In Kimberley Group Housing Ltd v Hambley and ors and Angel Services (UK) Ltd v Hambley and ors, the Employment Appeal Tribunal (EAT) has overturned an Employment Tribunal’s finding that where a service provision contract is performed by one company and is taken over by two companies, the liability for transferred employees should be apportioned between the two companies.

This is an important case, as it is the first guidance to be given by the EAT on the effect of service provision changes under TUPE.

What did the Court decide?

Leena Homes Ltd (Leena) was contracted by the Home Office to provide accommodation and related services for asylum seekers. In 2006, Leena lost the contract and Kimberley Group Housing Ltd (Kimberley) and Angel Services (UK) Ltd (Angel) were awarded the right to succeed Leena under a new contract. The six claimants – employees of Leena engaged in providing these services – lost their jobs as a result and claimed they had been subject to a TUPE transfer.

The Tribunal examined regulation 3(1)(b) of TUPE which provides that a relevant transfer under TUPE can be a ‘service provision change’. The Tribunal found that there had been a service provision change because, as described by regulation 3(1)(b)(ii), activities ceased to be carried out by a contractor on a client’s behalf and were now carried out instead by another person (“a subsequent contractor”) on the client’s behalf. The Tribunal asked itself, “to whom did the contract of employment or liability of each claimant under or in connection with the service provision transfer?” In response, it concluded that “although the people and their contracts cannot be “split”, the liabilities under these contracts can.” Applying this reasoning, the Tribunal held that liability for the transferring employees should be apportioned between the two subsequent contractors, Kimberly and Angel, depending on how much of each claimant’s work each successor adopted. The two companies appealed against the decision.

The EAT allowed the appeal, holding that although the Tribunal was correct in finding that there had been a service provision change, its conclusion regarding the effect of that service provision change was “fatally flawed”. There is no precedent in statute or in common law for the division of liabilities under a contract between two transferees on a percentage basis. Whilst the Tribunal correctly recognised that an employee could not be the servant of two masters, it considered that the liabilities under the contract of employment could be separated out. The Tribunal reasoned that this was possible because the employees concerned had been dismissed. However, the EAT pointed out that the Tribunal’s reasoning would require the same apportionment to be applied even where the employees are still employed. This would cause obvious difficulties which demonstrated that this approach could not be right.

The overall principle, said the EAT, is essentially the link between the employee and the work or activities to be performed. The EAT considered that the Tribunal should have established which company had, after the service provision change, taken on the activities which each employee claimant had previously performed. In order to establish this, the Tribunal should have been guided by the principles set out in the European Court case of Botzen v Rotterdamsche Droogdok Maatschappij (1985) ECJ as applied by the UK Court in Duncan Webb Offset (Maidstone) Ltd v Cooper (1995 )

Had they taken this approach, the EAT were convinced that the Tribunal would have had to find that all six claimants transferred to Kimberley because Kimberley had taken on the majority of the activities previously carried out by Leena. The EAT therefore found that the employees had transferred to Kimberley and Kimberly alone was liable for them.

What this decision means for employers

This is the first piece of guidance on how a Tribunal should approach the situation in which a service, once provided by a single contractor, is later to be provided by two or more contractors. It is clear from this case that the contractors cannot be jointly liable for any particular employee. The question, therefore, is which of those two contractors, if any, should take responsibility for any employee who had been engaged in performing the service previously and on what basis?

In this particular case, the EAT considered which of the contractors had adopted the majority of the activities performed by the previous contractor in order to determine who took on responsibility for the transferred employees. This, it seems, was done in part for economic and practical reasons as requested by counsel for each of the parties, rather than having another Tribunal reconsider the facts and come to a decision. 

In practice, a Tribunal faced with this sort of case would have to apply the test as laid down in Botzen and Duncan Webb which decided that it is a question of fact as to which employees were “assigned to” the business, or part of business transferred. It will not always necessarily be simply a question of which contractor took on the majority of the activities of the previous contractor, as in this case. Although, in Duncan Webb, no definitive rules were provided, a number of helpful factors were suggested – the amount of time spent on one part of the business or the other; the amount of value given to each part by the employee; the terms of the contract of employment showing what the employee could be required to do and how the costs to the employer of the employee’s services had been allocated between the different parts of the business. There is not an exhaustive list of factors but the focus should be on the link between the employee and the work or activities which are performed and whether the employer is “assigned” to the work transferred.