The past 18 months has seen a significant number of TUPE related cases. The following is a summary of some of the key decisions.
The meaning of the term `activities’ (Service Provision Change)
A TUPE transfer will occur when there is a ‘service provision change’. In a first-generation outsourcing, where a client outsources an activity to a contractor for the first time, the conditions to be met in order for there to be a service provision change include a requirement that ‘activities’ cease to be carried on by the client for itself and are instead carried on by the contractor on the client’s behalf. As TUPE does not include a definition of ‘activities’, it has been for the Courts and Tribunals to consider how this issue should be approached.
In Metropolitan Resources Ltd v Churchill Dulwich Ltd, the Employment Appeal Tribunal (EAT) decided the activities carried out by the transferee must be ‘fundamentally or essentially the same’ as those that were carried out by the transferor in order for a TUPE transfer to occur. The EAT also indicated in its decision that in assessing whether the activities are similar, a more detailed rather than an ‘overview’ approach should be adopted (i.e. consideration should be given to the exact nature of the activities performed by each of the transferee and the transferor and the exact manner in which those activities are performed).
Further support for the adoption of a detailed approach can be found in the EAT’s decision in OCS Group Ltd v Jones and another. Here, the EAT decided that a contractor which provided catering services to a client by preparing hot and cold meals in on-site kitchens performed activities that were different to those of a contractor which only sold pre-prepared sandwiches and salads. The EAT rejected the ‘overview’ approach argument that the activities carried out by each of the transferee and the transferor in this case should be considered to be the provision of food or catering services and should therefore be considered to be the same.
Following the case of Tapere v South London and Maudsley NHS Trust, transferee businesses should be wary of relying upon mobility clauses which permit relocation with reference to the employer’s geographic location. In this case, the transferee attempted to relocate an employee to another of their places of business in reliance upon a mobility clause which permitted relocation. However, the employee did not wish to be relocated and brought a claim against the transferee for constructive dismissal.
The EAT decided that the mobility clause only permitted the employee to be relocated to a place of business of the transferor and not the transferee and that the transferee’s attempts to relocate the employee constituted a breach of contract. The EAT reasoned that to interpret the mobility clause otherwise, so as to permit the employee’s relocation to another of the transferee’s places of business, would have expanded the mobility clause beyond the geographic boundaries previously agreed between the employee and the transferor, to the detriment of the employee.
The timing of the provision of information to appropriate representatives
Transferor employers must inform the appropriate representatives of any affected employees of various matters relating to the transfer, including the fact that the transfer is to take place, the legal, economic and social implications and measures in connection with the transfer. TUPE states that this information must be provided ‘long enough before a relevant transfer to enable the employer of any affected employees to consult the appropriate representatives’. However, there has been uncertainty as to when information needs to be provided in circumstances where no measures are intended and, consequently, there is no obligation upon the transferor employer to consult with appropriate representatives.
In Cable Realisations Ltd v GMB Northern, the EAT clarified the following three points in relation to this issue:
- The requirement under TUPE for information to be provided ‘long enough before a relevant transfer to enable the employer of any affected employees to consult the appropriate representatives’ refers to voluntary consultation and not a transferor employer’s obligation under TUPE to consult about any measures that it envisages taking in relation to any affected employee.
- Transferor employers are under an obligation to provide information long enough before a relevant transfer to enable voluntary consultation to take place, but are not under any obligation to carry out such voluntary consultation.
- The time afforded for consultation to take place must provide an opportunity for appropriate representatives to meet and discuss matters with both management and the affected employees that they represent. Providing information in circumstances where shortly thereafter, the majority of employees would be absent from the business (e.g. where there is a shutdown period), and there would be little time for voluntary consultation after that absence, would be unlikely to satisfy this requirement.
The accuracy of information provided to appropriate representatives
In Royal Mail Group Ltd v Communication Workers Union, the Court of Appeal (CA) clarified that the information to be provided by transferor employers to appropriate representatives under TUPE need not be 100% accurate. Employers are, however, required to provide information that they genuinely and reasonably believe to be accurate and must be able to demonstrate to an Employment Tribunal that they have given consideration to the issues before forming a view as to what to include within the information that they provide.
