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The Transfer of Undertakings (Protection of Employment) Regulations 2006 now applies to service provision changes in circumstances where a client who engages a contractor to do work on its behalf is either reassigning such a contract or bringing the work ‘in-house'.
There are two exceptions. It will not be a service provision change if the contract is wholly or mainly for the supply of goods for the client's use, or the activities are carried out in connection with a single specific event or a task of short-term duration.
The effect of TUPE 2006 on the service provision change is therefore that employees will be entitled to transfer on the same terms and conditions as they enjoyed with their original employer upon a transfer of the service as a result of changes in contracting out or contracting in.
The absurdity of TUPE 2006 is that many businesses will want to retain a stable workforce and retain their employees when they cease to provide services to a particular client. There are some obvious precautions and measures that may be used by "clients" and their contractors to avoid TUPE 2006 from having any effect.
The following solutions are of course largely untested because the reality is that TUPE 2006 has yet to be fully examined in the courts.
Encouraging objections by departing employees
The first method for avoiding the service provision change provisions is to encourage the use of the objection by potentially transferring employees. Some businesses will adopt practical measures to provide incentive to their employees to remain with them, even if they technically should transfer to the client's new service provider. In some cases clients may select especially valuable employees by encouraging them to object to the transfer pursuant to regulation 4(7).Once this occurs of course the client will have to re-negotiate new contractual arrangements with them.
Quota protection to avoid a service being deemed an organised grouping of employees
Secondly, it will also be open to businesses to put in place systems to ensure that no employee or group of employees becomes dedicated to a particular client (whether exclusively or not) in the provision of services. After all, TUPE 2006 will not apply to service provision change where employees are not working in a single economic grouping. The DTI guidance explains that the team should be ‘essentially dedicated to carrying out the activities that are to transfer (though they do not need to work exclusively on those activities)'. Sophisticated end users will impose conditions in their contracts for supply of services. These contracts may include a requirement that no employee engaged in the activity in question should spend more than a certain percent of their working time on that activity, and including appropriate warranties and indemnities from the supplier. Clients may also seek to identify in new contracts the specific employees they do and do not want to carry out work on their behalf, although new contractors may factor into the price the costs of dealing with any ‘unwanted' transferring employees.
This is a far more sophisticated model than entering into a series of one-off contracts because the court is likely to cut through a contractual device where the one-off contacts are in fact using the same employees in the same service provision to a dedicated client.
Such a quota system may very well cause problems in terms of quality of service, particularly where the client relationship is important for the delivery of a good service. This is because in reality by increasing the number of or frequently switching between suppliers quality may decrease. The advantages of doing this would have to be weighed up against any disadvantages such as losing continuity and the detrimental effect on the client/supplier relationship. This will be a delicate assessment depending on the nature of the service.
The Secondment Route
The third method is to create a secondment situation. Similar to the objection method it involves the objection by employees to a transfer which allows the employee to remain in the formal employment of the original client – although not continuous. Additionally, the employee is seconded to the new contractor. Once on secondment any further transfers will be avoided by regulation 4(1) which states that employees transfer under TUPE 2006 if their contract of employment "would otherwise be terminated by the transfer." There can of course be no termination by virtue of a transfer to an employee is only seconded. This has been used by the NHS in Private Finance Initiatives (PFI) in order to allow NHS employees to have the benefit of a NHS pension whilst being seconded to a private contractor.
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Ian Mann - Employment Barrister http://www.employment-barrister-uk.com http://www.13kbw.co.uk 13 King’s Bench Walk Ian Mann was called to the Bar in 2000. He practices in employment disputes representing both employers and employees. His employment practice embraces the full spectrum of Employment Tribunal, High Court and appellate work and covers all areas of employment law, especially discrimination.
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