Mark Shulman, Consultant Solicitor at Keystone Law

**TUPE
**
Service provision change
Regulation 3 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provides, so far as is material:

"(1) These Regulations apply to—
(a)…
(b) a service provision change; that is, a situation in which—
(i) activities cease to be carried out by a person ("a client") on his own behalf and are carried out instead by another person on the client's behalf ("a contractor");
(ii) activities cease to be carried out by a contractor on a client's behalf (whether or not those activities had previously been carried out by the client on its own behalf) and are carried out instead by another person ("a subsequent contractor") on the client's behalf; or
(iii) activities cease to be carried out by a contractor or a subsequent contractor on a client's behalf (whether or not those activities had previously been carried out by the client on its own behalf) and are carried out instead by the client on his own behalf,
and in which the conditions set out in paragraph (3) are satisfied."

In two recent cases, the EAT had to consider the requirements for there to be a service provision change (SPC) under TUPE.

First, in [Department for Education v Huke & Anor ]() UKEAT/0080/12/LA the Claimant worked for an employer who provided IT support services for the DfE under a contract. Work started to diminish and eventually the Claimant was the only employee who was assigned to the contract and he had “very little work to do”.

The contract terminated and the Claimant’s employer and the DfE were at odds as to whether there would be a TUPE transfer. The Claimant was assured by the transferor that his employment would transfer but when he attended work with the DfE he was refused entry. He claimed unfair dismissal at the ET and won.  The employer successfully appealed.

What activities are to be considered?
In the previous case of Metropolitan v Churchill Dulwich Ltd [2009] ICR 1380 the EAT had said:

"… The tribunal needs to ask itself whether the activities carried on by the alleged transferee are fundamentally or essentially the same as those carried out by the alleged transferor."

Minor or trivial differences in the “before” and “after” activities were to be ignored. But it was not a matter of simply asking whether activities carrying the same label had continued post transfer. The ET must consider not only the character and types of activities carried out, but also the quantity. A substantial change in the amount of the particular activity could show that the post-transfer activity was not the same as it was pre-transfer.

In the present case there was clear evidence before the ET that whilst the types of work performed by the Claimant remained broadly the same, the amount of work required to be carried out had reduced considerably. Accordingly, that evidence plainly had the potential to lead to the conclusion that TUPE did not apply.

It seemed difficult to the EAT to regard a person who spent a quarter of his time or less carrying out activities required by the client contract as having the residual client contract activities as his "principal purpose" under his contract of employment. In such circumstances, the person would be spending three quarters of his time doing nothing (and therefore available for other work). A common sense approach seemed to indicate that it was absurd to suggest that the principal purpose of an employee's working week is that which takes up only a quarter of the hours for which they are employed. Where the volume of work undergoes a substantial diminution, it may lead to the conclusion that the activities being carried out were not essentially the same as before, even if the same categories of work applied.

Subversion of TUPE?
One interesting point arose from the submission of counsel for the DfE in a plea to the effect that if diminution in the volume of work was relevant, then potential transferee employers could subvert TUPE by taking work back in-house prior to the end of the contract.

The EAT did not agree that there is a risk of subversion in that way. The fundamental flaw in the reasoning was that the service  provision changes of TUPE can bite at any time. Termination of the contract for provision of services is not a pre-requisite to their application. So, a relevant transfer could occur whenever the client contract activities cease to be carried out by the contractor's employees and are carried out instead by the client on his own behalf. If that happened at a date prior to the end of the contract, there could be a TUPE transfer at that point.

Administrators and SPC
In another case looking at the nature of activities (SNR Denton UK LLP v Kirwan & Anor , the question arose as to whether an in-house solicitor whose work was subsequently carried out by her company’s Administrators, could be the subject of a service provision change under TUPE.

The Claimant solicitor worked in-house for a facilities management company (JAS) which ran into financial difficulties.  She then became engaged in disposing of JAS service contracts to third parties.  Administrators were appointed who had engaged Dentons as solicitors to act for them in the administration.  That work also involved disposing of the company’s service contracts. 

The Claimant, who had been made redundant five days after the administration began, argued that there had been a service provision change under TUPE. An Employment Tribunal at a preliminary hearing agreed with the Claimant.  Dentons appealed.

Organised grouping of employees
First, under TUPE, for there to any SPC, it is a requirement for there to be “an organised grouping of employees”.  It was common ground between the parties (and the EAT did not take issue with the proposition) that it was still possible for such an organised grouping of employees to consist of a group of one (i.e. in this case the Claimant).

Similarity of activities
The ET had identified the "activities" as being the disposing of JAS's contracts. On that basis, the ET had concluded “both [Dentons and the Claimant] were providing similar legal services in disposing of JAS's contracts…”

In the EAT case of  Metropolitan Resources Ltd v Churchill Dulwich Ltd [2009] ICR 1380  it was decided that the issue of what was or was not an activity was a matter of fact. The same approach was taken by the EAT in [Enterprise Management Services Ltd v Connect-Up Ltd]() [2012] IRLR 190. The question is essentially a question of fact and degree.
The EAT ruled in the present case that the common use of the word "activities" is to describe what is being done. The ET’s conclusion was within the scope of permissible findings. There seemed to be nothing wrong to the EAT in concluding that the activity of disposing of the contracts was essentially the same, whether performed by the Claimant in-house or by Dentons outsourced. The EAT therefore rejected that ground of appeal.

