11 March 2015

Outsourcings and TUPE - working out what happens to the employees

In outsourcings and insourcings, one of the key considerations is what happens to the employees currently providing the service.

Where activities are outsourced, transferred to a new supplier or insourced, this may, if certain conditions are met, constitute a Service Provision Change (SPC) for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). If there is an SPC, the employees will transfer to the supplier/customer (as applicable) with their continuity of employment preserved and with the benefit of additional employment protections. All of this can have significant financial and practical consequences for the businesses involved.

One of the requirements in order for there to be an SPC is that, immediately before the SPC, there is an“organised grouping of employees” (which, under TUPE, can mean a single employee) whose principal purpose is carrying out the activities on behalf of the client. Determining whether this requirement has been met sounds like it should be straightforward. Recent cases suggest that it may not always be so.
The latest reported case is Rynda (UK) Ltd v Rhijnsburger [2015] EWCA Civ 75. Ms Rhijnsburger was employed by a real estate business to manage a property portfolio on behalf of the Rynda Group. The Rynda Group subsequently transferred this service to Rynda (UK) Ltd. Ms Rhijnsburger claimed she had transferred to Rynda (UK) Ltd under TUPE.

One of the questions the Court of Appeal had to consider was whether Ms Rhijnsburger constituted an “organised grouping of employees”. The Court concluded that she did. It noted that her previous employer had required her to work full-time managing the Dutch property portfolio. Therefore, there had been an SPC and Ms Rhijnsburger had transferred under TUPE.

So far, so straightforward. Compare the Rynda decision, however, with the judgments in Eddie Stobart Ltd v Moreman and others [2012] IRLR 356 and Ceva Freight (UK) Ltd v Seawell Ltd [2013] CSIH 59. In the Eddie Stobart case, the Employment Appeal Tribunal decided that a group of employees who worked mainly for one client (Vion) did not transfer under TUPE when the contract for the provision of services to Vion was transferred to a third party. Similarly, in the Ceva Freight case, the Court of Session found that a single employee who spent all his time working for one client (Seawell) did not transfer under TUPE when Seawell took the work back in-house.

How can these apparently conflicting decisions be reconciled? The connecting theme running through them is that for there to be an “organised grouping of employees” in respect of a particular client, those employees must, in effect, have been consciously assigned to that client’s activities. This requirement was found to have been met in the Rynda case. In contrast, in the Eddie Stobart case, the E.A.T. noted that the fact that the employees in question worked mainly for Vion was a by-product of the shifts those employees were working; in the Ceva Freight case, the fact that the employee worked solely for Seawell was (partly) a by-product of the type of work he was doing.

So, where does that leave businesses involved in an outsourcing/insourcing? To determine whether there is an “organised grouping of employees” it is necessary to look at not just whether there is a group of employees whose main role is carrying out the relevant activities, but also whether this group reflects the conscious intention of the current employer. The latter question will often prove more contentious than the former, and businesses would be well advised to carry out careful due diligence before entering into new outsourcing/insourcing arrangements.

A final thought. The SPC rules were introduced with the aim of giving businesses greater certainty about whether TUPE would apply to outsourcings/insourcings. The approach taken by the Courts in these cases may be logically defensible by reference to the wording of TUPE, but is it consistent with this aim?

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