In the recent case of Lorne Stewart plc v Hyde and others, the EAT made clear that it is important not to get side-tracked by the details of formal written contracts which are in place between the parties before and after a potential TUPE transfer, if such details do not reflect reality. Rather, it is essential to consider whether, in practice and on the facts, there is a service provision change and, if so, whether the employees in question are assigned to an organised grouping of employees which has as its principal purpose the carrying out of the activities concerned.
The facts of the case
In a situation common to many local authorities, Cornwall County Council (“the Council”) had been outsourcing its heating and boiler installation and repair work under a contractual arrangement known as a framework agreement. Under the framework agreement, the Council could call on its contractor, Planned Maintenance Engineering Ltd (“Carillion”), to carry out work as and when it was required. The framework agreement specified five different types of installation/repair work: three of these types were guaranteed work for Carillion, but the Council was under no obligation to offer to the company the remaining two types of (more high-value) work, and Carillion was under no obligation to accept any such work offered. In practice, however, during the life of the agreement the Council did offer and Carillion did accept all such work.
This arrangement continued until April 2011 when, following a re-tender of the services, the Council appointed a new contractor, Lorne Stewart plc (“LS”) to replace Carillion. The new contract was largely on identical terms to the original framework agreement between the Council and Carillion, and so it was Carillion’s view that there was a clear service provision change, and that those employees carrying out the works on behalf of the Council should transfer to LS. LS accepted that there was a service provision change, and even accepted that most of the employees of Carillion who were carrying out the services for the Council would transfer to it under TUPE. However, LS considered that two employees (Mr Hyde and Mr Crowley) should not transfer: because they were carrying out the second type of works – those which were not guaranteed by the contract – LS considered that they were carrying out activities which were not provided for under the framework agreement, and those activities were therefore outside the scope of the transfer.
Both employees dismissed – who was liable?
The dispute as to whether these two employees should transfer under TUPE continued right up until the date of transfer and, when the employees turned up for work that day, they were turned away by LS.
It was not disputed that Mr Hyde and Mr Crowley had therefore been unfairly dismissed – the question was who should be liable for such dismissals. If the correct interpretation of TUPE meant that Mr Hyde and Mr Crowley should have transferred to LS, then it would be LS who would be liable. If LS were right, however, and the employees did not transfer under TUPE, then Carillion would be liable.
The employees therefore brought claims against both Carillion and LS.
The Employment Tribunal found in favour of Carillion: Mr Hyde and Mr Crowley were carrying out activities for Carillion on behalf of the Council, and these activities transferred to LS. The fact that such activities were not guaranteed by the framework agreement meant that there was a certain risk for LS which it would have to factor into its tender pricing, but that did not affect the scope of the transferring activities. The Tribunal further found that there was an organised grouping of employees whose principal purpose was the carrying out of these activities on behalf of the Council, that the employees in question were assigned to this organised grouping, and that the activities were not for a single specific event or task of short duration. Mr Hyde and Mr Crowley should have transferred to LS under TUPE, therefore, and so LS was responsible for the dismissals.
LS appealed but the EAT agreed with the Tribunal.
The EAT firstly made clear that the key issue was what took place in practice, not the wording of the contract. It did not matter, therefore, that the contract did not oblige the Council to give Carillion the type of work which Mr Crowley and Mr Hyde had been carrying out. In practice this work was given to Carillion, and it was intended that it be carried out in the same way by LS. There was no reason why work that the employees did should be excluded from the scope of the transferring activities merely because that work was not guaranteed by the contract.
Instead, the EAT went on to hold, a Tribunal should focus its attention on the established principles set by case law (in particular Metropolitan Resources v Churchill Dulwich and summarised in Enterprise Management Services v Connect-Up Ltd) to determine whether employees should have transferred under TUPE. It will need to consider the following:
1. Have the activities ceased to be carried out by one contractor on a client’s behalf to instead be carried out by another contractor?
2. What are these activities?
3. Are the activities fundamentally/essentially the same before and after the transfer?
4. Has there been any division of services after the transfer to such an extent that there can no longer be said to be a service provision change (fragmentation)?
5. Have the following conditions been satisfied:
a. there is an organised grouping of employees in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;
b. the activities are not to be carried out in connection with a single event of short-term duration;
c. the activities are not wholly or mainly the supply of goods (rather than services)?
6. Were the employees in question ‘assigned’ to the organised grouping of employees?
It is these questions which should be answered by a proper analysis of the facts in order to find out what is “actually going on ‘on the ground’” in the words of the EAT.
In this case, the Tribunal had found as a matter of fact that both employees were engaged in activities which were carried on by Carillion for the Council before the transfer and were intended to be carried out instead by LS following transfer. The Tribunal had considered the relevant principles above, and the EAT therefore agreed with its decision.
Helpful guidance for employers
This case highlights that, when considering whether a particular employee should transfer under the service provision change provisions of TUPE, it is always important to concentrate on the factual reality of the situation and apply the basic principles as established by long-standing case-law set out above to those facts.
Employers who are frequently involved in TUPE transfers – be it as client, first-generation contractor, or new contractor following a retender – will often have to make quite difficult decisions as to what to do in respect of employees who claim to transfer to them (or away from them) following a service provision change: should the employer accept the transfer? Or take the difficult decision, as LS did in this case, to close the doors to someone the employer believes should not transfer?
Employers may take reassurance from this case: the principles which need to be considered are clear and well-established and, by taking real note of what is “actually going on ‘on the ground’” rather than simply focussing on what the contract says, employers can hopefully be confident in the decision they make in respect of such employees.