Leena Homes had a contract with the Home Office under which it provided accommodation and related services for asylum seekers pending their applications to remain in the UK. In 2006, it lost the contract. It was instead awarded to Kimberley Group Housing (Kimberley) and Angel Services (Angel). Kimberly and Angel did not accept that the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) applied and, as a result, the employees of Leena Homes who had been engaged in the relevant services lost their jobs. Six of these employees brought a claim before the employment tribunal.
The tribunal found that, for the purposes of TUPE, there had been a relevant transfer in the form of a service provision change. Activities had ceased to be carried out by Leena Homes on behalf of the Home Office and were carried out instead by Kimberley and Angel.
The tribunal then had to consider to whom the employees’ contracts of employment (and liabilities under those contracts) had transferred.
The tribunal decided that “although the people and their contracts cannot be ‘split’ the liabilities under those contracts can”. This led the tribunal to apportion liability between Kimberley and Angel according to the percentage of services each had taken on from Leena Homes. Kimberley and Angel appealed.
The Employment Appeal Tribunal (EAT) agreed that there was a service provision change. However, it said that employee liabilities cannot be divided between two transferees on a percentage basis. Further, there can be no separation of the contract of employment from the liabilities under it otherwise an employee could potentially become the servant of two masters.
The EAT said that the apportionment of liabilities in a service provision change should be treated in the same way as a traditional transfer, ie, a transfer of an economic entity which retains its identity.
Here there was established case law which provided that a tribunal should establish which company had, following the transfer, taken over the activities to which the employees were assigned.
On the facts of this case, the EAT found that Kimberley had taken on the vast majority of the activities to which the employees were assigned. The employees had, therefore, transferred to Kimberley and it was responsible for all liabilities under their contracts of employment.
There has been little case law on the new service provision change provisions, introduced by TUPE in 2006. This is the first time the EAT has had to consider the issue and it has provided useful, if unsurprising, guidance on how a tribunal should determine who is liable for the employees when a service which was originally provided by one contractor is instead provided by two or more new contractors.
The EAT has confirmed that the approach in the case of a service provision change should be no different to the approach already established for traditional transfers. This means that tribunals must determine as a matter of fact whether the employee is assigned to activities involved in the service provision change. If so, the employee will transfer to the new service provider taking on those particular activities. This means that if the activities are being split, so that none of the new service providers are taking over a clear majority of an employee’s activity, the employee would not transfer and would remain with the old contractor. That old contractor would then need to manage any redundancy or redeployment.
Helen Hall, partner, DLA Piper