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“Who goes where?” - What happens under TUPE when a service provision fragments?

The TUPE Regulations (which are derived from the Acquired Rights Directive – “the ARD” - under EU law) aim to protect the rights of employees.

Fragmentation

Where Local Authorities are contracting out services for the first time, or are re-letting a services contract, TUPE can be difficult for all of the parties to navigate, especially where the Local Authority splits the delivery of services previously provided by itself or a sole service provider between two or more new service providers (known as “transferees”). This is often called “fragmentation”.

This mainly happens where a Local Authority splits the area of service delivery into two or more areas, and appoints a different service provider for each area.

The main issue under TUPE is working out which employees of the current service provider (which could be the Local Authority itself, where the Local Authority is contracting out services for the first time) transfer to which new service provider (if they transfer at all).

The Kimberley case – old UK law

Until recently, the leading UK case was Kimberley, which said that, where activities are carried out by more than one contractor following a TUPE service provision change, sole liability for each affected employee could transfer only to one or other of the transferees.

The Govaerts case – new EU law

We then had the benefit of the European Court of Justice’s radical decision in the recent Govaerts case.

The ECJ said in Govaerts that, where a transfer of an undertaking involved several transferees, the rights and obligations arising from each worker’s contract of employment were transferred to each of the transferees in a proportion which reflected the proportion of the activities performed by the worker for which that transferee was responsible under the new arrangements, provided that:

a) the division of the contract of employment as a result of the transfer was possible; and

b) it did not worsen working conditions or adversely affect the safeguarding of the rights of employees guaranteed by the ARD.

The McTear case – new UK law

The Employment Appeal Tribunal in the recent McTear case confirmed that the principles in the Govaerts decision applied equally to a service provision change, despite Brexit, and the fact that the TUPE “service provision change” rules do not appear in the ARD.

The McTear case concerned the re-tendering of work for the replacement of kitchens within a Local Authority’s social housing stock.

The Local Authority’s contract with Amey ended in 2017, and the work was then split into two geographical Lots, with McTear Contracts Ltd being appointed in respect of one Lot, and Mitie Property Services UK Ltd to the other.

Whilst Amey’s employees had been divided into two teams, they had not been formally allocated to separate geographical areas which were the same as the two geographical areas under the new contractual arrangements.

Amey, believing that TUPE applied, analysed the geographical areas in which each team had worked during the previous 12 months, with the aim of establishing which team should be allocated to each new contractor. McTear and Mitie disagreed that TUPE applied, and lodged claims in the Employment Tribunal.

The Employment Tribunal confirmed that a TUPE service provision change had taken place, and in relation to the identity of the transferee to which the employees transferred, it followed the principles set out in the Kimberly case, as the Govaerts decision had not been made by the time of the Employment Tribunal hearing.

McTear and Mitie (and several of the affected employees) appealed, arguing that the decision in Kimberley had now been bought into doubt by Govaerts.

The EAT took a pragmatic view and said that the Govaerts principles applied to fragmented service provision changes under UK law; it also said that there was no reason why an employee could not, following a service provision change, hold two or more contracts of employment with different employers at the same time, provided that the work attributable to each Lot was clearly separate from the work on the others, and was identifiable as such.

The EAT remitted the case to the ET for an analysis of which employees transferred to McTear and Mitie respectively.

What this means in practice

Whilst the McTear decision appears to have settled the “who goes where” debate in relation to fragmentation, Local Authorities and service providers should be aware of the practical difficulties that arise from the decision.

“Splitting” an employment contract is difficult in practice, and parties will need to exercise caution when deciding to divide contracts between multiple transferees so that they do not adversely affect an employee’s rights or working conditions.

The parties will also need to consider carefully how the contract will be “split”, and the impact of any obligations or liabilities arising from this.

For further assistance on TUPE, or any other employment matters please contact our Employment Team who will be more than happy to assist you.

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