To add to the panoply of TUPE cases, we have four useful decisions this month which illustrate the impact of the Regulations. Three out of the four, Enterprise, Pannu and Hunter, all deal with the scope of the rules applying TUPE to service provision changes (SPCs), which, as all our regular readers know, are not a matter of European law, but our very own wonderful invention. The cases consider situations where there is a change in the nature of the activity, the situation where the same services are provided but for a different client, and what amounts to a provision of a service, rather than the supply of goods.
In Enterprise Management Services Ltd v Connect-Up Ltd, the Employment Appeal Tribunal considered the break-up of a contract for the provision of IT support services to Leeds schools. Enterprise provided the services as a preferred supplier, under a contract which left schools free to go elsewhere if they so wished – which some did, to two other providers. At the end of the contract suppliers were invited to tender for a new contract which excluded about 15% of the work covered by the previous arrangement. Those tendering included Connect-Up, who were already providing IT support to some schools. The new contract also allowed schools to choose from a number of suppliers, and over half opted for Connect-Up. Employees dismissed by Enterprise when they lost the contract were found not to have transferred to Connect-up as the major provider of IT services after the new contract came into force for two reasons:
- (1) The reduction of the scope of the services to exclude curriculum support (about 15% of the total) meant that the service was not essentially the same; and
- (2) The services were so split up between different providers after the new contract that there could not be a service provision change, as established in Kimberley Group Housing Ltd v (1) Hambley & Others (2) Leena Homes Ltd (3) Angel Services UK Ltd.
The effect of fragmentation of a service is well established as taking service provision changes outside TUPE, and one that can be exploited by those seeking new suppliers, but it is interesting to see that a relatively small tweak in the scope of services provided can also exclude the SPC provisions.
Where a mix of goods and services are supplied, a contract will fall outside the SPC rules if the contract is “wholly or mainly” for the supply of goods. In Ahmed & Others, Pannu & Others, Grace v Geo W King (in liquidation) & Others the EAT looked at a situation where GWK assembled axles for vans from parts which were then supplied to a van manufacturer, IBC. Initially, the parts were sourced by GWK, but, by the time of the contract change they were sourced and paid for by IBC, because GWK were too short of cash to pay for them. The EAT took the view that whether this amounted to a supply of goods or the provision of a service was a question of fact for the employment tribunal to decide, and that in this case it had been entitled to conclude that the contract was mainly one for the supply of goods, even though some services were involved. While there was an organised grouping of workers who provided the service of assembling the axles, they were providing the service to their own employer, GWK, who then sold goods to IBC.
The last of our SPC trio, Hunter v McCarrick, examined the significance of the identity of the recipient of the services, which, the Employment Appeal Tribunal said, must remain the same after the SPC. In this instance, the claimant was a property services manager, working for a group of companies, Waterbridge Group Limited, which managed a set of properties which, following a series of transactions, passed into the hands of a further company, Midos, which financed the purchase of the properties with a mortgage. Ultimately, the mortgage lender appointed a receiver to control the properties, who appointed a new property manager. The question was, was this an SPC? The answer was that it could not be, because it was the receiver who needed the properties managed, not Midos. In other words, the work carried out before and after the transfer of services was for different clients.
Finally, the important decision in Key2law (Surrey) LLP v Gaynor De’Antiquis concerning a different aspect of TUPE, warrants a further mention. I wrote about the case last month and pointed out that it provides useful clarity in these economically difficult times. The automatic transfer provision of TUPE may be excluded where the business being transferred is the subject of some types of insolvency proceedings. An earlier case, Oakland v Wellswood  IRLR 250, muddied the waters by suggesting that where a company is in administration, whether or not TUPE will apply to the sale of that company will depend on whether, when the company went into administration, there was a prospect of it continuing to trade and being sold as a going concern or whether it was plain from the outset that the business would not survive. In Key2law, the Court of Appeal rejected this approach, as being much too uncertain. Instead, when a company goes into administration, that will always be treated as with a view to a rescue of the company, and so will fall outside the exception from TUPE for insolvency proceedings.
While this decision has the considerable advantage of certainty, it does mean that administrations are potentially a less effective vehicle for the rescue of companies in difficulty, especially where the most substantial part of their cost base is wages.