TUPE and multiple transferees - further development on allocating employees

Deciding what happens to employees in a TUPE transfer where there is more than one transferee is never straightforward. However, developments in this area continue to add complexity to the situation, adding cost and uncertainty to employers.

Recent developments

In the recent case of McTear Contracts Ltd v Bennett & ors the EAT looked at a situation where there were two transferees in the context of a service provision change. 
North Lanarkshire Council re-tendered the work for replacement of kitchens within its social housing properties. Previously, all such work had been carried out by a single contractor, Amey Services Limited. A group of Amey’s employees worked exclusively on providing the services, split into two teams who generally worked independently of each other. Each team contained the full range of trades necessary to fit kitchens. When the work was re-tendered it was split into two separate lots based on geographical lines (north and south) which were awarded to two new contractors, McTear Contracts Limited and Mitie Property Services Limited.

Amey took the view that TUPE would apply to the transfer of the services. In order to assess which employees should transfer to which new contractor, Amey looked at the geographical areas in which each team had worked in the previous 12 months and aligned these with the area covered by the two Lots. As a result, Amey concluded that one team broadly corresponded to Lot 1 and the other team corresponded to Lot 2.

Both McTear and Mitie took on certain of Amey’s employees but not all of them, on the basis that they argued TUPE did not apply.

The original Tribunal found that there was a TUPE transfer and allocated Amey’s employees between the two incoming contractors, following the approach adopted by Amey and deciding that the relevant employees must have transferred to one or other of the incoming contractors.

On appeal, the EAT considered whether the approach taken by the Tribunal in allocating the employees was correct, taking into account the recent European case of ISS Facility Services NV v Govaerts (see our previous article here: TUPE: Who inherits the employees where there are multiple transferees?). In that case, the ECJ held that where a transfer of an undertaking involved a number of transferees, it was possible for the contracts of employment of the relevant employees to transfer to each transferee in proportion to the tasks performed by the employee which that transferee inherited. If such a division were not possible, or would adversely affect the rights of the employee, then the employee’s employment would be terminated and both transferees would be responsible for that termination.

Whilst the EAT accepted that there was no requirement to apply the Govaerts decision to a service provision change under TUPE (which is unique to the UK), it was persuaded that having different approaches depending on whether it was a business transfer (which would have to follow Govaerts) or a service provision change (which did not) was not ideal. On that basis, the EAT decided that Govaerts could apply to a service provision change.

As a result, the EAT set aside the Tribunal’s decision on the allocation of the employees and remitted the case back to the same Tribunal to reconsider in light of the Govaerts decision.

What does this mean for employers?

The EAT’s decision is significant because previously UK caselaw did not support the division of a single employment contract across multiple transferees, preferring instead the approach of identifying a single transferee to whom the employee could transfer. Whilst the case has been remitted, the EAT’s decision suggests that a different approach is required and Tribunals may now look at the possibility of dividing an employment contract between different transferees and where such an approach is not practicable, allocating liability for the termination of that employment contract across all transferees.

It may be that, to counter such an approach, transferees wishing to avoid TUPE start to focus more on whether there has been a transfer in the first place, arguing that the services no longer retain their identity, for instance because they have become too fragmented following the transfer.

As we advised in our previous article, anyone involved in a TUPE transfer where there are multiple transferees should carefully consider the situation in light of these recent developments and what additional indemnities and warranties might be necessary to protect the parties involved.