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Over Easter we helped a charity deal with the repercussions of having lost a tender for a project. At the time of the tender, our client was the service provider for the project and had a team of employees specifically employed to provide the services. Unfortunately, our client was not successful in its bid for the project going forward in 2012. This meant that they started this year in discussions with the successful organisation about transferring the team under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations 2006.

All this should have been quite straightforward. However, there was a problem, in 2011/12 the project had two streams of funding. From April 2012 onwards, one stream of funding was coming to an end and the other (which was the subject of the tender) was being taken over by the successful service provider. This meant a reduced service for 2012 onwards and a new service provider that did not think it needed to take all of the staff. Our task was to ensure that all the affected staff were protected and that the new service provider was persuaded to accept that they should transfer.

Why would this be such an issue? If there is not enough work for the employees in the team, then they could be made redundant presumably. Well, it is an issue because if all of the employees transfer, the liability for those employees transfers together with the cost of any subsequent redundancies. If not all of the employees are in scope to transfer, then the liability for any redundancies in the non transferring staff would remain with our client.

TUPE Regulations

In 2006, the UK legislated changes to the TUPE Regulations. One of the primary changes was to widen its scope so that outsourcing could be covered by the Regulations.

Under the TUPE Regulations, a relevant transfer now occurs where either:

1. There is a transfer of a business, undertaking or part of a business or undertaking which is a transfer of an economic entity that retains its identity (a business transfer) – this is the classic TUPE transfer that most people will be familiar with; or
2.  Where there is a service provision change. A client engaging a contractor to do work on its behalf, engages a different contractor to do that work in place of the first contractor, or brings the work in-house.

The definition has three different scenarios:

• activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client’s behalf (“a contractor”) – contracting out work; or
• activities cease to be carried out by a contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf – changing  the contractor; or
• activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf – contracting the work back in house.

For our client, it was the second scenario, where the contractor or service provider was changing. However, on the date of transfer, not only was our client losing the funding, but the new service provider was going to have considerably less money to provide the services going forward and that meant that they did not need the same number of people to provide the services. As there was no debate that TUPE applied to the service provision change, what then became critical in the following weeks was to show that the staff had all been working on the project prior to the transfer date and they should therefore transfer.

Who Transfers?

The TUPE Regulations applies to transfer the employment of all those employees assigned to the project transferring.  The new contractor assumes all the rights and liabilities in relation to them.

What does this mean? According to the TUPE Regulations, for there to be a transfer, there must be an organised grouping of employees situated in Great Britain before the change that has as its principal purpose the carrying out of the relevant activities on behalf of the client, or in our case, the funder.

To constitute an “organised grouping”, employees must be organised by reference to the requirements of the client or project and be identifiable as members of that team. So in our example, we had a team of employees who were identified as the team providing the work for the project.

The department for Business, Innovation and Skills has issued guidance that states that the “organised grouping” condition is meant to confine TUPE to situations where the outgoing service provider has in place a team of employees that are “essentially dedicated” to carrying out the activities that are to transfer.

In our client’s situation, although there were two funding streams for the project, this made no difference to the service provided. The new service provider spent some time quizzing our client about what else the employees did in the team. Their aim was to show that, either, the employees spent time on other projects as well as the project transferring, or, the second stream of funding was for another related but different service.

When considering who transfers, it is important to look at the facts – do the employees work for the organised grouping, do they do other things or work for other clients, what percentage of time do they spend on the project etc. It is a question of fact. In our case, we were able to show that the employees all worked 100% on the project transferring. It was not important to the argument that on transfer, the project was shrinking. What mattered was what the employees were doing prior to the transfer.

You also need to look at the services being provided post transfer. Sometimes those services can change so significantly that there is no transfer. In our case, although the project was shrinking, the services were the same in content as the services provided prior to the transfer.

Due Diligence

Typically, the parties involved in a service provision change will agree which employees are in scope to transfer and which are not. Although there is not likely to be any contractual agreements between the incoming and outgoing service providers, there will still be a due diligence exercise. Essentially, the new service provider will want to see contracts of employment, terms and conditions and staff handbooks in relation to the potentially transferring staff. They will also have some questions about the staff covering practical aspects such as whether there is anyone on long term illness absence or maternity leave.

It is also the outgoing service provider’s duty to provide employee liability information to the new provider before the transfer about the potentially transferring employees. This information includes:

• The identity and age of the transferring employee
• Information contained in the employees’ terms and conditions of employment
• Information on any collective agreements affecting the employees
• Any disciplinary proceedings against any employee or grievance brought by an employee in the preceding 2 years
• Any legal actions brought by an employee in the preceding 2 years.

As part of the due diligence exercise, we held meetings with the new service provider to discuss concerns regarding the fact that there were two income streams and we also provided information to the new service provider showing just how the employees who worked on the project spent their time. During one of those meetings, the new service provider admitted that, if we were right that the two funding streams funded the same project, all the team members would be in scope. After much discussion and further meetings, the new service provider reluctantly accepted that all of the team should transfer.

Throughout the process, our client kept the affected employees informed of what was going on and consulted with them and their union. We also kept all the information about the employees anonymous until the new service provider agreed to take on the employees. While you have a duty to provide liability information, it is also important that you respect employees’ privacy.

Liability

Why was this so important for our client? The liability for all of the employees transfers on the transfer date. However, had the new service provider refused to accept all of the team, our client could not have continued the employment of the refused employees, as there was no work for them. Potentially, the now dismissed employees would have had to bring claims against both our client and the new service provider to work out whether they should have transferred or not, giving our client a 50/50 chance of being liable for their unfair dismissal claims but a 100% chance of being liable for the cost of defending the claims.

At the end of the process the new service provider sent our client an indemnity agreement. We presume this was a mistake but be warned, even in circumstances where there is no contract between incoming and outgoing service providers (and it is very likely that there will not be any contract), you may still find yourself being asked to sign an indemnity agreement. The agreement our client was sent involved them agreeing to take the liability for any claims that any transferred employee might make against the new service provider. As that liability had transferred and our client was being offered no consideration, we advised them to refuse to sign the document.

As you can see, this was a delicate balancing act between protecting the client and doing the best by their employees, without upsetting the incoming service provider to such an extent that they refuse to cooperate at all. While we were dealing with a charity this situation could equally happen to a commercial business so if you are in the process of tendering for a contract, or if you have lost a contract, it is vital that you take advice as quickly as possible about the consequences of TUPE. The content of this blog has only touched on the main issues. If you think this is going to affect your business or organisation, it is vital that you get direct advice as there are time limits for taking certain steps and there may be alternative ways of dealing with the situation.

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