Employment Rights – TUPE

Part 2 – Relevant transfers: Scope of the Regulations

The Regulations apply to “relevant transfers”.

A “relevant transfer” can occur when –

  • a business, undertaking or part of one is transferred from one employer to another as a going concern (a circumstance defined for the purposes of this guidance as a “business transfer”). This can include cases where two companies cease to exist and combine to form a third;
  • when a client engages a contractor to do work on its behalf, or reassigns such a contract – including bringing the work “in–house” (a circumstance defined as a “service provision change”).

These two categories are not mutually exclusive. It is possible – indeed, likely – that some transfers will qualify both as a “business transfer” and a “service provision change”. For example, outsourcing of a service will often meet both definitions.

Business transfers

To qualify as a business transfer, the identity of the employer must change. The Regulations do not therefore apply to transfers by share take–over because, when a company’s shares are sold to new shareholders, there is no transfer of a business or undertaking : the same company continues to be the employer. Also, the Regulations do not ordinarily apply where only the transfer of assets, but not employees, is involved. So, the sale of equipment alone would not be covered. However, the fact that employees are not taken on does not prevent TUPE applying in certain circumstances.2

To be covered by the Regulations and for affected employees to enjoy the rights under them, a business transfer must involve the transfer of an “economic entity which retains its identity”. In turn, an “economic entity” means “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”.

Q. What business transfers are therefore covered by the Regulation?

A. The precise application of the Regulations will be a matter for the tribunals or courts to decide, depending on the facts of each case. However, the economic entity test would generally mean that the Regulations apply where there is an identifiable set of resources (which includes employees) assigned to the business or to a part of the business which is transferred, and that set of resources retains its identity after the transfer. Where just a part of a business is transferred, the resources do not need to be used exclusively in the transferring part of the business and by no other part. However, where resources are applied in a variable pattern over several parts of a business, then there is less likelihood that a transfer of any individual part of a business would qualify as a business transfer under the Regulations.

Service provision changes

“Service provision changes” concern relationships between contractors and the clients who hire their services. Examples include contracts to provide such labour–intensive services as office cleaning, workplace catering, security guarding, refuse collection and machinery maintenance.

The changes to these contracts can take three principal forms:

  • where a service previously undertaken by the client is awarded to a contractor (a process known as “contracting out” or “outsourcing”);
  • where a contract is assigned to a new contractor on subsequent re–tendering; or
  • where a contract ends with the service being performed “in house” by the former client (“contracting in” or “insourcing”).

The Regulations apply only to those changes in service provision which involve “an organised grouping of employees, which has as its principal purpose the carrying out of the activities concerned on behalf of the client”. This is intended to confine the Regulations’ coverage to cases where the old service provider (i.e. the transferor) has in place a team of employees to carry out the service activities, and that team is essentially dedicated to carrying out the activities that are to transfer (though they do not need to work exclusively on those activities). It would therefore exclude cases where there was no identifiable grouping of employees. This is because it would be unclear which employees should transfer in the event of a change of contractor, if there was no such grouping. So, if a contractor was engaged by a client to provide, say, a courier service, but the collections and deliveries were carried out each day by various different couriers on an ad hoc basis, rather than by an identifiable team of employees, there would be no “service provision change” and the Regulations would not apply.

A service provision change will often capture situations where an existing service contract is re–tendered by the client and awarded to a new contractor. It would also potentially cover situations where just some of those activities in the original service contract are re–tendered and awarded to a new contractor, or where the original service contract is split up into two or more components, each of which is assigned to a different contractor. In each of these cases, the key test is whether an organised grouping has as its principal purpose the carrying out of the activities that are transferred.

It should be noted that a “grouping of employees” can constitute just one person – as may happen, say, when the cleaning of a small business premises is undertaken by a single person employed by a contractor.

Q. Are there any other exceptions?

A. Yes, the Regulations do not apply in the following circumstances.

  • where a client buys in services from a contractor on a “one off” basis, rather than the two parties entering into an ongoing relationship for the provision of the service.

