Enterprise Management Services Ltd v Connect-Up Ltd
The claimants were employed by Enterprise Management Services Ltd (Enterprise) on a contract to be the preferred provider of IT support for schools run by Leeds City Council. Enterprise decided not to tender again for the contract when it expired. Connect-Up Ltd won the new contract. The new contract did not cover service cover for curriculum systems, which formed about 15% of the work previously undertaken by Enterprise.
There was a dispute as to whether or not Enterprise’s employees transferred to Connect-Up under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the TUPE Regulations).
At the date of the new contract, Connect-up had signed up 41% of the schools that had previously contracted with Enterprise; over time, Connect-Up signed up 62.5% of the schools formerly signed up to Enterprise, with the remaining schools distributed among five other providers.
The TUPE Regulations provide that there is a TUPE transfer where “before the service provision change – there is an organised grouping of employees … which has as its principal purpose the carrying out of the activities concerned on behalf of the client” and “the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task”.
The employment judge held that Enterprise had an organised grouping of employees that had the principal purpose of carrying out activities on behalf of the client. However, the judge found that the activities carried out by Connect-Up were significantly different from those carried out for the council by Enterprise, meaning that there was no transfer of an undertaking. In particular, Connect-Up did not carry out curriculum work, which amounted to 15% of the work done by the organised grouping of Enterprise employees.
The EAT dismissed an appeal against the finding that there was no transfer of an undertaking, agreeing with the employment tribunal on the basis that there were significant differences between the activities carried out by Enterprise and Connect-Up. The activities carried out by Connect-Up were not essentially or fundamentally the same as those carried out by Enterprise. Moreover, the provision of services formerly provided by Enterprise fragmented after its contract came to an end, and the employment judge was entitled to conclude that the provision of services formerly provided by Enterprise was so spread out among other providers as well as Connect-Up that no service provision change had taken place on that basis.
It is useful to have appellate guidance on service provision changes, as there have not been many decisions on this. However, the decision in this case appears to be out of step with the Government’s guidance, which says that a service provision change would “potentially cover situations where just some of the activities in the original service contract are retendered and awarded to a new contractor, or where the original service contract is split up into two or more components, each of which is assigned to a different contractor”. The guidance goes on to say that, in each of these cases, the key test is whether or not an organised grouping has as its principal purpose the carrying out of the activities that are transferred.
In this case, there was an organised grouping, and the activities that were carried out under the contract pre- and post-transfer appear to have been exactly the same, except that some of the activities (15%) were not awarded to the new contractor. However, the extent to which the new activities differ from the old will always be a matter of fact and degree and it may be hard for the EAT to interfere with the decision of an employment tribunal in this regard. Much will depend on how the “activities” carried out are defined by the tribunal.
Nicholas Jew, employment partner, DLA Piper
Practical guidance from XpertHR on TUPE transfers