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scalesFollowing the Court of Appeal (civil) ruling in McCarrick v Hunter service companies may be left with significant  employment/redundancy liabilities for employees they might have previously expected to transfer to a new service provider under TUPE.

In the unusual set of circumstances of the appointment of a property receiver to take control of a building at the same time as a change in the property management defeated the application of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).

The original Employment Appeal Tribunal (EAT) held that TUPE did not apply where there was a change in client to which the services were provided at the same time as a change in the service provider. In this case this meant that the onsite staff of the property manager did not transfer to the new property manager.This is a surprising case which poses significant issues to customers and service providers alike, not only in real estate transactions but also potentially in relation to more general outsourcing situations.

The facts make interesting reading.

The respondent [a] Mr Hunter, was managing director of the Waterbridge group of companies. The appellant commenced employment with Waterbridge on 7 November 2005. The group held a number of commercial properties and the appellant was employed with others to manage those properties.

On 3 February 2009 a contract was signed to transfer control of Waterbridge to a group of companies known as Midos.  The shares were to be sold to a wholly owned subsidiary of Midos, WCP Management Limited (“WCP”). However, on the day the contracts were to become competed, a winding up petition was lodged by Her Majesty’s Revenue & Customs in respect of the Waterbridge group. However, notwithstanding that the sale was not achieved at that stage (it was ratified later), Waterbridge agreed with Midos that some of the Waterbridge employees would transfer to WCP. There were 9 employees who were transferred on that basis, including the appellant, Neil Jeeves and Peter Hughes.

The appellant continued to be employed in the management of the properties until mid August 2009 and was paid by WCP Management Limited.   However, on 14 August 2009 Aviva Commercial Finance Limited (“Aviva”), who was the mortgagee on the property portfolio attached to the sale of the Waterbridge companies, appointed receivers to assume control of the properties. These were what are colloquially known as Law of Property Act receivers.

The receivers, BDO Stoy Hayward, in turn appointed a new property management company, King Sturge, and the property management services ceased to be carried out by WCP.

The original Employment Tribunal found, after hearing evidence, that the appellant with two of his colleagues, Mr Jeeves and Mr Hughes, then became employed personally by Mr  Hunter .  They were each paid by Mr  Hunter . They were made available by Mr  Hunter  to assist King Sturge in the management of the properties but they were not employed by King Sturge, nor by the receivers, nor by Aviva. They apparently continued to carry out all aspects of the property management service save for the collection of rents.  (It is not clear from the decision of the Employment Tribunal whether they did that work entirely on their own or whether King Sturge employees also undertook that function.)

Their services were provided at no cost to the receivership.

The reason Mr Hunter made their services available to the receivers in this way was, according to the Employment Tribunal, that he wished to maintain good relations with Aviva and the owner of the Midos group and was hoping that the receivership could be brought to a swift end and the sale to Midos completed.  Mr  Hunter believed that providing their services to the receivers would assist in achieving that objective.  Subsequently the appellant was dismissed on 8 March 2010 and he claimed that his dismissal was unfair.

It is to be noted that the appellant is not claiming against the receivers nor is he contending that his employment ought to have been transferred to King Sturge. His claim is solely against Mr  Hunter .  The principal contention is that there was a transfer of a service provision effectively from WCP to Mr  Hunter  when he and his two colleagues left WCP to become employed by Mr  Hunter  personally and were allocated the property management work.

Mr  Hunter contended that the TUPE regulations envisages that the same client will be involved throughout: there may be outsourcing, a change of service provider or bringing back in house, but in each case the work is being carried out for the same client albeit by a different provider and appealed on the grounds that it was not open to the Tribunal as a matter of law to conclude that there had been a change of service provision.  In effect, that the transfer had occurred and so liability for the workers transferred with it.

The Court of Appeal (CA) decided differently.  That a transfer could not have taken place. So that is the law as it stands.

However, by way of obiter, the CA said “The appellant has assumed that if he can show that there was a regulation 3(1)(a) transfer, it would not matter that there had been a change in the client receiving the service.  He may be right about that, but it seems to me that the point is arguable.  I am not aware of any authority on it, and we were not shown any.  It may be that where the business is in the nature of a service provided to a particular client, the identity of the client is an essential element in the description of the undertaking.  If that is so, the services carried on for the new client would constitute a different undertaking and there would be no transfer.  But that is an argument for another day.”

Clearly this issue will run on for a while.

Broader TUPE changes can be found here

Some key legal background

This judgement affirms (concurs) the comment of Underhill P giving judgment for the EAT in Eddie Stobart Ltd  v  Moreman and Others [2012] ICR 919 para 19 when he said, with respect to identifying whether there is a relevant transfer:

“No doubt the broad purpose of TUPE is to protect the interests of employees by ensuring that in the specified circumstances they “go with the work” (though the assumption that in every case that will benefit, or be welcome to, the employees transferred is not universally true).  But it remains necessary to define the circumstances in which a relevant transfer will occur, and there is no rule that the natural meaning of the language of the Regulations must be stretched in order to achieve transfer in as many situations as possible.”

TUPE provides for the automatic transfer of employment in two circumstances. Firstly, where there is a ‘transfer of an undertaking’ (Regulation 3(1)(a)) and secondly where there is ‘service provision change’ (Regulation 3(1)(b)).

Decisions from Luxembourg have confirmed that there may be a transfer of an undertaking even where there are no assets as such transferred but only employees: see for example, Jouini  v  Princess Personal Service GmbH (PPS) [2007] IRLR 1005,and Scattalon  v  Ministero dell’Instuzione, dell’Universita et della Ricerca [2011] EUECJ C-108/10. In the latter case, the Grand Chamber of  the ECJ said this (para 49):

“…..the court has repeatedly held that, in certain sectors, the activity is essentially based on manpower. In such circumstances, a structured group of workers may, despite the absence of significant material or immaterial assets, correspond to an economic entity for the purposes of Directive 77/187 : see in particular, concerning cleaning services.”

I have deliberately omitted all references one key issue in this case, that is relating to the rules of language used in interesting legislation, which are, to my practitioners mind, interesting but not relevant to its practical application.