So–the Regulations should not be expected to apply where a client engaged a contractor to organise a single conference on its behalf, even though the contractor had established an organised grouping of staff – e.g. a “project team” – to carry out the activities involved in fulfilling that task. Thus, were the client subsequently to hold a second conference using a different contractor, the members of the first project team would not be required to transfer to the second contractor.

To qualify under this exemption, the one–off service must also be “of short–term duration”. To illustrate this point, take the example of two hypothetical contracts concerning the security of an Olympic Games or some other major sporting event. The first contract concerns the provision of security advice to the event organisers and covers a period of several years running up to the event ; the other concerns the hiring of security staff to protect athletes during the period of the event itself. Both contracts have a one–off character in the sense that they both concern the holding of a specific event. However, the first contract runs for a significantly longer period than the second; therefore, the first would be covered by the TUPE Regulations (if the other qualifying conditions are satisfied) but the second would not.

  • where the arrangement between client and contractor is wholly or mainly for the supply of goods for the client’s use.

So, the Regulations are not expected to apply where a client engages a contractor to supply, for example, sandwiches and drinks to its canteen every day, for the client to sell on to its own staff. If, on the other hand, the contract was for the contractor to run the client’s staff canteen, then this exclusion would not come into play and the Regulations might therefore apply.

Transfers within public administrations

Both the Acquired Right Directive and the TUPE Regulations make it clear that a reorganisation of a public administration, or the transfer of administrative functions between public administrations, is not a relevant transfer within the meaning of the legislation. Thus, most transfers within central or local government are not covered by the Regulations. However, such intra–governmental transfers are covered by the Cabinet Office’s Statement of Practice “Staff Transfers in the Public Sector”,3 which in effect guarantees TUPE–equivalent treatment for the employees so transferred.

Q. Are there any other statutory protections which may apply to employees transferring between public administrations?

A. Yes. Section 38 of the Employment Relations Act 19994 provides a regulation–making power to the Secretary of State to provide TUPE–equivalent protections to cases or classes of cases falling outside the scope of the Acquired Rights Directive. As at February 2007 , the Secretary of State has made two sets of regulations under this power.5 In addition, protections may be provided in case–specific legislation where that legislation effects a particular transfer within public administrations.

Q. What is the treatment of transfers from the public sector to the private sector ?

A. These are covered by the Regulations in just the same way as transfers between private sector employers. In addition, there are other protections which apply to transfers from the public sector to the private sector. For example, the Cabinet Office’s Statement of Practice “Staff Transfers in the Public Sector” affords TUPE–style protections comprehensively to employees whose jobs transfer to the private sector, or whose job subsequently transfers between private sector employers. In this regard, the Local Government Act 2003 confers powers on the Secretary of State, the National Assembly of Wales and Scottish Ministers to require best value authorities in England, Wales and Scotland to deal with staff matters in accordance with Directions. The purpose of securing these powers was to enable the provisions of the Statement of Practice to be made a statutory requirement for those authorities. No Directions have yet been issued. The Local Government Act 2003 can be viewed on the DCLG website at www.communities.gov.uk.

The effect of the Regulations where employees work outside the UK

The Regulations apply to the transfer of an undertaking situated in the UK immediately before the transfer, and, in the case of a service provision change, where there is an organised grouping of employees situated in the UK immediately before the change.

However, the Regulations may still apply notwithstanding that persons employed in the undertaking ordinarily work outside the United Kingdom.

For example, if there is a transfer of a UK exporting business, the fact that the sales force spends the majority of its working week outside the UK will not prevent the Regulations applying to the transfer, so long as the undertaking itself (comprising, amongst other things, premises, assets, fixtures & fittings, goodwill as well as employees) is situated in the UK.

In the case of a service provision change, the test is whether there is an organised grouping of employees situated in the UK (immediately before the ). For example, where a contract to provide website maintenance comes to an end and the client wants someone else to take over the contract, if in the organised grouping of employees that has performed the contract, one of the IT technicians works from home, which is outside the UK, that should not prevent – the Regulations applying to the transfer of the business. However if the whole team of IT technicians worked from home which was outside the UK, then a transfer of the business for which they work would not fall within the Regulations as there would be no organised grouping of employees situated in the United Kingdom.

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