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Service provision changes and fragmented employers
The Employment Appeal Tribunal (EAT) has recently heard the case of McTear Contracts Ltd v Bennett & ors which substantially revises how TUPE will apply under domestic law with regards to service provision changes when those services are fragmented.
A principle was established by the European Court of Justice in ISS Facility Services NV v Govaerts that under the Acquired Rights Directive when there is a business transfer to multiple transferees and the business is being split up, the affect of TUPE would be to transfer the employment of those employees to each of those multiple transferees in the proportion of which they perform their duties..
There was an outstanding issue following this decision as it was unclear whether the principle decided in Govaerts also applied to a service provision change transfer under Regulation 3(1)(B) of TUPE. This point was considered in McTear Contracts Ltd v Bennett & ors which was heard by the EAT.
Facts - McTear Contracts Ltd v Bennett & ors
A client local authority re-tendered a contract for the replacement of kitchens throughout its social housing. This work was previously carried out by a single contractor who had two dedicated teams of employees who undertook the work. Following the re-tender activity, the contract was awarded to two new contractors on a geographical basis.
It was accepted that there has been a service provision change, but there was a dispute surrounding the allocation of the transferor’s employees to the two new contractors.
Despite there being no requirement to apply Govaerts to the domestic service provision change under regulation 3(1)(B) of TUPE, the tribunal held it would be undesirable for there to be a difference in the approach to the transfer of employment under Regulation 4, according to whether the relevant transfer was a business transfer under Regulation 3(1)(a), or a service provision change under reg 3(1)(b).
As a result of this decision, employees who are assigned to an undertaking that becomes fragmented upon transfer can be transferred to multiple transferees under English law.
There are some exceptions to the principle which are:
- dual vicarious liability is still permitted in the case of alleged negligence by the employee. This means that more than one employer can be found liable for the negligent act of an employee upon fragmented transfer, dependant on the facts of each case in turn. This will contribute to the risk of cases being brought against multiple employers where an employee has been negligent.
- employees cannot have two ‘masters’ for the same work; however this does not prevent the employee from having different employers on different jobs.
This decision will require a change in the approach for cases where an outgoing service provider is replaced by multiple parties and will trigger consideration as to whether an employee’s contract should be divided between multiple transferees.
As a result, this principle could cause real difficulty for the party’s as there does not appear to be a method to determine how the employees should be divided between transferee’s and nor is there guidance for how liabilities will be split across different transferees. Furthermore, there is a real risk that the division of contracts of employment could adversely impact on employee’s working conditions and their rights, giving rise to automatically unfair dismissal issues. Employers should tread carefully and fully consider their position based on the circumstances in which they find themselves.