HM Insights

TUPE Service Provision Changes: Project Manager not part of an organised grouping of employees

Employers involved in potential service provision changes – such as in-sourcing or re-tendering situations - will have to take a position on which employees will be subject to the TUPE regulations as part of the transfer. Sometimes this is a straightforward exercise. However, when an employee is assigned to different projects or duties, some of which are not part of the transfer, it can often be difficult to identify whether the TUPE regulations are applicable.

The Employment Appeals Tribunal (EAT) in the recent case of Costain Ltd v Armitage (UKEAT/0048/14/DA) has provided some clarity on this situation and reaffirmed the applicable legal tests that should be used. The case concerned Mr Armitage, a Project Manager for ERH Communications Ltd (ERH) which provided communications services to the Welsh Assembly. There were several contracts between the parties, one of which was the All Wales Regional Maintenance Contract (AWRMC). The AWMRC went to tender and ERH subsequently lost the contract to Costain Ltd (Costain), leading to a service provision change under the TUPE regulations.

The TUPE regulations (The Transfer of Undertakings (Protection of Employment) Regulations 2006) provide protection for employees in situations where there is a transfer of the employer's business to another company, or if there is a service provision change, which essentially involves the transfer of the employees who are working on a particular contract from one employer to another where the old employer loses the contract to the new employer. The protection for employees is that their existing contractual terms and conditions are transferred from the transferor employer to the transferee employer.

The employees who receive this protection and are deemed to transfer are only those who are assigned to an organised grouping of resources or employees whose principal purpose is carrying out the activities for the transferring contract. This was the basis for the dispute in the Costain case where Mr Armitage had claimed that he should have been subject to the TUPE regulations. The Employment Tribunal and originally decided that Mr Armitage was assigned to an organised grouping of employees and therefore he transferred under TUPE. The Tribunal had been persuaded by the fact that Mr Armitage had claimed to have spent 80% of his time working on the AWRMC contract prior to the contract transferring. Costain appealed the decision.

The argument put before the EAT was that the Employment Tribunal had used the incorrect legal test in relation to the organised grouping of employees and also that too much weight was given to the percentage of time Mr Armitage had spent on the AWRMC contract. Mr Amitage's role was that of a "troubleshooter engaged on projects as a Project manager and unassigned in any particular way".

The EAT allowed the appeal. It referred to a two stage test: (one) identify if there was an organised group of employees (two) identify the employees that were assigned to the group. The Employment Tribunal had correctly identified there was an organised grouping, but failed to identify what the organised grouping consisted of. Furthermore, the reliance upon the percentage of time spent by Mr Armitage on the AWRMC contract was to ignore the facts of the situation, that there had been his increased involvement in the project but no assignment to it.

The importance of this case is to highlight that the time spent by an employee on a contract or project is only one consideration in determining whether they are part of an organised grouping and subject to a TUPE transfer. Greater weight should be placed upon whether an employee is specifically assigned to the project and the duties that they perform. It is the latest in a series of cases that have led to it becoming much more likely that a potential transferee can adopt a position that employees should not be subject to a TUPE transfer. In light of this, for both potential transferors and transferees, careful consideration must be given to correctly identifying who should transfer and whether there is any prospective dispute over this.

If your business may be involved in a TUPE transfer and you would like to discuss the possible impact of this decision in this case, please contact one of the Harper Macleod employment team who will be happy to assist.