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Introduction
The Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE 1981”) first introduced into English law rules protecting employees’ rights in the event of a sale, or transfer, of a business. However, under TUPE 1981, there was often confusion about whether “outsourcing”, “insourcing”, and “re-tendering” exercises (together, “service provision changes” (“SPCs”)) actually fell within the definition of a transfer of undertaking.
However, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE 2006”), which replaced TUPE 1981, specifically brought SPCs within TUPE’s ambit, provided that “immediately before the [SPC] there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client” (Regulation 3(3)(a)(i)). (Note that Regulation 2(1) makes it clear that “an organised grouping of employees” can comprise just a single employee.)
At the time that TUPE 2006 came into force, there was much debate amongst legal commentators regarding the very real possibility that bringing SPCs within the scope of TUPE might result in the transfer of the employment of third party service professionals – such as PR and advertising executives, accountants, and even lawyers – if clients whom they primarily worked for took their business elsewhere. The Government considered excluding professional services from the application of TUPE 2006, so as to avoid this scenario, but ultimately (and for reasons that were never made entirely clear) decided against doing so.
The recently-reported case of Hunt v Storm Communications Ltd and others appears to be the first in which the new SPC provisions have been considered by an Employment Tribunal.
Facts
Ms Hunt (“H”) worked for Storm Communications Ltd (“Storm”), a PR agency, as an account manager. Her job description did not specify that she would work for any one client in particular but, in fact, she spent the majority of her time during the five year period of her employment working on the Brown Brothers Wines (“BBW”) account. Two other individuals – a junior account executive, and a freelancer who had formerly been Storm’s BBW account director – also worked on the account during this period, but to a much lesser degree.
In June 2006, BBW informed Storm that it would be inviting tenders for its PR requirements, ahead of awarding a new contract and, in accordance with BBW’s instructions, Storm “downed tools” on that account on 28 July. Storm pitched to retain the work, but was unsuccessful with its bid, and BBW awarded the new contract to Wild Card Public Relations Ltd (“WildCard”). Storm’s Managing Director informed H that he believed that her employment would transfer to WildCard pursuant to TUPE. However, WildCard refused to accept that H was to transfer to it, arguing that since (a) H had no contractual obligation to carry out BBW work and (b) the records provided to it by Storm suggested that H only worked on the BBW account for 55% of her time, H was not, therefore, “essentially dedicated” to that account. On 28 September, WildCard’s lawyers wrote to Storm’s lawyers stating that “as there is no TUPE transfer, your client should either terminate Ms Hunt’s employment because she is redundant, or re-assign her to other work. We should say that it would be very unfair to Ms Hunt if your client were to suggest that she should turn up to our client’s premises on Monday morning, as there is no prospect of her being offered work…”.
As H was left without an employer, she brought a number of claims against Storm and/or WildCard, including one for unfair dismissal. Key to these claims was the question of whether TUPE 2006 had applied to transfer her employment to Wildcard (on the basis that Wildcard’s “win” of the BBW account amounted to an SPC).
Decision
The Tribunal Chairman began by confirming his belief that this case concerned a change of contractor – from Storm to WildCard – rather than an “insourcing” from Storm back to BBW, followed by a subsequent “outsourcing” to WildCard. Although in the period between 28 July and 2 October, BBW undertook its own PR activities, this was only on a “caretaker” basis, and it did not truly take those activities back in-house.
He also accepted H’s evidence that the BBW account in fact provided some 70% of her work and that, on that basis, H’s “principal purpose” was carrying out specialist PR services on behalf of BBW. Accordingly, H was held to be part of the “organised grouping of employees…which ha[d] as its principal purpose” the performance of PR activities for BBW. In contrast, the freelancer who had worked on that account was not employed by Storm, so she could not be part of a “grouping of employees”. Whilst the junior account executive who worked on the BBW account was an employee, his contribution was deemed to be “ad hoc”, “peripheral” and not sufficiently “specialist” to be considered “dedicated” to the BBW account.
Having found that the other Regulation 3(3) TUPE 2006 conditions had been satisfied, the Chairman concluded that there had been a relevant transfer of undertaking, and that accordingly, H’s employment had transferred from Storm to WildCard. In the circumstances, H would be allowed to proceed with her unfair dismissal claim. The transfer of H’s employment was held to have taken place on 28 July, even though WildCard did not start providing PR services to BBW until 2 October, because, in the Chairman’s view, 28 July was the “date on which [Storm]’s services were dispensed with by [BBW] in the full knowledge that the service would thereafter be provided by [WildCard]”.
Comment
There are a couple of interesting elements to this case. Firstly, employment lawyers are often asked what proportion of time an individual must devote to working in, or serving, a particular business in order for their employment to transfer, pursuant to TUPE 2006, to the purchaser of that business in the event that it is sold. Traditionally, Tribunals have been reluctant to specify a figure in this regard, but in this case, the Chairman accepted that an employee who spends 70% of her time working for a particular business is primarily engaged in that business (even if, as H admitted in this case, she also worked on three other accounts). This is an interesting guideline, but should be treated with caution, given that this was the view of a Chairman of a first-instance Employment Tribunal, sitting alone at a pre-hearing review.
Secondly, the Chairman’s decision that the transfer took place on 28 July is somewhat curious. Based on the facts of the case - Storm pitched for the new contract on 8 August, and was formally notified that it had been unsuccessful by letter dated 21 August – it would seem that neither Storm nor, more importantly, H, could have known that WildCard had won the account on 28 July. In the circumstances, it seems bizarre that H’s employment could be said to have transferred to WildCard on that day, given that (a) WildCard might not yet have won the account, and (b) even if it had, H did not yet know the identity of her new employer.
Finally, of greatest significance is the fact that the fears expressed by legal commentators in respect of the impact of TUPE 2006 on the professional services have now been confirmed as real. There is now judicial authority to suggest that a transfer of undertaking between professional services firms can occur where a client engages one firm to provide it with business advice on an ongoing basis, and subsequently decides to terminate that arrangement and award the work to another firm. This gives rise to positive and negative consequences for both the firm that wins, and that which loses, a major client. The “losing” firm now faces the possibility of losing talented staff as well as a major piece of business. On the other hand, that firm might prefer to lose those employees that worked on that account by operation of TUPE, as opposed to having to make them redundant at a cost, if there is no other account to which those employees can be reassigned. As far as the “winning” firm is concerned, it may be delighted to acquire not only business, but also talented staff from a competitor. Conversely, that firm may be unhappy at incurring additional payroll costs as the price of winning new business. Consider also the significant effect that this ruling could have on “the client” in this scenario: if the client is moving its account so as benefit from what it perceives as the better service that it will get from a new team, it is unlikely to be happy to find that the old team that it was looking to leave behind has, in fact, moved across with its business to the new service provider!
Nick Tsatsas
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Simkins' early warning bulletins are for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court. Please note that past bulletins included in the Archive have not been updated by any subsequent changes in statute or case law.
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