A recent ECJ Judgement (which is binding on the UK) held that a gap of five months between contractors providing services to a Spanish music school did not prevent the application of TUPE. This could be a concern for contractors keen not to be burdened with the previous provider’s employees and, in this article, Francesca Wild, a Senior Associate Solicitor in Morrisons’ employment team, looks at how the courts view a cessation of activities between providers.
The Transfer of Undertakings (Protection of Employment) Regulations 2006 or “TUPE rules”, apply to protect employees’ terms and conditions of employment and from losing their jobs in certain circumstances where there is a “relevant transfer” of a business or part of a business. These rules often apply when a contracted out service (e.g. IT) is outsourced, transferred from one contractor to another, or transferred from a contractor back in house.
A gap in the provision of the contracted out service may occur for various reasons. In Colino Siguenza de Valladolid and Others ECJ, CS was a music teacher employed by a company contracted to run a music school owned by a public authority. There was a falling out between the private company and the public authority and the company dismissed all of its staff (including CS) and ceased all activities. Five months later, the service was resumed by another contractor using the same premises, instruments and resources but with entirely different staff.
CS and his colleagues brought claims against the company, the public authority and the new provider. The ECJ found that even though the service had ceased and the employees dismissed this was capable of being a transfer. A key factor was that three of the five months were school holidays. The final decision is now with the Spanish courts.
In deciding whether there is a transfer of an outsourced contract, the key issue for the UK courts, is whether there is an “organised grouping of employees that has as its principal purpose the carrying out of the activities on behalf of the client”. In a UK case, a contractor’s employees were temporarily laid off in November and December. More work was expected but then the company transferred the contract to another provider. The tribunal decided that the first contractor’s employees had not transferred to the new provider because they were laid off and so no were longer an “organised grouping”. The Employment Appeal Tribunal disagreed. It said “something more than a temporary lay-off caused by a temporary absence of work is required to dissolve the organised grouping”. A range of factors such as the length of the cessation, and the purpose or reason for it, should be taken into account.
What should employers do?
These are frustrating judgments for contractors. Since employees do not need to be physically engaged in the activity immediately before the service provision change, a successor contractor cannot safely rely on a gap between contracts so as to avoid taking on staff it does not want. Instead they should carefully review who is part of the group of employees transferring to their employment. They should also review their outsourcing agreement with the client, to ensure they are protected from claims as far as possible. Getting it wrong can be costly. The maximum award for unfair dismissal is £83,682 and for failure to inform and consult affected staff up to 13 weeks gross pay for each employee.
If you have any questions regarding the above or any other employment queries please contact Francesca Wild, Senior Associate in our Employment department either by telephone on 01483 215 366 or by email at [email protected].