TUPE takeaways: what is an economic activity?

For there to be a relevant transfer under TUPE, there must be a transfer of an “economic entity” which retains its identity. Most employers won’t spend long pondering whether a transfer involves an “economic entity”. For example, a sale of a retail store as a going concern is most likely to be considered an “economic entity”; its ultimate purpose is to purchase and then sell goods for a profit.

However, a recent Employment Appeal Tribunal decision has highlighted that the existence of an economic entity is not always straightforward.

What is an economic entity?

TUPE defines an economic entity as “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”.

But what exactly does that mean? TUPE itself doesn’t give much more guidance, other than clarifying that it does not matter whether a company is operating for profit or not.

Case law has provided some further guidelines around what will amount to an “economic entity”; clarifying that there needs to be a stable economic entity which is sufficiently structured and autonomous. There also needs to be more than just a collection of assets, but in some cases the assets can simply be the employees (or even just a single employee).

However, there have been very few cases which consider the meaning of “economic activity”.

This most recent EAT case considered whether commissioning work in the public sector was an economic activity.

What happened here?

The Claimant, Mr Bicknell, was a GP Clinical Lead employed by NHS Nottingham City Clinical Commissioning Group (NC CCG).

CCGs are corporate bodies made up of local GP practices. They are responsible for the commissioning of healthcare services in different areas. This includes planning, purchasing and monitoring healthcare services.

On 1 April 2020, six CCGs in Nottinghamshire (including NC CCG) merged into Nottingham and Nottinghamshire CCG (NN CCG). NN CCG was replaced by the Respondent to this case, NHS Nottingham and Nottinghamshire Integrated Commissioning Board, on 1 April 2022.

Mr Bicknell was made redundant on 27 February 2020. He claimed that the sole or principal reason for his dismissal was the transfer to NN CCG, and therefore automatically unfair. His union, British Medical Association, also bought claims for failure to inform and consult. The claims focused on whether the transfer of NC CCG’s functions to NN CCG was a relevant transfer.

Is “commissioning” an economic activity?

No, said both the Tribunal and EAT.

The EAT determined that the Tribunal had correctly applied a previous EAT decision of Nicholls v Croydon London Borough Council. In that case, it was held that tribunals should adopt a function-based approach when considering if the activities carried out by an entity constituted an economic activity. The judge in Nicholls concluded that “the purchasing or commissioning of goods or services cannot in itself constitute an economic activity” and for there to be an economic activity the commissioner also had to supply such goods or services on the market. In reaching this decision, as there was no other relevant employment decision, the judge had relied on a European Court of Justice competition law decision.

Turning back to Mr Bicknell’s claim, when looking at the work carried out by NN CCG, the Tribunal had found that commission in this context meant “buy” not “provide”. This was a critical distinction. Although the Respondent provided training to staff and signposted services to patients, and even purchased services to be provided by third parties, they were not found to provide medical services themselves.

This meant that there was not a TUPE transfer and so Mr Bicknell was not automatically unfairly dismissed.

TUPE takeaways

Rarely will employment lawyers dabble in competition law! But both TUPE and competition law refer to the concept of “economic activity”. The EAT clearly had doubts about whether it was right that Nicholls derived principles from competition law, given the very different purposes. As we highlight in our first TUPE takeaways article,[CM1]  the overarching principle of TUPE is to protect employees’ rights when a business is sold. On the other hand, competition law relates to market position and power. However, the EAT did not think that the decision in Nicholls was obviously wrong and so they were bound to apply it.

We are therefore left in a position where goods and services must be provided by a body themselves for there to be economic activity (unless this decision is appealed).

Although the decision will have more relevance in the public sector, here are some practical takeaways for all employers:

• Do not glaze over whether or not there is an economic entity! Carefully consider the activities undertaken and whether there is, in fact, an economic entity.
  

  a. This case highlights that where an employer is commissioning others to provide services, they may not be carrying out an economic activity. This will mostly be relevant to public sector organisations, where the application of TUPE (or other staff transfer schemes) is already complicated.

b. But even for private sector businesses, it is important to take a step back and look at whether there is an economic entity.

Although in Mr Bicknell’s case, NC CCG was not found to be carrying out an economic activity, there are other reasons why there may not be an economic entity. For example, it will be important to consider whether this is an organised grouping of employees.

• This is just the first hurdle to jump in determining whether there is a TUPE transfer. If there is an economic entity, the transferor and transferee will need to go on to consider whether that economic entity:
  

  a. transfers; and

  b. retains its identity.

There are lots of creative arguments to be made about whether an economic entity retains its identity after a transfer. Whether an economic entity retains its identity will be fact dependent. This is an area of dispute we see argued more often in practice, although it is less common with business purchases where a business is often sold as a going concern.

Getting in a TUPE tangle?  Contact our team for support.

Bicknell and another v NHS Nottingham and Nottinghamshire Integrated Commissioning Board download the full judgment here.