfer), this does not, of itself, preclude TUPE from applying in either case. The length of the hiatus and the reasons for it will be relevant considerations as part of an overall factual assessment of what is happening on the ground and, in particular, what each employee is doing (or not doing) before the transfer.

This will be relevant in a number of situations – for example, where a restaurant or retail space changes hands and is closed down for refurbishment and rebranding. Equally, an outgoing IT service provider may wind down its operations and stop certain types of work in anticipation of (or as part of) a handover to a new, incoming contractor.