Employees’ contracts can be split so they transfer to multiple employers on a TUPE service provision change

This ruling follows last year’s judgment by the European Court of Justice (ECJ) in ISS Facility Services v Govaerts, a case concerning a business transfer which involved a number of transferees. The ECJ ruled that under the EU Acquired Rights Directive (ARD), the rights and obligations arising from a contract of employment will be transferred to each of the transferees in proportion to the tasks performed by the worker.

The Employment Appeal Tribunal (EAT), sitting in Scotland, has now decided that the same approach will also apply in the context of a service provision change (SPC) under TUPE.

Facts of the case

Between 2012 and 2017, Amey Services Ltd (Amey) undertook a kitchen installation contract for North Lanarkshire Council within its social housing stock. In February 2017, Council retendered the contract, splitting it into two lots defined by geographical location - north and south. The lots were awarded to McTear Contracts Ltd (McTear) and Mitie Property Services UK Ltd (Mitie). 

Amey’s view was that TUPE would apply to transfer employees’ contracts to either McTear or Mitie.  Its HR team produced a spreadsheet identifying which workers would transfer to each of the companies based on the amount of time they had spent in each of the two geographical locations. Several employees brought Employment Tribunal (ET) claims against Amey, McTear and Mitie.

The ET found that there had been two SPCs, one between Amey and Mitie and the other between Amey and McTear, and that the employees transferred to each of them respectively in accordance with Amey’s spreadsheet. McTear and Mitie both appealed to the EAT against this decision. One of the grounds of appeal was based on the judgment in Govaerts, which the ECJ had given shortly before the appeal hearing.

The EAT said that, while there was no requirement to apply Govaerts to the UK provisions in TUPE relating to SPCs, it would be undesirable for there to be a difference in approach. It concluded that, in either a business transfer or SPC scenario, there is no reason in principle why an employee may not work for two different employers so long as the work is clearly separate and identifiable. The EAT sent the case back to the same ET to decide in light of the Govaerts decision.

Practical implications

TUPE, like other EU-derived employment legislation, has been retained after Brexitso ETs and the EAT should continue to interpret it in accordance with relevant ECJ decisions on the ARD. (This is unlike the Court of Appeal and Supreme Court, which are free to depart from such judgments if they consider it right to do so.)

Despite this, the EAT was correct in observing that it was not obliged to apply Govaerts in this case, because the TUPE provisions governing SPCs derive solely from domestic law rather than the ARD. It nonetheless decided it was appropriate do so. Note that the EAT’s judgment is binding on ETs in England and Wales as well as Scotland, because it is a single appellate court regardless of where its decisions are made.

This gives rise to various practical issues for both transferor and transferee employers, such as:

• How should an employee’s contract be spilt? Salary could be apportioned but how would you divide the employee’s time between the two contracts? Which days/times would each employer have the employee?
• What if the employers don’t agree on what should happen?
• How should the issue of time and expense for travelling between the employers be dealt with?

The EAT gave no guidance on these matters, so we will have to wait for further case law to see how ETs are likely to approach these types of cases. It is hard to see many SPC scenarios where it would be practically workable for workers to be employed by more than one transferee at a time. The situation may often have involved the re-tendering of a contract, with two or more competing businesses being the successful transferees. Those businesses may not want to employ someone who is also working for a competitor.

It seems inevitable that an employee will undergo substantial contractual changes where their contract is split between two or more employers. This could give rise to a claim under TUPE unless the relevant employer could show that there was an economic, technical or organisational reason for the change(s).

One commercial solution for employers who find themselves in this scenario might be to try to reach agreement with the transferor and other potential transferees about which employees they will each take on. This could result in a scenario where none of the workers suffers any loss and so reduce the likelihood of claims.

The prospects of all parties agreeing to such a deal are, however, probably slim. If there is no viable job for an employee post-transfer, they will most likely suffer loss - how should the liability for that be apportioned? Or if the transferees cannot agree on the arrangements for sharing employees post-transfer, and they are only offered employment for a percentage of their pre-transfer hours, how would liability be apportioned? When the case reported above returns to the ET, it will have to decide who is liable for what and the transferor may also face some liability.

In addition, even if the employees agree to an alternative arrangement proposed - such as working 100% of their time with one transferee despite the fact that by operation of TUPE they would transfer to three different transferees - there is a risk that the companies could be regarded as trying to contract out of TUPE.

How should employers respond?

We will have to wait and see how these unresolved questions will play out. In the meantime, we would advise employers to consider carefully potential transfers where there is going to be a degree of fragmentation. Whereas fragmentation has previously been used as a strategy by employers seeking to avoid a TUPE transfer, the EAT’s decision means it might be less likely to operate to “defeat” TUPE.

Employers involved in such transactions should consider the following:

• The company organising the tender needs to think about prefiguring a structure some time in advance, clarifying which employees are organised to which group, to try to avoid a complicated situation where employment contracts need to be split.

• Transferors should organise employees in such a way that they are more likely to transfer to a specific transferee in the event this scenario arises, so that any transfer is more straightforward.

• It will generally be helpful to have a discussion with the other businesses involved early on in the process about how practically the parties are going to deal with the situation and try to agree which employees should transfer to which transferee and/or remain with the transferor.

• If there are employees who do not clearly transfer to one transferee, perhaps because they work for more than one part of the business, a decision should be made on what should happen to them.

• The parties should also try to reach agreement on how matters will be handled and who will carry the risk and liability if things go wrong.

If employers fail to prepare in advance in this way, the current state of the law may leave them with complicated, unworkable arrangements and potential liability for other parties’ actions and mistakes.

McTear Contracts Ltd v Bennett and others – judgment available here