TUPE, property transactions and a change of client
The service provision rules under Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) do not apply when there is a change in the client who receives the new contractor’s services.
One of the circumstances in which TUPE applies is where an organisation – the "Client" – enters into an agreement with a service provider and then terminates that agreement, replacing it with a different service provider.
Mr Crofts was employed by Reliance as a security guard. Reliance was a contractor which provided Mr Crofts' services to Ely Properties (the 'Client') to protect a student residency called The Glasshouse. The Client went into administration and The Glasshouse was purchased by a company that decided to appoint Taurus Group, and not Reliance, as the new contractor. Reliance told Mr Crofts that his employment had transferred to Taurus under TUPE but Taurus disagreed. Mr Crofts brought a claim for unfair dismissal against Reliance and Taurus.
The Employment Tribunal found that the intention of TUPE was to protect Mr Croft's employment and that his employment had transferred to Taurus. The Employment Appeal Tribunal ("EAT"), however, disagreed. In line with their recent decision in Hunter v McCarrick, the EAT confirmed that the relevant definition of 'client' in TUPE referred to a specific client on whose behalf the contractor carried out the activities. Here the identity of the original client had changed and so Mr Crofts' employment did not transfer to Taurus and his claim for unfair dismissal could not proceed.
This case confirms that when a change in contractor occurs at the same time as the sale of the property at which the contractor's employees work it will not result in the transfer of that contractor's employees to the next/"second generation" contractor. This has significant implications for property transactions and wider implications for "second generation" outsourcing transactions.
The usual requirement under TUPE on incumbent contractors to consult or inform its staff of their impending redundancy would therefore no longer apply in the event there is a change in the client. As such, the incumbent contractor will want to ensure that it has suitable indemnity protection in the service agreements and property owners may want to revisit their current agreements to redraft relevant indemnities.
However, this position may change yet again. The Hunter case is due to be heard before the Court of Appeal in October 2012 and we will update you on the outcome. The Government is also consulting on the concept of TUPE's 'service provision change' and the future may be less certain for contractors and property owners alike.