Transfer of liabilities – commitments to increase pay under collective agreements
Any collective agreement between the transferor and a trade union recognised by the transferor in respect of any affected employee transfers to a transferee under TUPE. Such collective agreements can include terms as to employee pay. In some cases, the collective agreements will set out clear rates or amounts of pay increases with clear effective dates and, in such circumstances, it would be usual for the transferee to be bound by the terms of these agreements. On other occasions, the collective agreement may provide that terms are to be agreed in future by the original parties to the collective agreement (i.e. not the transferee) whilst setting out a framework within which such an agreement is to be reached (e.g. annual pay negotiation). Until recently, there had been uncertainty as to whether employers would be bound by the terms of such future negotiations to which they were not a party.
In Parkwood Leisure Ltd v Alemo-Herron, the CA decided that transferee employers will not be bound by negotiations which are collectively agreed by third parties after transfer. Collective agreements are to be given a “static” rather than “dynamic” interpretation.
Transfer of liabilities – equal pay
In Gutridge v Sodexo, the CA decided the following points of importance in relation to the transfer of liabilities for equal pay claims:
- Transferring employees have a period of six months from the date of a TUPE transfer in which to bring an equal pay claim against a transferee employer where the claim relates to the employee’s period of employment with the transferor.
- Transferring employees remain entitled after a TUPE transfer to compare themselves with individuals who remain in the employment of the transferor for the purposes of bringing an equal pay claim.
This second point means that whilst there may be parity in the amount of pay of men and women in the transferee’s employment, a claim may still be brought against the transferee on the basis of a difference in pay between a transferring employee and an employee of the transferor. This means transferee employers may face claims from transferring employees for up to six years’ worth of post-transfer differences in pay between the transferring employees and their pre-transfer comparators who remained employed by the transferor!
Insolvency – Administrator sales
TUPE contains provisions intended to facilitate business rescue by making failing businesses more attractive to a buyer. Some of these provisions operate so as to disapply the automatic transfer of employment principle in circumstances where the transferor is subject to ‘terminal’ insolvency proceedings. Other provisions retain the automatic transfer of employment principle, but introduce greater scope to agree to changes to terms and conditions of employment where the transferor is subject to ‘non-terminal’ insolvency proceedings.
Prior to the EAT’s decision in Oakland v Wellswood, it was generally considered that:
- insolvency proceedings under the supervision of an administrator would be likely to involve a rescue of the business in question and would therefore constitute ‘non-terminal’ proceedings; and
- insolvency proceedings under the supervision of a liquidator would be likely to involve a business being broken-up and sold in pieces and would therefore constitute ‘terminal’ proceedings.
However, in Oakwood, the EAT rejected this general view in favour of a literal interpretation of TUPE which states that the automatic transfer of employment principle would be disapplied where insolvency proceedings have been ‘instituted with a view to the liquidation of the assets of the transferor’. The EAT explained that in its view it would be possible for insolvency proceedings under the supervision of an administrator to fall within this definition and it was therefore a question of fact to be considered in each case.
Whilst the decision of the EAT in Oakwood appears to indicate that the automatic transfer principle may not always apply, there is an absence of clear guidance. It had been hoped that the position would be clarified upon appeal, but this point was not argued before the CA. Unfortunately, the appeal focused only on whether a person who is employed by the transferor and then by the transferee, in circumstances where there is a transfer of a business but the automatic transfer of employment principle is disapplied, retains their continuity of employment. On that point, the CA decided that continuity of employment is preserved in such situations under the provisions of the Employment Rights Act 1996. Accordingly, employees who ‘transfer’ in these circumstances will retain any rights they may have to claim unfair dismissal or to a redundancy payment.
Duckhouse Associates (DA) has set up an in-house customer services team. All persons employed in the customer services team are technical experts and they spend the whole of their time providing customer support. They each respond to customer queries using their own skills and knowledge and they prepare for each customer a detailed and personalised written response to their query. A copy of each response is retained by DA.
After several months it becomes apparent to DA that all of the big questions being asked of customer services have been answered. The questions now being received from customers are similar to questions that were previously asked. DA therefore considers outsourcing the customer services function to a contractor who would provide a streamlined service using the previously prepared answers as scripts for less skilled persons to use in the provision of customer services from a call centre.
DA decides to proceed with its plan to outsource the customer services function. This function is to be carried out in future by a contractor and operated from a call centre staffed by people unfamiliar with DA’s products. The call centre staff are to respond to queries by providing the customers with general answers derived from the responses prepared before the outsourcing. The contractor has informed DA and the technical experts that the outsourcing will not involve a TUPE transfer and that it will not be taking on the technical experts as its employees.
