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No service provision change where new activities are not essentially the same

Posted on 16th January 2012
Case law

For those of you who have to work with the TUPE regulations, this EAT case will provide added comfort.

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Simon Quantrill Simon
Quantrill
Managing Partner Telephone: 01473 688100

Enterprise Management Services Ltd v Connect-Up Ltd and the claimants UKEAT/046210

The law

Under TUPE 2006 a service provision change occurs when activities cease to be carried out by a person on his own behalf and start to be carried out instead by another person on the person's behalf; or activities cease to be carried out by an existing contractor on a person's behalf and are then carried out instead by a new contractor on the same person's behalf; or activities cease to be carried out by a contractor or a subsequent contractor on a person's behalf and are carried out instead by the person on his own behalf.

Existing case law confirms that the post-transfer activities must be identifiable as the pre-transfer activities for a service provision change to occur, although those activities may be carried out in a different way. In Metropolitan Resources Ltd v Churchill Dulwich Ltd the EAT confirmed that activities need not be identical but should be "fundamentally or essentially the same as those carried out "before the transfer."

Case details

In this case, Enterprise Management Services Ltd had a contract to provide IT services to Leeds City Council. This contract included providing IT services to schools managed by the Council. As a result of a re-tender of the contract, Enterprise Management Services lost out and a new contract was awarded to Connect-Up Ltd. There were differences between the old and new contracts. The main difference was that the new contract excluded any service cover in relation to "curriculum matters". This represented around 15% of the work which had previously been carried out by the Enterprise employees.

As a result of losing the contract, Enterprise dismissed employees who had been working under the old contract. These employees brought claims in the employment tribunal arguing that there had been a TUPE transfer as a result of a service provision change and that their employment had transferred, or ought to have transferred, to Connect. An employment tribunal found that there was no TUPE transfer because there were significant differences between the activities carried out by Connect when compared with those carried out by Enterprise.

Appeal to EAT

Enterprise appealed, no doubt because they wanted to avoid liability by trying to persuade the EAT that there had been a TUPE transfer. If this had been the case, Connect would have been jointly and severally liable. The EAT, however, dismissed the appeal and upheld the tribunal's decision.

EAT decision

The EAT agreed that because of the significant differences between the activities carried out by the two contractors, there had been no service provision change and therefore no TUPE transfer. The EAT also took into account that Connect took on a smaller number of schools compared to the number looked after by Enterprise. This also meant that the activities were not essentially the same. The EAT confirmed that it is a question of "fact and degree" for the employment tribunal and gave the following guidance:

  • When considering service provision changes, the first task of the tribunal is to identify the "activities" being carried out by the original contractor.
  • Secondly, the tribunal must determine whether the activities carried out by the incoming contractor are essentially the same as those carried out by the original contractor. This is a question of fact and degree and minor differences may properly be disregarded.
  • Where there is a division or fragmentation of services after the change in contractors, this may well mean no service provision change takes place.
  • Even where the activities before and after remain essentially the same, there will only be a service provision change if the other conditions are met, e.g. that there must be an organised grouping of employees in Great Britain which has, as its principal purpose, the carrying out of the activities on behalf of the client, the activities should not be a "single event" of short term duration, and the activities should not be for the supplier of goods.
  • Finally, the tribunal must decide whether the relevant individual was assigned in an organised grouping or employees.

Comment

This is a case which employers can also draw comfort from. It helps to establish the argument that differences in activities which are not substantial can still result in there being no service provision change. Here, there was only a 15% loss of the work carried out between the two contractors, but this was sufficient to avoid there being a service provision change under TUPE.

Simon Quantrill specialises in TUPE disputes and he successfully used this argument in a case involving a change of contractor for landscaping work. It is pleasing to see that the arguments used by Simon to persuade the claimants to discontinue their claims have now been upheld as justified by the EAT.

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