HM Insights

Are contractors protected by TUPE, the Employment Appeal Tribunal gives it's verdict?

An issue of importance to many public sector bodies who regularly outsource work to contractors was recently addressed by the Employment Appeal Tribunal in Lorne Stewart v Hyde and Others. The case involved deciding whether work, which was regularly provided but not contractually guaranteed, could trigger a TUPE transfer as a result of a service provision change.

Lorne Stewart involved a contractor who provided routine repairs and instalments for Cornwall County Council under a framework agreement. Alongside this routine work, the Council could also offer the contractor work of a higher value although they were not obliged to do this, and nor was the contractor obliged to accept. However, the contractor did all of this work in practice. After a re-tendering process, the contract was taken over by another provider who argued that the employees who previously carried out these services did not transfer across as they were not devoted to the contracted " routine" work.

The EAT ruled that the absence of contractual agreement was not a relevant consideration. The primary focus should be on the work that was actually being carried out before and after the transfer. Both employees carried out work that was and was intended to be carried out by the new service provider after the transfer. Therefore, both transferred.

This decision has perhaps not so much "broken new ground" but confirmed what many employment lawyers and employers in the outsourcing sector already considered to be the case.

However, although the absence of a contractual obligation will not be fatal to a potential TUPE transfer on a service provision change, it is relevant to bear in mind that there may be circumstances where TUPE is thwarted for other reasons on a re-tender exercise. For example, in Enterprise Management Services Ltd v Connect-Up Ltd and others, the EAT was also asked to determine whether a service provision change had occurred under TUPE when a council changed its IT providers. Unlike Lorne Stewart, this case involved the fragmentation of the contract at the retendering stage. At this stage, 15% of the previous company's workload was excluded. The incumbent contractor had dismissed a number of its employees, believing that they would be transferring to the new provider under the contract. However, the EAT held that the exclusion of the 15% of the workload meant that the work which would be carried out under the new provider was not essentially or fundamentally the same as the work carried out by the previous provider. Therefore, TUPE didn't apply.

Both of these EAT decisions will be relevant to bodies who frequently outsource work to contractors. It seems unlikely, following Lorne Stewart that if there is to be a change of contractor, TUPE will be avoided for the sole reason that the contract did not guarantee the flow of work. However, there will be circumstances in which TUPE will not apply, as evidenced in Enterprise Management Services Ltd v Connect-Up Ltd and others, for example where the fragmentation of the services being re-tendered gives rise to an argument that they are no longer fundamentally the same.