It is quite common for companies to outsource services such as payroll, HR or IT to an external provider. There is much case law on whether affected employees in an outsourcing situation should transfer with their jobs or remain with their current employer. In this article we look at recent legal developments providing some helpful clarification for employers.
The Transfer of Undertakings (Protection of Employment) 2006 Regulations (TUPE) applies to a ‘service provision change’ providing that before the change in service provider, there is ‘an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of activities concerned on behalf of the client.’
It is not unusual for there to be a dispute between the company and the new provider (or between successor providers or at the time any outsourced service is brought back in house) about whether the affected employees are such an ‘organised grouping.’
How do you decide whether the employees should transfer to the new contractor?
In Rynda (U) Ltd v Rhijnsburger CA 2015 the claimant successfully argued that TUPE applied to her situation. Lord Justice Jackson explained the correct approach is to:
1. Identify the service provided to the client – in Rynda the service was the management of the two companies properties;
2. List the activities which staff perform in providing that service – in Rynda this was the administrative work for the properties;
3. Identify those employees who ordinarily carry out those activities – the claimant was the only employee who undertook all the activities and she spent all her time on them and no other employee ‘provided any significant degree of assistance in the performance of that role’;
4. Decide whether those employees are in a ‘grouping’ for the purposes of carrying out the activities – the claimant was specifically instructed to carry out all the activities.
This is not an easy call. In Eddie Stobart Ltd v Moreman & others EAT 2012 it was held that employees who worked nights, which was when the client happened to place their orders, were not an organised grouping as it was only by ‘happenstance’ rather than any deliberate planning that they worked for this client. This can be compared to Rynda where the company had actively decided for which client the claimant would work. The Judge said there had to be ‘an element of conscious organisation’ of the employees into a grouping.
In Seawell Ltd v Ceva Freight (UK) Ltd EAT 2013 although the claimant worked full time on the provision of services he formed part of a group of employees. However as the whole group did not have as its principal purpose the carrying out of services for the client, the claimant was unsuccessful.
Employees who are temporarily laid off and so not actively carrying out the relevant activities at the time of the service provision transfer, can comprise an organised grouping. In the very recent case of Inex Home Improvements Ltd v Hodgkins and Others EAT 2015, the Judge held that it would frustrate the purpose of the TUPE Regulations if employees on temporary layoff were not protected by them. In deciding whether employees on temporary lay off were an organised grouping it is necessary to consider the purpose, length and nature of the cessation of work. This case has now been referred to an employment tribunal to determine whether on the facts there was a service provision transfer.
Morrisons solicitors have a specialist team advising on TUPE issues and drafting outsourcing agreements to protect your business. To find out more contact your usual adviser in the employment team or corporate and commercial team.