TUPE and fragmentation: a change of approach


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Last year saw an interesting decision from the European Court of Justice (ECJ), ISS Facility Services NV v Govaerts, in which it was held that, where a contract is fragmented, it is possible for an employee to transfer to more than one transferee on a pro rata basis.

The decision caused some controversy as it went against the Employment Appeal Tribunal's (EAT's) decision in Kimberley Group Housing Ltd v Hambley.  In Kimberley the EAT held that where, following a service provision change, the activities are carried out by more than one contractor (or subsequent contractor), the assignment test set out by the ECJ in Botsen v Rottersdamsche Droogdok Maatschappij B.V. should be followed to establish which contractor employees transfer.  This meant looking at the link between each employee and the activities performed by the new service providers.  The result in this case was that the contractor that took on the greater part of the activities (71%) inherited liability for all of the employees.  

Employment contract can be transferred to more than one transferee

Following the ECJ's decision in Govaerts the decision in Hambley has been thrown into doubt.  Ms Govaerts was employed by ISS Facility Services which was responsible for the cleaning and maintenance of various buildings in the city of Ghent; work which was divided into three lots.  The work went to re-tender and the first and third lots were awarded to Atalian, and the second lot was awarded to Cleaning Masters.  Ms Govaerts was told that she would transfer to Atalian, as Atalian's share (the two lots successfully tendered for) amounted to 85% of the work she carried out for ISS.  Atalian refused to take on Ms Goverts, stating that it did not consider that there had been a business transfer.

Ms Govaerts brought claims against both ISS and Atalian for notice, bonus and accrued holiday pay.  The Belgian court agreed that there had been a transfer under the Acquired Rights Directive, but the question of the effect on Ms Govaerts's contract of employment was referred to the ECJ.

The ECJ held that where a transfer of an undertaking involves more than one transferee the rights and obligations under an employment contract are transferred to each of the transferees, in proportion to the tasks performed under the contract.  It held that a division between transferees could be made even if the contract transferring to one of the transferees only covered a few hours of work. Finally it held that it was for the national court in question to decide how the contract was to be divided, taking the economic value of the lots to which the worker was assigned into account, or the time which the worker spent on the contract.  In the event that division was impossible the transferees would be responsible for any resulting termination of the worker's contract.

It was unclear whether the ECJ's decision would be followed in the UK.  It's also worth noting that the decision only applied to business transfers, as these are the only type of transfer covered by the Acquired Rights Directive, and not to service provision changes which are set out in the TUPE Regulations.

ECJ's decision affirmed by the EAT

In McTear Contracts Ltd v Bennett and others; Mitie Property Services UK Ltd v Bennett and others the EAT has followed the decision in Govaerts holding that it would be undesirable for the consequences of a transfer to depend on the type of transfer at issue.  This means that where there is a transfer to multiple transferees under the Acquired Rights Directive, a transferring full-time contract of employment can be split between the transferees into a number of part-time contracts.

Amey Services Ltd (AS Ltd) replaced kitchens within the social housing stock of North Lanarkshire Council between 2012 and 2017.  A group of AS Ltd's employees worked exclusively on this contract, latterly in two teams.  Each of the teams had the full range of trades necessary to fit kitchens.  Although the teams provided cover for each other for sickness absences and holidays they generally worked independently.  They were not allocated to a particular part of the Council's geographical area.  The Council retendered the work splitting it along geographical lines (north and south) into two separate contracts and the work was awarded to two new contractors, MC Ltd and MPS Ltd.

AS Ltd undertook an analysis of the geographical areas in which each team had worked during the preceding 12 months and compared the results with the geographical areas allocated to the new contracts.  A spreadsheet was produced identifying the locations at which work had been undertaken during the final period of AS Ltd's contract with the Council.  Taking the broad approach of trying to identify the total number of days during which each of the teams had worked within each of the areas corresponding to the new contracts AS Ltd allocated one team to MC Ltd and the other to MPS Ltd. The companies did not take on all of AS Ltd's employees and some went on to bring tribunal claims.

The tribunal concluded that there had been a service provision change and allocated employees to each of MC Ltd and MPS Ltd according to which team they were in with AS Ltd.  Both of the companies appealed to the EAT arguing that the tribunal had erred in the allocation of employees.  They submitted that the tribunal had considered itself bound by the EAT's decision in Kimberley that each employee can only transfer to one transferee, namely the transferee taking on the greater part of the activities carried out pre-transfer.  This had now been thrown into doubt by the decision in Govaerts.

The EAT held that, although at the time the tribunal had been bound by Kimberley, the case now had to be read in light of the Govaerts decision (this had been handed down between the tribunal's judgment and the hearing of the appeal).  Although the concept of a service provision change is created under domestic law, the EAT found that it would be undesirable for there to be a difference in approach to the consequences of a transfer depending on whether it was found to be a business transfer or a service provision change.  The EAT went onto note that Govaerts applied and that, as a result, there was no reason why an employee may not, following a transfer, hold two or more contacts of employment with different employers at the same time.  This was subject to the proviso that the work attributable to each contract is clearly separate from the work on the other(s) and is identifiable as such.

The EAT remitted the case to the same tribunal for it to consider whether the claimants had transferred to MC Ltd or MPS Ltd.  The facts identified in the spreadsheet would have to be revisited by the tribunal to consider the application of Govaerts to each of the individual claimants.

So where does this leave us?

The EAT's decision confirms that it's possible for an employee who works across more than one part of a business to have their contract divided up between more than one transferee taking the proportions of the time they spend, and the value they add to the different parts of the business, into account.  This is subject to the need to identify the activities that are transferring and the existence of an organised grouping in respect of each transfer.

This will lead to a change of approach in fragmentation cases as a tribunal will have to consider whether an employee's contract will have to be divided between more than one transferee.  It will be important for transferors to make an assessment in respect of each individual potentially transferring employee.

The decision also means that the obligations of transferees will become much more complicated as in some situations they'll find that they have liability for only part of a worker's contract.  What happens when it's not possible to divide a contract, or the transfer results in detrimental changes to an employee's rights and working conditions?  In Govaerts the ECJ held that, in these circumstances, the contract may be terminated and that the termination must be regarded as the responsibility of the transferee(s), even if it was initiated by the employee.  The issue was not dealt with by the EAT, but it's likely that the division of a contract will almost inevitably adversely affect an employee's rights or working conditions.  This means that, if the contract is terminated this may be deemed to be automatically unfair under TUPE unless it's possible for the transferee to argue that there is an economic, technical or organisational reason (an ETO reason) for it that entails changes to the workforce.

Following both transferors and transferees need to be aware that an extra layer of detail has been added to the consideration of TUPE in fragmentation situations.

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