Service provision changes: UK EAT gives guidance on the meaning of an "organised grouping of employees"
In the case of Eddie Stobart v Moreman & Others the Employment Appeal Tribunal (EAT) has provided welcome guidance on the meaning of “organised grouping of employees” for the purposes of a “service provision change” under regulation 3(3)(a)(i) of the Transfer of Undertakings (Protection of Employees) Regulations 2006 (“TUPE”). A group of employees who happened to work mainly for a particular client because they worked the day shift were found not to comprise an “organised grouping of employees” for “service provision change” purposes under TUPE. The EAT held that, when assessing whether employees will transfer to a new contractor following a service provision change, it is necessary to identify the existence of an “organised grouping of employees” the principal purpose of which is to carry out the relevant activities on behalf of the client, before analysing whether employees are assigned to that group. There will only be an “organised grouping” where the employees in question are “organised” for the purposes of the provision of services to the relevant client.
What happened in this case?
Employment Tribunal proceedings were brought by 35 Claimants who were employed by Eddie Stobart Limited (“ES”) at a site in Nottinghamshire. ES provided warehousing and distribution services to two clients: Vion and Forza. For organisational reasons, ES’ day-shift employees worked principally on the Vion contract and night-shift employees worked principally on the Forza contract. On the closure of the site, FJG Logistics Limited (“FJG”) was awarded the Vion contract (day shift). ES considered the day shift employees and those who had spent more than 50% of their time on “Vion-related work” to be assigned to the Vion contract and therefore believed that they would transfer to the new service provider, FJG, following the change. FJG refused to accept that there was a service provision change, within regulation 3(3)(a)(i) of TUPE, and that therefore the employees identified by ES as being assigned to the Vion contract had transferred to them.
For there to be a service provision change under Regulation 3(3)(a)(i) TUPE, certain conditions must be met. As mentioned above, one of these is that there must be an “organised grouping of employees” the “principal purpose of which” is carrying out the relevant activities on behalf of the client.
The Claimants brought Employment Tribunal proceedings against ES and/or FJG. The Tribunal decided that there was no service provision change under TUPE because the Claimants were not an “organised grouping” of employees. They only spent the majority of their time on the Vion contract because of the way ES organised its shift patterns, not because they were organised into a team whose “principal purpose” was to carry out work for Vion.
ES appealed against the Tribunal’s decision but the EAT agreed with the Tribunal. The EAT ruled that the test in Regulation 3(3)(a)(i) TUPE does not say merely that employees should in their day-to-day work in fact (principally) carry out the activities in question: it says that carrying those activities should be the (principal) purpose of an organised grouping to which they belong. In other words, where the grouping is organised by reference to the requirements of the client in question (e.g. “the [Client A] team”), there will be an organised grouping which will transfer. Conversely, as in this case, where the employees are organised in relation to other circumstances such as shift patterns or working practices, but without any deliberate planning or intent, an employer is unlikely to be able to demonstrate that employees are grouped together and organised for the purpose of serving a particular client. Consequently the employees will remain with the original service provider.
What does this decision mean for employers?
The decision offers useful guidance to employers on where employees stand in TUPE service provision change situations. It is clear that, when attempting to determine the position of employees in relation to a prospective service provision change, employers will need to adopt a two-stage analysis; first, identifying the existence of a client-focused “organised grouping of employees; and second, assessing whether individual employees are wholly or mainly assigned to such a grouping.
In identifying the existence of an “organised grouping”, the fact that a group of employees works mostly for a particular client will not be decisive, unless the carrying out of that work for the client is the principal purpose of the grouping. Therefore, only when employees are clearly dedicated to carrying out the activities that are to transfer, can employers be confident that employees will “go with the work”. Where employees are organised into dedicated client teams, for example, “the [Client A] team”, it will be very difficult for a new service provider to argue that those employees should not transfer under TUPE. In many cases, a less explicit identification will suffice. This is not new but the case underlines that where there is no client-focused element of organisation to meet the client’s specific needs, the argument for the “organised grouping” may be weak or possibly non-existent.
Following this case, employers should benefit from a greater degree of certainty over the application of the TUPE service provision transfer test, but it does mean that in some cases service providers may be left with unwanted employees whom it had previously been expected would transfer on termination of the provider’s contract with the client, and unforeseen redundancy costs.