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TUPE: Splitting employees’ contracts after a service provision change

In a case which leaves practical difficulties, the Employment Appeal Tribunal has confirmed that employees’ contracts can be split between multiple transferees on a service provision change, write Zoë Wigan, Hilary Larter and Ceri Fuller.

Last year, we reported on the important European case of Govaerts (see our article here). In Govaerts, the European Court of Justice held that, where an undertaking is split between multiple transferees, there is no reason in principle why an employee may not, following a transfer to more than one transferee, hold two or more contracts of employment with different employers at the same time – effectively, splitting their contract of employment between two or more employers.

The European legislation that protects employees where there is a transfer of an undertaking is implemented into UK law by the Transfer of Undertakings (Protection of Employment) Regulations – usually known as TUPE. TUPE provides employees with protection over and above that given by the European legislation. Under TUPE, employees will transfer on a “service provision change” (broadly speaking, an outsourcing). Under the European legislation, employees will only transfer if there is a business transfer. While there is a great deal of overlap between service provision changes and business transfers, in some circumstances, TUPE will apply to an outsourcing situation where the European legislation would not apply because the outsourcing constitutes a service provision change.

In McTear Contracts Ltd v Bennett & Ors (TRANSFER OF UNDERTAKINGS) (Rev 2) [2021] UKEAT 0023_19_2502 the UK courts considered the application of Govaerts to TUPE for the first time, including considering whether or not the principle in Govaerts should apply to service provision changes.

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The claimant’s employees were originally employed by Amey Services Limited. Their time was mainly spent on a contract with North Lanarkshire Council, refurbishing kitchens in social housing. The employees were split into two teams. Each team contained the full range of trades – plumbers, electricians, plasterers etc., and the two teams generally worked independently. Each team worked across the whole geographic area that was covered.

The contract was retendered and split into two lots, one covering the north of the geographic area, and one covering the south. The contract was awarded to two contractors, McTear Contracts Limited and Mitie Property Services UK Limited.

Amey argued that there was a service provision change so TUPE applied. Amey looked at the geographical areas in which each team had worked in the previous 12 months and aligned these with the geographical areas covered by McTear and Mitie respectively. Amey said that one team had worked more in the North, and one team had worked more in the South i.e. one team should transfer to McTear and one team to Mitie.

McTear and Mitie both argued that TUPE did not apply.

The employees were stranded between Amey and the two contractors, and brought claims in the employment tribunal.

The employment tribunal held that there was a service provision change and that TUPE did apply. It allocated employees between Mitie and McTear following Amey’s approach.

McTear and Mitie appealed. They did not challenge the application of TUPE on appeal. However, the Govaerts judgment came out between the tribunal judgment and the hearing of the appeal, and the main question for the EAT to consider in the appeal was whether the Govaerts decision should apply to relevant transfers which are service provision changes. The EAT decided that, while there is no requirement under European legislation for UK courts to apply Govaerts to service provision changes that are not also business transfers, it would be undesirable for a different approach to be taken to service provision changes from that taken in relation to business transfers.

The case was remitted back to the employment tribunal to look at how the employees should transfer in light of Govaerts. This will involve a more in-depth analysis of how each of the employees were working before the date of the transfer – for example, considering what percentage of time an individual spent working in the north, and allocating that percentage of their contract to Mitie.

What does this mean for employers?

Following Govaerts and this case, it is clear that:

  • After a transfer to more than one transferee, employees may hold two or more contracts of employment with different employers at the same time, provided that the work attributable to each contract is clearly separate from the work on the others and is identifiable as such.
  • In a situation where work is split along geographical lines, it may be appropriate for employees’ contracts to be split between transferees
  • This will apply in the UK to service provision changes as well as to business transfers.

The effect of Govaerts and this case is likely to be yet another layer of complexity for some TUPE transfers.

In most cases, it is hard to see how employees’ contracts can be split between two (or more) employers, and splitting the contracts is unlikely to be a satisfactory result for employees or for employers. It will be complicated working out how much of the employee’s contract will transfer to each of the transferees, and allocation of liabilities may be contentious.

The Govaerts principle is likely to be particularly problematic in second generation outsourcing situations where incoming contractors do not have a direct contractual relationship with the outgoing contractor and may have insufficient access to employee information.

The court in Govaerts recognised that dividing employment might not always be to the employee’s benefit. If this is the case, and the employment terminates, the transferees will be responsible for termination liabilities, even if the termination is at the employee’s instigation. This will include responsibility for unfair dismissal liabilities and statutory redundancy costs for employees who have been employed for more than two years. Transferees and transferors should be mindful of this when negotiating allocation of liabilities in contractual documents.

Zoë Wigan and Hilary Larter are consultants and Ceri Fuller is a Practice Development Manager/Legal Director at DAC Beachcroft.

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