Trouble in the transfer market: TUPE regulations and frameworks

Contractors pricing tenders or trying to understand the labour implications of winning or losing work have long struggled with the Transfer of Undertaking (Protection of Employment) Regulations 2006 – more commonly referred to as TUPE. Under these rules, liability for employees transfers from contractor to contractor as responsibility for the delivery of services changes hands.

As a consequence, TUPE was revised in 2006. A set of service provision rules were created so that employees would know their rights when their employer ceased to be responsible for delivering services. However, recent case law has shown that this is not straightforward.

The principle is that if responsibility for activities – for example, providing soft facilities management services – changes hands and if the outgoing service provider had a dedicated team focused principally on the delivery of those services, employees would be transferred to the incoming service provider. Yet this principle does not fit when work is procured through a framework.

Framework contracts typically create the following conditions:

• Situations in which the client ceases to instruct contractor one and instead splits the work between contractors two, three, four and five
• It is not often clear at the outset who will pick up how much work. The pattern of how services have been called off will not necessarily show how they will be called off in future
• Work may be divided between the incoming contractors in such a way that it would be impossible to decide where employees should transfer.

This gap in the legislation has been causing a host of practical problems, which are only just finding their way to the courts. We are starting to see the first decisions trickling through, but they leave questions unanswered.

The decisions of the employment appeal tribunal in Kimberley Group Housing vs Hambley et al; and Clearsprings vs (1) Ankers et al and (2) Angel Services gave an indication of how the courts would tackle these issues.

Work may be divided so it would be impossible to decide where employees should transfer to

Both cases arose from the decision by the Home Office to retender a contract to provide accommodation for asylum seekers. In short, the Home Office chose to instruct more than one contractor after retendering.

In Hambley’s case, the tribunal felt a sensible approach would be to look at the proportion of work done by each contractor before deciding where their employees transferred. The contractor that took on the bulk of the work would get all the employees.

In the Clearsprings case, the tribunal decided if activities carried out by the original contractor were so fragmented that under the new contract it was impossible to identify which incoming contractor employees should transfer to, then the employees could not be transferred.

In Metropolitan Resources vs (1) Churchill Dulwich and (2) Cambridge et al, the tribunal said that, if the activities that a group of employees spend most of their time doing are transferred, the employees are likely to transfer with them. The tribunal also clarified that, just because there are changes in the way services are provided before and after transfer, it does not mean a service provision change cannot take place.

As the cases work their way through the courts, the following are sensible principles to stick to:

• Price for the risk that TUPE will not apply on exit so a large bill does not come as a shock
• Encourage open and honest discussions between clients, incoming and outgoing contractors to identify disputes about TUPE early
• Ensure adequate consultation takes place with affected employees in advance of a proposed transfer
• Make sure that, if possible, any contractual documentation makes specific reference to the affected employees and sets out clearly where the parties believe they will transfer to
• Include appropriate warranties and indemnities in contracts to protect your position in case any employment tribunal claims arise after transfer.

The more complex the procurement, the more TUPE may strain to fit the circumstances. Although the landscape is by no means complete, it is clear that a framework arrangement may stop TUPE from applying, which is a pitfall in an area fraught with uncertainties.