TUPE: Must employment contracts now be split between multiple transferees?
The EAT has recently held that, where there is a service provision change (“SPC”) under TUPE, an employment contract of a transferring worker may be split between more than one transferee. This is in direct contrast to the previously held position. We consider below the changes brought about by recent case law, and the potential significant impact for employers.
What was the previous position?
Previously, where there were multiple transferees following a SPC, the EAT has held that liability for all the transferor’s employees passes to the entity that was taking on the greater proportion of the activities carried out pre-transfer. Where the activities were ‘fragmented’ across multiple transferees, this might result in there being no identifiable transfer at all. The EAT has previously rejected the argument that there could be a transfer of individual contracts of employment to two employers in proportion to the volume of work taken on by each transferee. This was based, at least in part, on a pragmatic view that splitting individual employees between multiple employers would create significant practical difficulties.
How has this changed in recent case law?
The ECJ’s recent decision in ISS Facility Services v Govaerts is explicitly at odds with this decision. In Govaerts, ISS Facilities Services (ISS) was responsible for the maintenance of buildings in Ghent. The work was divided into three lots. Ms Govaerts was employed as project manager of the work corresponding to the three lots. Following a tender process, two of the contracts to supply services to the lots were awarded to Atalian and the third was awarded to Cleaning Masters.
The ECJ held that the employment contract of a transferring worker can be split between each of the transferees in proportion to the tasks performed by the worker, provided that such a division was possible and did not adversely affect the worker’s rights and working conditions. If the division was impossible or resulted in a deterioration in rights and conditions, it may be terminated, but that termination is the responsibility of the transferee(s).
The decision in Govaerts relates to business transfers only and not to the domestic SPC rules in regulation 3(1)(b) of TUPE.
EAT’s decision in McTear
In Mctear Contracts v Bennett, when Amey Services awarded its contracts to both McTear and Mitie Property Services, the two transferees refused to accept that any of the Amey employees had transferred.
The EAT held that the decision in Govaerts should apply. There was no reason why an employee may not, following a SPC, hold two or more contracts of employment with different employers at the same time, provided that the work attributable to each contract is clearly separate from the work on the other(s) and is identifiable as such. Whilst Govaerts did not relate to SPCs, it would be “undesirable” to take a different approach depending on whether the transfer was a business transfer or a SPC.
What is the impact for employers?
The new case law position has the potential to profoundly affect situations where an outgoing service provider is replaced by two or more incoming service providers:
- Parties will need to consider carefully whether employment contracts should be divided between multiple transferees.
- Can the transferring “activities” and an “organised grouping of employees” be identified, as required by TUPE?
- Which employees are assigned to which transferee?
- How might transferees seek to minimise their post-transfer obligations?
In addition, the EAT in McTear did not comment on the point reached by the ECJ in Govaerts that, where dividing a contract proves impossible or results in a deterioration in an employee’s rights and working conditions, the contract may be terminated.
It is very likely that where an employee’s contract is divided between multiple transferees, their rights or working conditions would be adversely impacted – especially due to the fact that, as of yet, there is no obvious mechanism to divide employment contracts between the different transferees.
Termination, as set out by the ECJ in Govearts, must always be regarded as the responsibility of the transferee, and the termination of any employment contract with two years’ service is likely to invoke an automatically unfair dismissal under TUPE. This is unless the transferee can argue that “an economic, technical or organisational reason, entailing changes in the workforce” applies, which can sometimes be a difficult argument to succeed with.
Transferees are now at risk of inheriting a number of unworkable contracts and subsequently being caught within the scope of automatically unfair dismissals.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: email@example.com