It was once clear that the purpose of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) was to protect the employment and associated rights of employees on business transfers. But a practice appears to be emerging which shows that an unintended effect of TUPE 2006 is that it can be used to promote commercial interests. So can it still be said that its sole use and purpose is the protection of employment rights when some HR advisers are using TUPE to help their organisations reduce commercial fees?
When TUPE 2006 came into force in April last year it introduced the concept of the service provision change. In simple terms, all that is needed for a service provision change is that the carrying out of “activities” switch from one party to another, and before the switch, there was an “organised grouping of employees” whose main purpose was to carry out those activities.
The activity could, for example, amount to work relating to a commercial agreement where one party (the client) pays another party (the contractor) to distribute its products over a five-year period. Assume that the contractor employs a number of employees to service this contract and these employees spend most of their time working on this commercial agreement.
Now suppose after the second anniversary of the contract the client decides that it has to reduce its costs and therefore wishes to reduce the annual fee paid to the contractor.
In the past, the client would have been at the mercy of the contractor, who may not have allowed the client the opportunity to renegotiate the terms of the agreement. Some organisations, however, are now using the service provision change as a way to avoid the need to renegotiate the commercial terms. They are simply terminating their commercial agreements with third parties to deliberately acquire the employees of that third party, so they can carry out the services themselves or use a cheaper contractor.
This is an effective tool because TUPE 2006 is not concerned with whether or not the client terminates the agreement lawfully.
Once the agreement is terminated, all that is required for TUPE 2006 to apply is evidence that the client has terminated the agreement, that the client intends to carry out the activities on its own behalf or through another contractor, and that there was previously an organised grouping of employees who will transfer either to the client or to the client’s new contractor.
The recent employment tribunal decision in Hunt v Storm Communications and Others shows that tribunals are likely to hold that just a single employee could amount to an organised grouping of employees. Clearly, this shows that the threshold for the application of a service provision change is likely to be low.
No more denials?
This new use of TUPE is interesting because we are now beginning to see employers assert that TUPE does apply when previously HR professionals and legal advisers would either deny that it did or reluctantly accept its application. Rarely were they eager to assert that TUPE did apply. So it is novel to now see a situation emerging where there is a tug of war over the issue of who employs the employees.
This development raises the question as to whether such use of TUPE was ever intended.
Clearly, TUPE was not aimed at assisting one commercial organisation in resolving a commercial issue with another. Although unintended, Parliament and employment tribunals should welcome such a development as it is likely to result in employment rights being better protected – especially when both organisations to a commercial agreement are fighting over who actually employs the employees rather than (as was the case in the old days) denying that they were the employers. However, the original employer may want to hold on to its employees to frustrate the plan of the client or on the grounds that it has other contracts to which they can be deployed.
This development will provide HR advisers with an opportunity to shape the strategic thinking of their companies, especially when market conditions require cost savings.
Noel Deans, partner, K&L Gates