Richard Arthur looks at the two types of transfer covered by the 2006 Transfer of Undertakings (Protection of Employment) Regulations (TUPE): standard transfers and service provision changes.
With the coalition government’s reforms set to turn many parts of the public sector over to profit driven private companies to commission or provide services, it is vital for trade unionists to understand how the rules around the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006 apply.
There are two types of relevant transfers – standard transfers and service provision changes. The EU Acquired Rights Directive (which the TUPE Regulations implement in the UK) covers standard transfers – that is when an undertaking (ie a business) transfers wholly from one employer to another.
Service provision changes – such as when part of an organisation’s services are outsourced to another – were introduced when the TUPE Regulations were revised in 2006 to reduce the uncertainty about when they apply.
What constitutes a standard transfer?
TUPE says there is a standard transfer when “an economic entity which retains its identity” transfers from the old employer (the transferor) to the new employer (the transferee), for example on the sale of a business.
What is an economic entity?
An economic entity is defined as “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”.
This could either be a whole business or part of a business whether pursuing a profit or not.
This entity must be organised and independent but will not necessarily have significant assets either tangible, such as goods, money or property, or intangible, such as good will.
In certain sectors, such as cleaning and surveillance, the assets are often reduced to their most basic and the activity is essentially based on the workforce. An organised grouping of wage-earners, who are specifically and permanently assigned to a common task, may, in the absence of other factors, amount to an economic entity.
The definition applies to public and private undertakings, whether or not they operate for a profit. The only exception is in relation to reorganisations of public administrative authorities such as within central or local government.
The definition also applies to parts of undertakings. For example, the entity may be separated from the emainder of an undertaking when a public sector contract is repackaged.
But an activity itself is not an economic entity. The identity of an entity emerges from other factors such as its workforce. In CLECE SA -v- Maria Socorro the Court of Justice of the European Union (CJEU) said that there was no transfer when a municipal authority brought the cleaning contract back in-house.
The only factor creating a link between the activities carried out by CLECE and the authority was the cleaning of premises, but the Court said that an entity cannot just be reduced to the activity entrusted to it.
When does an economic entity “retain its identity”?
The decisive criterion is whether the operation of the entity is actually continued or resumed – is it business as usual or is there a dramatic change in the type of work required?
All relevant factors have to be taken into account. These include whether or not assets are transferred, the value of intangible assets at the time of the transfer, whether or not a majority of the employees are taken on by the new employer, whether or not customers are transferred, the degree of similarity between the activities carried out before and after the transfer and the period, if any, during which the activities are suspended.
In labour-intensive undertakings, an entity is capable of maintaining its identity when the new employer does not merely pursue the activity but also takes over a major part, in terms of numbers and skills, of the employees specifically assigned by their predecessor to that task.
There is no requirement for there to be a contractual link between the old employer and the new employer. So, second generation contracting (when the employer changes from one contractor to another) is in principle covered.
If none of the old employer’s employees are taken on by the new employer, the reason for this may be a relevant consideration. Where there are changes to the way the undertaking operates, any changes will have to be fundamental for the entity not to to be deemed to have retained its identity.
Take the case of Nottinghamshire Healthcare NHS Trust -v- Hamshaw and ors as a recent example. The trust closed one of its care homes and rehoused the residents into homes of their own. Two new independent care providers took over and offered the workers new jobs with them. The trust argued that TUPE applied but the appeal Tribunal disagreed.
It said that, as the residents now lived in their own flats and were cared for very differently, the “economic entity” (the care home) had not retained its identity and TUPE could not therefore apply.
The CJEU in Klarenberg -v- Ferrotron Technologies GmgH said, however, that the identity of the economic entity can be “retained” even if the business did not retain its organisational autonomy, if “the functional link between the various elements of production transferred was preserved, and that that link enabled the transferee to use those elements to pursue an identical or analogous economic activity”. In other words, if there were no real change to the way the economic entity operated on a day-to-day basis.
Has the identity of the employer changed?
To qualify as a standard transfer, the identity of the employer must also change. TUPE does not, therefore, apply to transfers by share take-over unless there is enough evidence to show their identity did change (Millam -v- The Print Factory (1991) Ltd).
It may, however, be possible to demonstrate that there has been a transfer for the purposes of TUPE when there is a sufficient transfer of control of the relevant undertaking.
What constitutes a service provision change?
There is a service provision change when “activities” cease to be carried out by one employer and are carried out in future by another. The category is not exclusive, and a transfer can be both a standard transfer and a service provision change.
They include situations where a service is being contracted out for the first time; where it is being assigned to a new contractor on a retender; and where a contract is brought back “in-house”, having previously been contracted out.
However, the services will only constitute a service provision change if there is an “organised grouping of employees... which has as its principal purpose the carrying out of the activities on behalf of the client”.
In other words, if there is a team of employees dedicated to carrying out the services in question, it will be a relevant transfer. If not, and the services are carried out, for example, by different employees on different days who all have other duties, it won’t be.
The “organised grouping” can, however, consist of one person if their main work is to carry out the activities concerned for the client.
This definition does not include a situation where a client has bought services for a one-off event or for a task that didn’t last very long. Equally, when the services are wholly or mainly the supply of goods, a change of service provider will not constitute a relevant transfer.
What about the public sector?
TUPE does not apply to reorganisations of public authorities nor when administrative functions are transferrred between public administrations. However, the exclusion is only to be applied in limited circumstances. In the majority of situations, TUPE should apply to transfers into and from the public sector.
There are additional measures that may provide some protection in the public sector. The Cabinet Office Statement of Practice on Staff Transfers in the Public Sector 2000 provides that the principles of TUPE should be followed even though TUPE may not strictly apply.
There were additional protections against the so-called “two-tier” workforce in the Code of Practice on Workforce Matters in Local Authority Service Contracts 2003 and the Code of Practice on Workforce Matters in Public Sector Service Contracts 2005. However, both these codes have recently been withdrawn by the government. A consultation on the Fair Deal for Staff Pensions has also recently closed.
Read Thompsons’ response to the Fair Deal for Staff Pensions Consultation