Any business that has experience of outsourcing, re-contracting or bidding for contracts will have heard of the TUPE regulations.
They state that where the services are outsourced, re-contracted or insourced, those employees currently carrying out the services must be transferred to the incoming contractor. Those employees must be taken on according to their existing terms and conditions of employment with, usually, the outsourcer or existing contractor.
Sometimes it can be difficult to establish precisely which employees are eligible to TUPE transfer to the new contractor where employees work on more than one contract.
What we find sometimes happens in practice is that the outgoing and the incoming contractors work on the basis that those employees who spend the majority of their time on the contract to be transferred, so more than 50% of their time, are treated as transferring to the new contractor further to TUPE.
This can work well in practice in the absence of a better way of determining which employees are able to transfer and where an incoming contractor wants to retain the existing labour in order to provide continuity of service to the end customer.
However if this is not the case, then you might find it useful to know that in fact TUPE requires much more than an employee simply spending the majority of their time on the contract in order to be eligible to TUPE transfer.
In fact, to be eligible to TUPE transfer, the employee must be part of an organised grouping of employees that are essentially dedicated to carrying out the particular activities that are to transfer.
To be part of an organised grouping of employees, it is not enough that the employee carries out the majority of their work or spends the majority of their time dealing with a particular contract. The employee’s role must be organised by reference to the requirements of that client and they must be identifiable as a member of that client team.
Our recent experience
We were recently contacted by a client in the construction industry that was taking on a contract to provide reinstatement services to a client in the utilities sector. The outgoing contractor claimed that its director of operations for its reinstatement business was eligible to TUPE transfer to our client. This director had a high salary, being part of the executive management team, and had a 12 month notice clause in his contract.
Our client did not require his services. The contract could be managed by its existing managers and it did not want to be stuck with a highly paid employee whom it did not need and would be expensive to let go off.
The parties, our client, the outgoing contractor and the end client, had been discussing a potential agreement where the director of operations would transfer to our client and there would be an initial payment to our client to subsidise part of the director’s salary, but our client was not happy with this.
We advised our client that the director of operations’ employment would not be covered by TUPE and so he had no entitlement to transfer to our client’s employment.
Given the seniority of his role, it was clear that he was responsible for the whole division of the outgoing client’s reinstatement business. Further, the contract that his employer had lost, although making up a large part of their reinstatement business, and allegedly he spent 78% of his time on this contract, did not make him eligible to TUPE transfer.
We responded on behalf of our client. We pointed out to the outgoing contractor that the fact that he may spend the majority of his time on the contract does not mean that he is eligible to TUPE transfer and there was no evidence that his role was organised by reference to this particular contract. We informed them that our client would not be taking part in any further negotiations that involved this director transferring to it.
Ultimately, the outgoing contractor backed down just days before the transfer was due to take place and accepted that the director’s employment did not qualify for transferring to our client.
This saved our client significant wages in relation to an employee whom it did not consider it needed in order to service the contract.
What this shows is that outgoing contractors may seek to rely on employees spending the majority of their time on a contract in order to try and claim that they are eligible to transfer to take them off their books. If you are an incoming contractor, you should be wary of this, whether at director level or more junior level. It could save you having to take on expensive employees you have no need for.
If you would like to discuss the issues raised in this note then please do not hesitate to contact Ben Stepney in our employment team.