TUPE Outsourcing
Reflections on Duncan Ferguson and Others v Astrea Asset Management Ltd UKEAT/0139/19/JOJ
When there is a change to the way outsourced contract services are provided by a business, the employees engaged in the business may be protected under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) by automatically transferring to the successor organisation.
TUPE uses the term "transferor" and "transferee" to describe the original and new employer. On a service provision change, the transferor will be the client or outgoing contractor and the transferee will be the incoming contractor or client.
When TUPE applies the employees’ jobs usually transfer over to the transferee, their current employment terms and conditions transfer are fully protected, and their continuity of employment is maintained.
It is sometimes said that the transferee “steps into the shoes “ of the transferor. The transferee takes on the transferring employees on their existing terms of employment, and can only make changes to their terms in limited circumstances. In practice they are very limited indeed because the EU Directive which originally gave birth to TUPE is interpreted as having the principal purpose of safeguarding employee rights. This presents well know difficulties to HR Departments seeking to harmonise the terms and conditions of incoming employees with their existing employees as part of post transfer integration, and can create a ramping up effect.
Where a business (“the client”) decides to terminate an outsourced service, for instance property management, and either bring that service back in house or re-tender and let the contract to a new service provider there is a “service provision change”. The client is usually motivated by the desire to get those services performed better or cheaper or both. Evaluating the cost of the transferring workforce is often a key component in the re-tendering exercise.
So, what if you were about to lose an outsourcing contract, and the employees who provided the service will go with the contract? You know that the new provider will almost certainly have to honour the current contracts of your employees. It might be very tempting to grant pay rises, bonuses, and better terms and conditions to your employees. After all, you will not have to pay for them. Surely that would not work as a tactic? Well, maybe or maybe not.
A similar issue came before the Employment Tribunal last year and went to appeal. It was decided that advantageous changes to employment terms made just before a service provision change were void because they were made by reason of the anticipated transfer and had no legitimate commercial purpose, but were designed to compensate the transferor for loss of its business, taking undue advantage of TUPE by awarding remuneration knowing it would be paid at the expense of the incoming contractor. That was a case with special and perhaps unusual facts, but the case exposes a somewhat grey area of TUPE law. Whether this or similar cases might be decided differently in future, post Brexit, when the principles of interpretation of EU derived employment law become harder to apply, will be interesting to watch.