Tupe can still apply where a commercial dispute has stopped the work

EAT looks at ‘service provision change’ rules in contract retendering case

Under the Tupe provisions on ‘service provision changes’ (SPC), employees can transfer from an outgoing contractor to an incoming one where certain conditions are satisfied, depending on whether or not they are assigned to the functions involved. But what if, for some reason, those duties are not being carried out by the outgoing contractor at the point when the retendering comes into effect? Can Tupe still apply?

A recent case, Mustafa v Trek Highway Services, involved a retendering exercise carried out by Transport for London (TfL). The authority decided to put certain highway maintenance functions in its north London region out for retendering. The functions had been covered by one contractor. The retendering exercise divided the London region into four areas: one contractor was awarded the contract for the north-east London region and another won the contract for the north-west London region.

The original contractor had subcontracted certain traffic management functions to the employer in the Mustafa case (Trek). The two claimants (Mustafa and his colleague) were employed by this company and worked on those functions ‎in the north-east London region and, therefore, were ‘in scope’ to transfer to the incoming contractor.‎

Prior to the date of the transfer, a commercial dispute had arisen‎ between the original contractor and Trek, which led the sub-contractor to stop carrying out the functions assigned to it and to the employees being excluded from work. The original contractor took back these functions on an interim basis until the new contractor began its operations following the re-tendering exercise. The dispute between the original contractor and Trek was concluded by a settlement that terminated the sub-contract by mutual consent. Trek went into administration shortly afterwards and informed its employees that, with effect from the termination of its sub-contract, the employees would transfer to the new contractor.

The in-coming contractor took the position that there would only be an SPC if the original contractor terminated Trek’s contract at the request of TfL. But since Trek’s relationship with the original contractor ended as a result of a commercial dispute, it argued that those employees working for Trek to deliver the relevant services for the original contractor did not transfer to its employment.

For there to be a ‘service provision change’ under the Transfer of Undertakings (Protection of Employment) Regulations 2006, the functions transferring must have been conducted by an ‘organised grouping of employees’ whose principal purpose was performing those functions. In this case the employment tribunal decided that because Trek and its employees had stopped working on the activities which had been sub-contracted to them, there was no ‘organised grouping of employees’ immediately before the alleged service provision change. So there was no service provision change, either directly from Trek to the new contractors for the north-east and north-west London regions, or by way of successive transfers via the original contractor on to the new contractors.

The claimants appealed.

The Employment Appeal Tribunal allowed the employees’ appeal. The fact that there had been a temporary cessation of work does not by itself mean there cannot be a service provision change in relation to the re-contracting of functions. The EAT said tribunals should determine as a “question of fact and degree whether an organised grouping of employees retains its identity as such even though work has come to a halt”. The case was sent back to the employment tribunal to reconsider the issue when applying the approach outlined by the EAT.

This decision demonstrates that just because an outgoing contractor may not actually be performing the functions in question at the point where a retendering exercise takes place, this does not automatically prevent there being a service provision change under Tupe which transfers the outgoing contractor’s staff to the incoming contractor.

Those carrying out retendering processes need to be aware of the kind of disputes that can arise if an incumbent contractor stops performing the activities involved for whatever reason, and should factor this into their approach when dealing with employee transfer issues.

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