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When does a Service Contract transfer under the new Transfer Regulations?

29th June 2009

Under the Transfer of Undertakings Regulations 2006 (TUPE) there is a specific provision that deals with the transfer of employees when a service contract is transferred from one business (contractor) to another. Questions over the application of the TUPE regulations can arise when there are changes in how the incoming contractor chooses to organise or operate the contract.

In the recent case of Metropolitan Resources Ltd v. Churchill Dulwich Ltd the Employment Appeals Tribunal examined the application of the TUPE regulations to a change of service provider, and their operation of a contract.

The case involved Migrant Helpline (MH), which provided accommodation to asylum seekers for the Home Office. They had a contract with Churchill Dulwich Ltd to provide accommodation at a place called Barry House. MH subsequently decided not to renew its contract with Churchill Dulwich Ltd, and instead decided to send asylum seekers to a different provider, MR Ltd, at a different location. MH moved its staff to the new location.

The Employment Tribunal held a review to decide if there had been a relevant TUPE Transfer, as a “service provision change”, under regulation 3. MR Ltd agreed that the change of location and the shorter length of time asylum seekers were accommodated meant they were not carrying out the same “activities” as had been carried out by Churchill Dulwich, and hence no TUPE transfer (with the protection given to staff that worked on the contract with the out going contractor). The Employment Tribunal concluded that it did not matter that the accommodation at the new location was offered for an extra night, or that the location of the accommodation had changed.

The Employment Appeal Tribunal stated that in deciding if regulation 3 applied or not, the Employment Tribunal had to ask whether the activities carried out by the new contractor were “fundamentally or essentially the same” as those carried out by the previous contractor. The Employment Appeals Tribunal considered that all the minor differences in the activities did not prevent the activities from being “fundamentally or essentially the same”. Similarly the Employment Appeals Tribunal thought that a difference in location of the contract services was unlikely, on its own, to prevent the TUPE transfer regulations from applying. In addition it also stated that the fact the new contractor performs some additional duty or function is unlikely to avoid the TUPE transfer.

The ruling of the Employment Appeals Tribunal makes it clear that for the TUPE Regulations NOT to apply when a service contract is contracted- out, or re-tendered there need to be significant and major changes in the way in which it is operated. Being sure whether TUPE Regulations apply or not is a crucial matter for any business involved in tendering and out-sourcing. A failure to get this right can result in liability for automatic unfair dismissal claims from the staff that had been employed on the particular contract by the “old” contractor.

If you require further information or advice on any of the matters raised in this article, please do not hesitate to contact us.

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