TUPE and Service Provision Changes: key considerations

There are a number of considerations for employers assessing the relevance of Service Provision Changes (SPC) and Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) in order to circumvent the risk of employment tribunal claims.

We have previously considered how to determine whether TUPE applies to an SPC, and in this article we set out the essential points to consider when evaluating the impact of a potential SPC.

A brief recap: what exactly is a Service Provision Change?

A Service Provision Change is where:

• a contractor takes over activities from an employer (known as ‘outsourcing’);
• a new contractor takes over activities from another contractor (known as a ‘contractor to contractor change’ or ‘second generation contracting out’); or
• a company takes over activities from a contractor (known as ‘insourcing’).

What are the necessary conditions for TUPE to apply on an SPC?

This is covered in our recent article – a link to which can be found here.

1. Before the transfer, there must have been activities carried out by an existing team (known as an “organised grouping”) dedicated to performing those activities on behalf of the client.
2. The activities carried out by the new provider must be “fundamentally the same” as those described above.
3. The client must remain the same.
4. The client intends that the activities will be carried out by the transferee and these activities will not be for a single specific event or a task of short-term duration.
5. The activities do not consist wholly or mainly of the supply of goods for the client’s use.

The legal position on SPCs is complex and a variety of elements have to be assessed before a conclusion can be reached. The two most common questions that we often see presented by employers are:

• How will I know if an employee who carries out work in the function which is to be provided by a new party will transfer under TUPE to a new employer?
• What if they only carry out part of their work in the function which is to be outsourced?

In response to these concerns, we have produced the following list of pertinent questions and answers in order to assist employers in determining whether employees might be affected by a SPC.

Key issues to consider when dealing with a potential SPC

1. What is the core information I need to consider regarding whether TUPE applies and if so to whom?

It is important, whether you are the transferee or transferor dealing with an SPC, that you obtain/ clarify core information at an early stage. It would be prudent to ask the following questions from the outset:

• What activity is being contracted-out/ transferred to a new contractor/contracted-in?
• Will the person for whom the activity is performed (the ‘client’) remain the same after the change?
• Does the activity consist of the supply of goods? Will the activities be carried out by the transferee for a single specific event or a task of short-term duration? If either of these questions are answered in the affirmative, TUPE may not apply.
• Which employees does the employer consider are working on the activity – who are they, what do they do, how much time do they spend on the activity, what does their contract say about their work, are any employees absent (maternity leave, sickness, secondment, sabbatical, etc.)?
• Which party will be continuing the activity if the change goes ahead? Do we know how the transferee will be carrying out the activity? Is this different to the current provider of the activity? Is the activity going to be fundamentally the same once the transfer takes place?

Obtaining this information at the outset will assist employers in determining whether an SPC will apply.

Once you have the core information, you can consider the following questions.

2. Is there is an organised grouping of employees?

Do you have a team of employees that are essentially dedicated to carrying out the activities that are to be outsourced?

It is not enough that employees carry out the majority of their work in respect of a particular activity. The employees must be organised by reference to the requirements of the client and be identifiable as members of that client’s team. Something happening by chance – rather than deliberate organisation – will not be sufficient.

3. Is the employee assigned to that organised grouping of employees?

If there is an organised grouping of employees, the next question is to determine if any employees are assigned to that organised grouping.

This may be easy to determine in some cases. However, it becomes more difficult for employees who carry out split functions. Factors which should be considered include:

• Time spent on each function: There is no specific percentage of time which an employee must devote to a function before being regarded as assigned to it. However, time spent may be a guide (and may indicate where an employee would expect to be transferred).
• Nature of the role: It may be necessary to look at the job title, nature of the job and identify core/key tasks they carry out and for which function to help determine whether the employee has been allocated to the particular group dedicated to servicing the client.
• Temporary role: TUPE usually will not apply to employees who are only temporarily assigned to the organised grouping. Whether it is “temporary” will depend on a number of factors, including the length of the assignment and whether a date has been set for the employee's return or re-assignment to another part of the business.
• Absent employees: A common question is whether an employee who is absent at the time of the transfer (for example, on maternity leave or long term sickness absence) is assigned to the organised grouping. In assessing this, an employer should consider where the employee would be required to work immediately before the transfer if they were able to do so.

4. What transfers to the new employer once the function is outsourced?

Along with the employees, their contracts of employment will automatically transfer to the new employer. This means employees will retain their existing terms and conditions, with the exception of old age, invalidity and survivors’ benefits under occupational pension schemes.

Their continuity of service will transfer with them, and they also receive certain protections around dismissal and redundancy.

The new employer effectively steps into the existing employer’s shoes with regard to the transferring employees.

5. What if an employee who we think should transfer does not want to?

Employees may object to a TUPE transfer and as such, they will not become employees of the new employer. An objection does not need to be in writing but this is certainly recommended to provide clarity and avoid misunderstandings.

If an employee does object their contract of employment will terminate on the transfer date. They will not remain employed, nor will they be due any notice pay or redundancy pay. Their employment will simply end. The exception to this is where an employee has resigned in response to the employer's fundamental breach of contract or a substantial change to their working conditions to their material detriment.