Terrific Things (TT) is a company well known for its market leading products, similar to those produced by DA. This arm of its business has attracted a lot of interest from third parties wishing to acquire it. Unknown to those who have expressed this interest, TT has been underpaying its female staff, in some cases paying females less than half the amount paid to males who perform the same job.
Not wishing to miss out on the opportunity to acquire TT’s products business Water Mug (WM) (one of the third parties interested in acquiring the products business of TT) agrees to purchase this business without undertaking any due diligence. A completion date for the purchase is agreed for three weeks time and it is acknowledged by both TT and WM that TUPE would apply to the purchase.
The date of completion of the purchase is the day that follows immediately after the annual two week shutdown of TT when the majority of its employees will be absent from the business on holiday. This leaves one week before the annual shutdown of TT when all of TT’s employees would be present at work. Not wishing to unsettle its employees, TT does not provide its employees with any information about the sale of its business to WM until the day immediately before the annual shutdown.
Four weeks after the completion of its purchase, WM receives a letter from several employees who transferred pursuant to TUPE. This letter demands that WM honour a pay increase that was recently negotiated and refers WM to the employees’ contracts of employment and a collective agreement between TT and a trade union. The contracts of employment each provide that the pay of employees is subject to such annual increase as may be determined in accordance with the provisions of the collective agreement. The collective agreement provides a framework for TT and the trade union to negotiate annual pay increases and it appears from the collective agreement that the latest negotiations took place two weeks after the transfer.
Questions and outline answers
Would TUPE apply to the outsourcing of the DA customer services function?
Consideration needs to be given as to whether the activity of customer services to be carried out by the contractor is fundamentally or essentially the same as the activity of customer services as carried out by DA. An overview assessment that each entity carries out a customer services function is insufficient to establish a service provision change. Instead, a more detailed consideration of the activities is required.
Such a consideration of the activities will draw out the differences between the customer services as operated by DA and the way that customer services are to be provided by the contractor. These differences include the following:
- following the outsourcing, queries are to be considered by persons without technical expertise; and
- following the outsourcing, people providing customer support will not consider each individual query and respond to each on its own merits, but will instead try to locate and provide customers with a response previously given to a similar question.
Because of these differences it may be arguable that the activities are not fundamentally or essentially the same. However, further analysis of the differences between the two types of activities would be required and there remains a strong risk that a Tribunal would define the activities broadly enough for there to be a service provision change.
What equal pay liabilities may WM face?
As TT paid female employees in the transferred business less than its male employees who performed the same work, WM may face claims for up to six years’ difference in pay for the period prior to its acquisition of the widgets business of TT. Assuming that each of the female employees would succeed in such an equal pay claim if brought, whether WM will face liabilities for the period prior to completion will depend upon whether the female employees bring complaints within the six month period following completion. If they fail to do so, then WM would be unlikely to face liabilities for this period as such claims would usually be time barred.
The female employees will continue to be able to compare themselves against the male co-workers for the purposes of an equal pay claim because these employees also transferred to WM. WM may wish to consider taking steps to equalise pay and reduce the risk of equal pay claims arising.
A further risk for WM in respect of equal pay claims is that there may also be appropriate comparators for the transferring female employees who did not transfer to WM and remained with TT. Even though these employees have not transferred to WM, the transferring female employees will still be able to compare themselves with those male employees for the purposes of an equal pay claim and may bring a claim against WM for up to six years of pay difference relating to the period post acquisition.
Might TT face any claims for a failure to provide information in accordance with TUPE?
TT was required under TUPE to inform the appropriate representatives of affected employees of certain matters relating to the transfer, long enough before the acquisition of its products business by WM in order to allow voluntary consultation to take place. Because TT delayed in providing the information, so as not to unsettle its employees, and only released the information before a period of shutdown when no consultation could have taken place, it is extremely unlikely that TT satisfied its obligations. TT may well face claims for a failure to provide information in accordance with its obligations under TUPE.
Is WM required to increase the pay of the transferring employees whose contracts of employment refer to the collective agreement?
The collective agreement referred to in the employees’ contracts of employment should be given a static interpretation. Any negotiations which are collectively agreed by TT and the trade union after the transfer are not binding on WM. As the pay negotiations referred to by the employees took place after transfer these are not binding on WM and it is not required to increase the pay of the transferring employees whose contracts of employment refer to the collective agreement.