The 2006 Transfer of Undertakings (Protection of Employment) Regulations (TUPE) cover service provision changes when “activities” previously carried out by one person are instead carried out by another. In Pannu and ors v GEO W King Ltd (in liquidation) and ors, the Employment Appeal Tribunal (EAT) held that in situations where the main activity is the provision of goods, TUPE does not apply.
Mr Pannu and his colleagues worked for GWK which made components for commercial vehicles for IBC Vehicles Ltd. When GWK went into liquidation, IBC started contracting with another company, Premier, for the parts that GWK had previously made but took on only one of the GWK assembly workers.
Following termination of their employment, the claimants lodged a complaint for automatically unfair dismissal under TUPE on the basis that there had been a service provision change from GWK to Premier.
Regulation 3(1)(b) states that there is a “service provision change” (SPC) when “activities” previously carried out by one person are instead carried out by another.
Regulation 3(3)(a) of TUPE states that immediately before the transfer, there has to be an organised grouping of employees whose principal purpose is to carry out the “activities” concerned on behalf of the client.
Regulation 3(3)(b) states that the “activities” must not consist wholly or mainly of the supply of goods for the client’s use. In other words, there must also be a “service” component.
The Tribunal agreed that the claimants constituted an organized grouping of employees, which had the principal purpose of assembling modules built by GWK. It also agreed that the assembly line was providing a service in that it had to ensure that the goods were safe to use.
However, it said that was only part of the overall responsibility of GWK as it also had to ensure that the product was safe in respect of each module’s constituent parts, not just once it was assembled. The Tribunal found that the purpose of GWK in assembling the components was to supply and then sell those goods to their client, IBC.
So although there was a service element in assembling the goods, it concluded that overall the claimants’ contracts did not transfer because the activities in which they were involved consisted wholly or mainly of the supply of goods for IBC.
And the EAT agreed. It said that, when deciding whether a transfer falls within the SPC provisions, Tribunals must first focus on identifying the activities of the relevant organised group of employees.
The fact that there is an organised group of employees providing a service directly to their contractor employer is not, however, enough to meet the requirement stipulated in Regulation 3(3)(b).
In this case, the Tribunal was entitled on the facts to find that the activity carried out by GWK was wholly or mainly the supply of finished goods to IBC, as opposed to the supply of services, which meant there was no SPC transfer.
The fact that there were changes to the funding arrangements between the parties in late 2008 made no difference to the situation as GWK’s activities remained the same. The workers on the assembly line were not therefore providing services for the purposes of an SPC.
This is the first EAT case considering the supply of goods exception to the TUPE Regulations. Assessing whether the activity was wholly or mainly for the supply of goods is fact sensitive. Although a number of different grounds of appeal were put forward, the EAT said in this case the Tribunal were correct to focus on the activity of the contractor and their client and were entitled to determine that the activity carried out was the supply of goods. Whilst the employees of the contractor provided services to the contractor, the contractor in turn carried out the activity of supplying goods to the client, meaning that the exception applied and the staff did not transfer.