No TUPE Service Provision Change if Service Provided to Different Client

The CA has confirmed that TUPE only applies on a second generation contracting out where the activities carried out before and after the change of contractor are carried out on behalf of the same client.

Under Reg 3(1)(b)(ii) TUPE 2006, a service provision change occurs where activities cease to be carried out by a contractor on a client’s behalf and are carried out instead by a different person on the client’s behalf.  

In Hunter v McCarrick, M was employed by Mr Hunter from August 2009 to March 2010.  He  relied on a series of earlier events to support an argument that his employment had transferred to M under TUPE and that he had sufficient continuity of employment to bring an unfair dismissal claim.   The first was a first generation contracting out under which WG Ltd (WG) ceased to carry out property management services in relation to its own property portfolio and appointed WCP to carry out these services in its place.  Then the mortgagee of the property portfolio (Aviva) appointed receivers to take control of the properties and the receiver appointed new property consultants (King Sturge) to manage the properties.  This meant that the property management services ceased to be carried out by WCP on WGL’s behalf and were instead carried out by King Sturge on Aviva’s/the receivers’ behalf, resulting in both a change of contractor and of client.

The Court of Appeal upheld the tribunal's decision that there had been no service provision change as the person to whom the services were provided before and after the change of contractor were not one and the same. 

The need for the client to be the same before and after the change of contractor leaves a gap in TUPE protection.  Where, for example, ownership or management of a commercial property changes hands and at the same time facilities services are changed, facilities staff will not transfer to the new provider.  The outgoing provider will need to be aware that it will be responsible for any termination costs should it need to dismiss its staff - unless it negotiated appropriate exit provisions with the first client when it entered into the contract. 

It may still be possible in certain circumstances for an outgoing service provider to argue that there has been an ordinary business transfer under TUPE, as opposed to a service provision change – if it can show that there has been a transfer of an economic entity which has retained its identity.  However, the judge in this case suggested that it may be that where the business is in the nature of a service provided to a particular client, the identity of the client is an essential element in the description of the undertaking.   If that is so, the undertaking carried on by the new client would constitute a different undertaking and there would be no transfer and TUPE would not apply.