Introduction

The reputation that the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) have for technicality, complexity, and unpredictability will not be improved by the recent decision of the Employment Appeal Tribunal (“EAT”) in McTear & Mitie v Amey & Others. In this case, the EAT held that, where a service is split between more than one new contractors on a service provision change, the contracts of employment of the employees engaged in relation to the relevant service may similarly be divided between the incoming transferees. This decision has potentially wide-reaching consequences for outsourcing and retendering as well as business transfers more generally.

Service Provision Changes

Under TUPE, there are two forms of transfer falling within its scope – a “transfer of an undertaking” and a “service provision change” (“SPC”). TUPE’s SPC provisions clarify that the transfer legislation applies to outsourcing, inhousing, and retendering of services conducted by an “organised grouping of employees” whose principal purpose is the conduct of the activities in question.

In summary, there is a SPC – which can only arise in relation to the provision of services and not the supply of goods – where:

• prior to the transfer there is an “organised grouping of employees” whose principal purpose is to carry out the activities concerned;
• the conduct of the relevant activities switches from one provider to another; 
• the client for which the activities are to be carried out remains the same and that client intends that the activities in question will not, following the service provision change, be carried in connection with a “single specific event” or “task of short-term duration”; and
•  the activities in question are “fundamentally the same” pre and post transfer.

Previous TUPE case law

Previously, the question of what happens to employees affected by an SPC when the service they worked on is divided - for example, on a retendering exercise – was relatively clear. In Kimberley Group Housing v Hambley and others  the EAT overturned a decision of an employment tribunal that the employment of the employees in question (or liability for their dismissal) should be split between two incoming contractors (“transferees”) who took over the activities previously performed by a predecessor service provider. The correct approach was to apply the long established test of assignment – determining to which part of the relevant service the employee was “wholly or mainly assigned” and thereby to which incoming contractor the individual’s employment should transfer (if any).

Deciding whether an employee is “in scope” for the purposes of a TUPE transfer is not always straightforward since simple percentage tests of time spent on a particular function are not necessarily conclusive - but at least the principle was clear that employees could not be split as between incoming transferees. An employee would either transfer to the transferee taking over the activities to which the employee was wholly or mainly assigned or, if the individual was not so assigned, the employee would remain in the original employer’s employment (and often consequently then be at risk of redundancy in light of the work in question no longer being conducted by the original employer).

Govaerts in the CJEU

In Govaerts the Court of Justice of the European Union (“CJEU”) decided that, if on a transfer of an undertaking the undertaking is split between multiple transferees, then the contracts of employment of the employees engaged in that undertaking can potentially be divided between the various transferees. The employees would then in effect be employed under a separate contract of employment with each of the incoming transferees following the transfer, essentially on a proportionate basis - although the detailed operation of this approach was not addressed by the CJEU in its decision. The CJEU did nonetheless recognise that it might not be possible to divide the employees’ employment in this way and to do so might be adverse to their rights - in which case, if the employees’ employment terminated, the transferees would be responsible (presumably proportionally) for associated termination liabilities.

McTear

Govaerts has now been considered in domestic law for the first time in McTear. In this case, the claimant employees were employed by Amey and their time was spent predominantly on a contract with North Lanarkshire Council refurbishing kitchens in social housing. The employees were split into two teams working across the whole area covered by the relevant contract. One team spent slightly more time working in the north of the relevant area and the other team slightly more time in the south.

The contract in question was retendered in two lots, one covering the north of the relevant area and one the south, and awarded to two new contractors, McTear and Mitie. Amey argued that there was an SPC and that one team transferred to McTear and one to Mitie. This was disputed and led to employment tribunal proceedings.

The employment tribunal found that there had been SPCs to the two incoming contractors and that the employees in question transferred to the incoming contractor which took over the relevant team’s area. The employment tribunal did not accept that any of the employees in question should transfer to the employment of both incoming contractors.

The EAT decision

In McTear the EAT held that the approach adopted in Govaerts should be followed in relation to SPCs. It considered that there was no reason in principle why an employee could not, after an SPC, be employed by different employers at the same time “provided the work attributable to each contract is clearly separate from the work of the other(s) and is identifiable as such.” The EAT considered that a situation like this, where work was divided along geographical lines, was one which could lead to the employees having “different employees on different jobs” following the TUPE transfer. 

Implications for outsourcing and retendering

It will be interesting to see whether there is an appeal in the McTear case challenging the EAT’s approach. If McTear is and remains good law, it presents very significant legal and practical uncertainties where a service is divided in relation to questions such as:

• when it will be considered practicable to divide the employment of employees working on a service which is split on a TUPE transfer between the incoming transferees;
• how such a division of the employment of the relevant employees would work in practice in the particular circumstances - for example, in relation to the employees’ working time, geographical focus, and function;
• if dividing employees up is not practicable, how responsibility for termination liabilities will be determined; and
• how the “exit provisions” of existing outsourcing agreements will be affected and can be operated where it can be argued that employees’ employment should be divided amongst incoming contractors on a retendering.

Business sales fall within the scope of TUPE by virtue of being transfers of undertakings rather than SPCs and, whilst McTear only addresses the position in relation to SPCs, Govaerts applied the approach of the splitting of employees’ employment on division of an undertaking. Issues of division of employees’ employment may be equally relevant where part of a business is the subject of a TUPE transfer. Quite apart from the practical uncertainties which these decisions present, the contractual provisions identifying the intended approach to the position of the employees and the allocation of any associated liabilities will remain a crucial focus for the commercial parties to business sales, outsourcing and retendering.