Who is the client?
The wording of TUPE looks to activities, "that cease to be carried out by a client on his own behalf". The client is one and the same person as that expression is used throughout Regulation 3 (as approved by the EAT in Hunter v McCarrick . [Editors note: upheld in the Court of Appeal in October 2012. See [McCarrick v Hunter ]()[2012] EWCA Civ 1399]. Accordingly, the need was to identify one “client”. Dentons argued that taking into account the approach of the Court of Appeal in [Key2Law Surrey LLP v De'Antiquis ]()[2011] EWCA Civ 1567, [2012] IRLR 212 and the Insolvency Act 1986, one would come to the conclusion expressed in the case of Edenwest Ltd v CMS Cameron McKenna (a firm) [2012] EWHC 1258 that:

"[…] ordinarily at least, an adviser instructed by receivers in their own name … will not, without more, be or become parties to a retainer with the company in receivership…."

Dentons submitted that the legal work done on behalf of the Administrator was carried out by Dentons, whereas the work done on behalf of JAS was by the Claimant. Thus, applying Hunter, there could here be no service provision change as the clients were different.

The EAT concluded that the agency provided for by the Insolvency Act 1986 “is of a design peculiar to its purpose”. Although for much of the time the administrator and the company will have a common purpose, the administrator owes his duty to the creditors of the company. The EAT therefore accepted that the ET was in error in concluding that merely because the administrator acted as agent for the company, it meant that the solicitors retained by the administrator were themselves acting on behalf of the company when they acted in the administration. They might have been, but it could not be assumed that they necessarily did. It was the making of that assumption that was the error of the Employment Judge.

Specific event or task
For any SPC under TUPE, it is a requirement that:

“…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..."

The third argument related to what the EAT described as the “interesting but somewhat theological question” of whether the draughtsman of TUPE intended the words "a single specific event" to be qualified by "of short term duration" as well as the word "task".

However, the issue was not whether the services would operate only in connection with a single specific event or a task of short term duration, but whether that was the intention of the client. It may often be self-evident what the intention will have been, but a Tribunal must show that it recognises that it is not dealing with an objective standard, but with the anticipation or intention of the client.

Whilst the ET had never specified the time within which the actual work of disposing of contracts continued, the actual time did not in itself matter if what was in issue was the intention of the client as to what should be the period of time. But there had been no evidence given by the client. Therefore on the evidence before the ET and given the state of the case authorities, a decision was substituted by the EAT for the ET’s decision that there was no service provision change.

ETO reasons and TUPE remedies
Dismissals for “an economic, technical or organisational reason” (ETO) under TUPE are potentially fair. In [The Manchester College v Hazel & Anor ]()UKEAT/0642/11/RN the EAT had to consider whether dismissals for refusing to accept revised terms and conditions six months after a TUPE transfer, were ETO dismissals and whether orders for re-engagement were correctly made.

The Claimants were subject to a TUPE transfer. Six months later the employer began a costs savings strategy which had two elements. One was to make redundancies. The second aspect was the need to harmonise terms and conditions including imposing a new pay scale. The Claimants did not volunteer for redundancy and they received letters telling them that their jobs were safe from compulsory redundancy. They were then told that they should agree to new contracts and take a wage cut which they refused to do and they were dismissed, being re-engaged on the new contracts.

The ET found, by a majority, that the dismissals were unfair under TUPE as the reason for the dismissals was connected with the transfer and not saved by an ETO reason. The Employer unsuccessfully appealed both liability and the remedy of re-engagement.

The EAT started with the reason for dismissal, which was a question of fact for the Tribunal to determine. It had determined that it was the Claimants' refusal to accept the new terms and conditions. This was plainly a decision that it could reach on the evidence.

Entailing changes to the workforce
The next question is whether the dismissals were saved by ETO reasons under TUPE (i.e. an economic, technical or organisational reason entailing changes in the workforce).

Focussing on the words "entailing changes in the workforce", the issue was whether there had been a change in the workforce numbers (given that there were no changes in its functions). [Meter U Ltd v Ackroyd and Ors ]()UKEAT/0206/11 applied and so whilst the EAT considered that there is not a closed category of “changes in the workforce”, it had yet to see any practical examples other than changes in numbers or functions. It was clear that once the Claimants were told that they were not at risk of redundancy and the redundancy process had ended, what was next on the agenda was harmonisation of conditions, and that is what the ET had found. However, new terms is not a change in the workforce and so the ET majority was correct in its construction of TUPE. That meant the dismissals were automatically unfair.

Was re-engagement appropriate?
The ET decided that the Claimants should be re-engaged. Unusually and perhaps uniquely, the Claimants were seeking re-engagement to a contract where they are already working under the new terms. One of the consequences was that the scope for argument on practicability of re-engagement (under section 116 (3) of the Employment Rights Act 1996) was considerably lessened. Arguments about loss of trust and confidence, passage of time and “water under the bridge” were not available; the Claimants continued working and had the trust and confidence of the Employer.

Whilst the ET accepted the Employer's assertion that other staff or the union may be discontented by the re-engagement terms, it found this could be managed by the employer. Put into perspective: two out of the thousands of employees would be employed on the same salary as they were before the transfer. The Tribunal was entitled to accept the Employer's evidence it could handle it.

Two other interesting arguments were rejected by the EAT. First, the EAT did not accept the employer’s contention that there was a perverse inconsistency in a finding that reinstatement was not appropriate but re-engagement was (as both required consideration as to the practicability of making such orders). The EAT considered this is because under a re-engagement order, the match of terms and conditions, functions, position and so on was much closer. Reinstatement required restoration into the same position whereas re-engagement allows for a range of different matters.

Nor did the EAT accept the employer’s argument that it would not be just and equitable to award re-engagement in circumstances where Polkey would have applied and compensation would not be awarded. This was misconceived because Polkey applied only to issues of compensation - that case said nothing about when a re-engagement award is made. The EAT went on to say that even if it was wrong about that, the ET was entitled on the material before it on practicability to decide that there should be re-engagement as the only way of recognising the breach of TUPE.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.