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Legislation update: ‘Service provision changes’ under TUPE

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Richard White, specialist employment solicitor at Withy King, considers a recent case concerning the effect of the rules relating to ‘service provision changes’ under TUPE 2006, which came into force on 6 April 2006.


The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) are designed to safeguard employees’ rights when a business, or part of a business, is transferred from one employer to another.

Hunt v Storm Communications Ltd, Wild Card Public Relations Ltd and Brown Brothers Wines Ltd: The dispute

Brown Brothers Wines Ltd (BB) had contracted out its public relations services to Storm Communications Ltd (Storm). BB decided to re-tender its contract for PR services and awarded the contract to Wild Card Public Relations Ltd (Wild Card). Storm therefore lost its contract with BB.

Mrs Hunt was employed by Storm as an account manager and spent approximately 70 per cent of her time working on the BB account, running the account on a day-to-day basis.

Storm argued that the transfer of the contract to Wild Card amounted to a transfer under TUPE 2006 (by way of a service provision change) and, as such, contended that Mrs Hunt’s employment should automatically transfer to Wild Card.

Wild Card disagreed, arguing that it was not a Service Provision Change under TUPE 2006, as Mrs Hunt’s ‘principal purpose’ was not to run the BB account. As the parties could not agree that TUPE applied, Mrs Hunt’s employment was terminated at the same time that BB terminated its contract with Storm. Mrs Hunt brought proceedings for automatic unfair dismissal under TUPE 2006.

TUPE 2006

One of the main changes introduced by TUPE 2006 was to widen the definition of a ‘relevant transfer’ to specifically include service provision changes, ie. the relationship between contractors and clients who hire their services. A ‘service provision change’ can take three principal forms:

  • Where a service previously undertaken by the client is awarded to a contractor (a process known as ‘contracting out’ or ‘outsourcing’)

  • Where a contract is assigned to a new contractor on a re-tendering (as per the case of Hunt v Storm above)

  • Where a contract ends with the service being performed ‘in-house’ by the former client (‘contracting in’ or ‘insourcing’)

For a service provision change to take place there must also be an “organised grouping of employees whose ‘principal purpose’ is carrying on the services for the client”.

The decision in Hunt v Storm

The tribunal decided that Mrs Hunt constituted an ‘organised grouping of employees’ and that her ‘principal purpose’ was managing the BB account on a daily basis.

As she dedicated 70 per ceny of her time to the BB account, the tribunal were satisfied that the re-tendering of the contract to Wild Card amounted to a service provision change under TUPE 2006. As such, Mrs Hunt should have had her employment transferred to Wild Card and her claim for automatic unfair dismissal was allowed to proceed against Wild Card.

Comment

Since TUPE 2006 came into force, there has been a level of concern amongst professional service providers that the regulations may apply to employees spending a large amount of time working on a particular account for a particular client, where there is a change of service provider.

When the regulations were being drafted there was a proposal that TUPE 2006 should not apply to changes in the providers of professional services. However, that exemption was not included in the final version of the regulations.

Hence the possibility of TUPE 2006 applying to changes in service provider goes much wider than just PR agencies. A change to the provider of any professional service is potentially a service provision change pursuant to TUPE 2006.

The tribunal’s decision that the claimant amounted to ‘an organised grouping of employees’ and that her ‘principal purpose’ was carrying out the activities on behalf of one particular client (even though she worked on other client accounts) suggests that the scope for professional service contracts to transfer under TUPE may be fairly wide.

This is a concern for both purchasers and providers of professional services. For example, a team of solicitors may transfer under TUPE from one law firm to another where a major client decides to change its legal adviser. This may be the case even if neither law firm wants it to happen and even though the client may have changed law firms because of the standard of service it was receiving from the team of lawyers.

It is understood that Wild Card has decided to appeal against the Tribunal’s decision, so it will be interesting to see if the employment appeal tribunal take a different view to the employment tribunal. In the meantime, both purchasers and providers of professional services would be well advised to consider the possible implications of TUPE when contracting with, or changing service providers.

For further advice on this topic, please contact Richard White, specialist employment solicitor at Withy King, on 01225 425731 or email [email protected]

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