Michael Bronstein: TUPE transfers and outsourcing – a meaty question

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) continue to generate difficult questions, more than 35 years after they were originally introduced in 1981.

Most HR practitioners will be aware that in outsourcing, re-tendering and in-housing situations involving business services, TUPE can result in the automatic transfer of employees from the client to the supplier, from the supplier to a new supplier, and from the supplier back to the client if the services are taken back in-house.

Since January 2014, regulation 3(2A) of TUPE expressly requires that, for there to be a TUPE transfer, the activities being carried out by the supplier, new supplier or client after the change of provider must be “fundamentally the same” as the activities that were being carried out before the change of provider.

But what does “fundamentally the same” mean in this context? Suppose Acme Limited has an in-house Accounts Department carrying out all relevant accounting functions – sale and purchase ledgers, invoicing, credit control and so on – using mechanical calculators.  Acme Limited decides to out-source all of the accounting functions to SmartCount Limited, who utilise the latest IT systems and accounting software.  When SmartCount Limited take over Acme’s accounting functions, will the activities that SmartCount carry out be “fundamentally the same” as the activities previously carried out by Acme’s Accounts Department?

At first glance, the answer might appear to be that in fact the activities are fundamentally different.  However, the recent decision of the Employment Appeal Tribunal (EAT) in Anglo Beef Processors UK v Longland & Anor UKEATS/0025/15/JW indicates that, as is often the case for TUPE purposes, that first impression may be wrong.

Anglo Beef ran an abattoir and had out-sourced the task of classifying carcases to Meat & Livestock Commercial Services Limited (M&L). M&L employed Mr Longland, a Carcase Service Officer, to provide this service to Anglo Beef. Until August 2014, Mr Longland classified the carcases manually, which involved him looking at each carcase and using his experience to decide on the classification score. However, Anglo Beef decided to switch to using a computerised machine to carry out the assessment of carcases, which could do the job by photographing the carcase and the using software to analyse it in the required way. Anglo Beef terminated their contract with M&L, taking the activity back in-house.

Mr Longland claimed that his employment had transferred under TUPE to Anglo Beef and that he had been dismissed by them unfairly. He pointed in particular to the fact that most of the other activities that he had carried out remained the same (for example, positioning the carcase correctly and labelling it) and the volume of work remained about the same.

The Employment Tribunal at first instance agreed with Mr Longland. It held that regulation 3(2A) of TUPE refers to activities being carried out, not to the way in which those activities are carried out. The activity in question in Mr Longland’s case was that of classifying carcases and for TUPE purposes, it was completely irrelevant whether that classification was done manually or electronically. Consequently, Mr Longland’s employment had transferred to Anglo Beef under TUPE when it took the classification service back in-house.

Anglo Beef appealed but the EAT held that the Employment Tribunal had not made any error of law and refused to interfere with its decision.

In looking at the question whether pre-transfer and post-transfer activities on a service provision change are “fundamentally the same”, it would therefore appear that the focus needs to be on the substance of the service and the functions being performed, not the way in which they are carried out. In the curious world that TUPE inhabits, it seems that there is no fundamental difference between man and machine.

However, a word of warning. Previous decisions of the EAT have in some instances taken a narrower view of what it takes to make a sufficient difference between pre-transfer and post-transfer activities for TUPE to be excluded. The question is fact-sensitive and, as is often the case with TUPE, a sensibly negotiated commercial arrangement between transferor and transferee is likely to be the best solution in most cases.

About Michael Bronstein

Michael Bronstein is an Employment partner at law firm Dentons.

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