You need some armour plating

The Transfer of Undertakings (Protection of Employment) Regulations 2006, or TUPE, now expressly apply to a change of service provider. A service provision change can occur in three situations: the contracting out of services; second-generation outsourcing and bringing services back in-house.

Imagine that a lead contractor is working on a large project, such as a shopping centre, and engages a subcontractor. Due to poor performance issues, the lead contractor decides to terminate its contract with the specialist, finishes some of the work itself and engages another subcontractor to complete the rest.

The first question is whether there is actually a service provision change under TUPE. For the regulations to apply, immediately before the service provision change:

• There must be an organised grouping of employees that has as its principal purpose the carrying out of activities on behalf of the lead contractor
• The lead contractor must intend that the activities will, after the change, be carried out in-house or by another subcontractor other than in connection with a single specific task of short-term duration.

If the subcontractor was engaged by the lead contractor to install a single retail unit in a huge shopping centre, it would only be a single specific task and presumably would be for a short duration. The service provision change would not apply.

If the subcontractor was engaged by the lead contractor to provide ongoing lift maintenance services for the duration of the project, but provided different employees on site to fulfil those services, again the service change provision would not apply.

However, let’s say the subcontractor was engaged to provide on-site technical support over the entire lifespan of the project and has staffed the contract with a specific team of employees dedicated to the contract from day one.

In that case, it is likely any in-sourcing of the work back to the lead contractor or any change of subcontractor will be a service provision change.

Having established that TUPE does apply, what are the implications for the lead contractor?

The contractor will inherit all historical liabilities in relation to the transferring employees

The subcontractor’s employees engaged on the project will be entitled to transfer to the lead contractor or to the subcontractor that replaces it.

The lead contractor or new subcontractor will not only replace the first subcontractor as the employer of these staff, but will also inherit all historical liabilities in relation to them (other then criminal liabilities).

The new employer is obliged to inform the original employer of any measures it envisages it will take in connection with the transfer. The new employer will not be able to change the terms and conditions of employment of the staff, unless it has an economic, technical or organisational reason entailing changes in the workforce.

If the transferring staff are members of a trade union recognised by their original employer, their new boss may be deemed to recognise that union in respect of those employees. Any collective agreements applicable to the transferring employees shall be deemed to have effect as if made with the new employer.

What can the lead contractor do to protect its position in these circumstances? It boils down to the terms of its original contract with the first subcontractor. This should contain provisions allowing the lead contractor to remove specific employees of the subcontractor from the job if they under-perform. It should also consider the effect of TUPE on termination, and require the subcontractor to provide full information to a new employer in relation to transferring employees.

It may require the subcontractor to indemnify the new employer against liabilities in respect of the transferring employees before the transfer.

Finally, if the lead contractor does not want to accept any transferring employees, although the parties cannot contract out of the effect of TUPE, they are free to apportion liabilities for the dismissal of transferring employees between themselves.