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Service provision changes
[ch 12: pages 415-418]Service provision changes are the second category of transfer to which TUPE applies. These were added to the TUPE regime in 2006 with the aim of protecting workers when a contract to provide services changes hands, either through outsourcing, insourcing (bringing services back in-house) or second generation outsourcing (i.e. a change from one provider to another) (Regulation 3(1)(b), TUPE (as amended)).
A valid service provision change requires:
• a change in the identity of a service provider;
• an organised grouping of employees whose principal purpose before the transfer was to provide that service;
• for the activities carried on before and after the change of service provider to be fundamentally the same;
• for the identity of the client commissioning the services under the service agreement before and after the change in service provider to remain the same. If a new client contracts the services, for example, a receiver in place of the original client, there can be no transfer, and TUPE will not apply (McCarrick v Hunter [2012] EWCA Civ 1399).
There is no service provision change (and therefore no protection of contract terms under TUPE) if an existing service provider successfully bids to retain their existing contract. Although the service contract is renewed, the employer stays the same, so TUPE does not apply.
Working out whether there has been a service provision change involves working through a series of steps.
The first step is to identify the services being provided to the client before the service contract is taken over by the new provider (Rynda (UK) Limited v Rhijnsburger [2015] EWCA Civ 75) and the “activities” that make up the service.
The service agreement itself will be an important source of evidence as to the services and activities to be taken over by the new provider. Sometimes employers deliberately use language in the draft documentation that is designed to emphasise the differences between services before and after transfer, to make it easier to avoid TUPE. Equally however, sometimes the chosen wording can have unintended consequences beneficial to transferring employees, as shown in this example:
A cardboard manufacturer decided to end its haulage contract with its existing transport company and to switch to a new service provider known as Qlog. Qlog signed a service agreement accepting responsibility for transporting all the manufacturer’s goods, but without specifying how this would be achieved.
The old haulage company had used its own drivers and vehicles, but Qlog owned no vehicles or employees. Instead, it intended to perform the contract using a computer system that matched the client’s delivery requirements to “self-employed” drivers who used their own vehicles to provide the services. Even so, there was still a service provision change, said the tribunal. This was because Qlog’s contractual obligation under the service agreement was simply to transport the goods. This was the service it had agreed to provide and it was identical to the contractual obligation owed by the outgoing contractor. As a result, all the HGV drivers employed by the outgoing contractor transferred to Qlog under TUPE.
In practice, this meant that Qlog would have to cover the cost of making the drivers redundant, since under its business model, it had no directly employed drivers.
Qlog v O'Brien [2014] UKEAT/0301/13/2103
There will be no service provision change unless the activities to be provided under the service agreement are fundamentally the same before and after the change of service provider.
For example:
• There was no service provision change when a contract to provide a full catering service was replaced by a contract to provide “dry goods kiosks” (OCS Group UK Limited v Jones [2009] EAT/0038/09); and
• There was no service provision change when an NHS residential care facility closed and was replaced with independent living in the community supported by staff at two charities (Nottingham Healthcare NHS Trust v Hamshaw [2011] UKEAT/0037/11).
Identifying the “activities” to be provided is a question of looking at all the surrounding facts. “Activities” are not limited to those that are guaranteed under the written service agreement. Work that is anticipated and regularly provided can be included, even though it is not contractually guaranteed (Lorne Stewart v Hyde [2013] UKEAT 0408/12/0100).
The next step is to identify the organised grouping of employees whose main task is to perform the activities under the service agreement before the transfer. Only those employees engaged in delivering the “activities” under the service contract will transfer, not employees who are performing wider activities across the organisation as a whole, such as human resources or strategy. This is the case even if delivering the service contract is the organisation’s only activity. For example:
Edinburgh Council contracted out its homeless support services to a voluntary organisation. When it later took the contract back in house, all the employees who provided front-line service delivery of the service contract transferred to work for the council. By contrast, the contracts of the charity’s two directors did not transfer. This was because they were not engaged in delivering the activities under the service contract. Instead, they worked on strategic tasks for the benefit of the charity as a whole, not for the benefit of the commissioning client. It made no difference that the service contract was the charity’s only business at the time of the transfer.
Edinburgh Home-Link Partnership v City of Edinburgh Council [2012] UKEATS/0061/11/B1
There can only be a service provision change on the ending of a service contract where employees were deliberately grouped together by the old service provider in a team organised for the purpose of delivering the contracted activities to the client. There will be no transfer where workers were organised together to suit the service provider’s own convenience, such as shift scheduling. For example:
Eddie Stobart ran a warehousing and logistics business, distributing meat between suppliers and supermarkets. Stobart lost the distribution contract for one supplier, Vion. As a result of the timing of Vion’s supermarket orders, picking and packing on its contract had mainly been carried out by the day shift, whereas the night shift worked mainly on a different contract. In practice, warehouse pickers had no idea which supplier’s goods they were packing. Work was organised like this because of the time of day when Vion’s own customers tended to place orders, and shift patterns and working practices at the warehouse. Vion’s service contract did not require work to be organised in this way. There was no “dedicated Vion team” at Stobarts.
There was no service provision change in this case, said the EAT. A valid service provision change requires a group of employees to have been deliberately organised into a team to work for a particular client. TUPE is supposed to operate in a clear and predictable way. It would not be appropriate for the employer's identity to change automatically every time a service contract ended just because employees happened to be randomly assigned, for example, to a night shift as opposed to a day shift.
Eddie Stobart Limited v Moreman & Others [2012] UKEAT/0223/11
The activities must be the main task of the group, although they need not be their only task.
There will be no service provision change if the activities are not the main task of the group, even if they are the only task of a few members of the group. For example:
One team member in a group of employees at a freight forwarding company spent 100% of his time fulfilling the service contract of a single client, Seawell. However, servicing the Seawell contract was not the main task of the group because it looked after several different clients. When Seawell took its contract back in-house, the employee’s contract did not transfer under TUPE, even though he spent 100% of his time working on it.
CEVA v Seawell Limited [2013] CSIH 59
If, before the transfer, employees are contracted to work in a variable pattern across the business, there is much less likelihood of TUPE being triggered.
An organised grouping of employees can include just one person (regulation 2(1), TUPE), as long as he or she is the only person employed to provide the activities under the service contract. Someone can be “assigned” to an organised grouping even if they are the only person in that “grouping” (Rynda (UK) Limited v Rhijnsburger [2015] EWCA Civ 75).