Employment Review: Service provision changes under TUPE – “activities” may be split along functional lines

Background

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply where there is a “relevant transfer”. This is defined to cover two types of event:

• A transfer of a business, undertaking or part of a business or undertaking where there is a transfer of an economic entity that retains its identity (a “business transfer”)

• A client engaging a contractor to do work on its behalf, reassigning a contract or bringing the work “in-house” (a service provision change (“SPC”)

For there to be an SPC it is a requirement that (i) there is an organised grouping of employees whose principal purpose is to carry out activities on behalf of the client, and (ii) the activities pre and post transfer are “fundamentally or essentially” the same.

In the case reported below, the EAT considered whether in order for there to be a transfer by way of a SPC, all of the activities performed by the outgoing contractor had to transfer.

Facts

Bolton Council contracted out drug and alcohol services. Until the end of 2012 the services were provided by the Greater Manchester West Mental Health NHS Foundation Trust through its Alcohol and Drugs Directorate. In 2011 Bolton Council decided to remodel the service by way of a re-tendering exercise with effect from 1 January 2013. The services previously provided by the Trust were split into two functions, which broadly took the form of case management services and delivery of interventions. As a result, the Trust ceased to provide any of the services. Arch Initiatives was awarded the case management function and Lifeline Project Ltd was awarded the delivery of interventions function.

Arch refused to take any employees on after the transfer. The Trust employees who had been performing the case management services argued that their employment transferred on 1 January 2013 to Arch and that, since Arch had not taken on any of the employees, they had been unfairly dismissed.

The Tribunal held that there had been a SPC from the Trust to Arch and that there were two organised grouping of employees: one organised group whose principal purpose was to carry out the case management function for drugs services and one organised group comprising of Mrs Aulton, a Registered Nurse and Team Manager for alcohol services. Arch appealed to the EAT.

Decision

The EAT dismissed the appeal and held that there is no requirement for the whole of the service to transfer in order for the SPC provisions of TUPE to apply. It is possible for there to be a SPC where only part of the service being carried out by the transferor is subsequently performed by the transferee.

The EAT rejected the argument that the SPC regime could not apply in a case involving a division of activities along functional lines. The ways in which the activities of a service may be organised are infinitely variable. They may be organised geographically, in teams, in departments or by reference to particular functions or processes. Whether or not the SPC provisions in fact apply in any of these circumstances will depend on the application of the particular conditions within the SPC regime to the facts of the particular case.

A split or change in activities is clearly a relevant consideration in assessing whether the activities cease in relation to the outgoing contractor and whether fundamentally the same activities are carried on by the incoming contractor for the same client, but ultimately in each case the question is one of fact and degree.

Comment

This case concerned the division of existing activities between two new providers on a functional split; it was not a case involving a service provision ‘redesign’ to the extent that the tendered activities post-transfer were different from the pre-transfer activities. It therefore remains the case that in some cases a redesign may amount to a change in activities and therefore have the effect that there is no SPC, and employers are well advised to obtain specific legal advice prior to any such commercial decisions being taken.

Arch Initiatives v Greater Manchester West Mental Health NHS Foundation Trust & ors UKEAT/0267/15, 19-21 January 2016

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