Splitting employment contracts post TUPE: The SPC Edition
The last 12 months have seen changes to our society, not experienced since the upheaval and loss of the world wars last century. Nothing has seemingly been immune from these seismic changes; not even TUPE!

In July last year, the European Court of Justice (ECJ) handed down a decision that marked a significant change to when employees transfer on a ‘business transfer’. In the ECJ’s decision in ISS Facility Services NV v Sonia Govaerts & Atalian NV, it ruled that contracts of employment could be transferred to multiple transferees, essentially splitting full-time employment contracts into a series of part-time contracts for different employers in proportion to the work being carried out. The Acquired Rights Directive (the EU legislation which TUPE transposes to UK law) only applies to business transfers. Service provision changes (SPC) is a construct only of UK law. Therefore, we waited with bated breath to see whether this case would apply to SPCs.  It turned out that wait was not long at all!

McTear Contracts Ltd v Bennett UKEAT/2021

In this case, the transferor, Amey, had a contract with North Lanarkshire Council (NLC) to install kitchens in NLC’s social housing across the whole local authority area with NLC issuing orders to Amey identifying the properties where kitchens were to be replaced. In March 2017, Amey split its workforce into two teams, each working across the whole local authority area, although geographical convenience was taken into account. Occasionally, employees would work in the other team to cover absence. After NLC retendered the contract, the two areas were split into two ‘lots’: lot one went to McTear and lot two went to Mitie.

Amey looked at where the teams had worked in practice and concluded that team one had broadly worked in the area that corresponded to lot one and team one had broadly worked in the area that corresponded to lot two. McTear and Mitie each took on some (but not all) former employees of Amey but on new terms. Amey maintained that all the employees in teams one and two had transferred.

The Employment Tribunal decided that this constituted an SPC and therefore there had been a transfer, with one team going to McTear and another to Mitie. McTear and Mitie disagreed, especially in relation to the treatment of employees that worked across both lots.

While Mitie was preparing its grounds for appeal, the decision in Govaerts was handed down, giving the transferees the opportunity to put forward the argument that the employees could transfer to both McTear and Mitie proportionately, based on the tasks they perform.

The decision
Ordinarily, concepts that do not exist in EU law, such as SPCs, would not automatically be affected by EU case law. However, the Employment Appeal Tribunal (EAT) found that, in principle, there was no reason why an employee could not be employed by two different employers after a transfer, where the work done for each employer is clearly separate. In this case, the work was split 'along geographical lines' and therefore was a situation where 'there could properly be found to be different employees on different jobs'.

The EAT concluded that the original decision in the Employment Tribunal may have had a different outcome if the Tribunal had the guidance from the decision in Govaerts at the time. The case has now been referred back to the Tribunal for the decision in Govaerts to be applied.

Implications
SPCs can regularly result in services being split between more than one service provider. Given the scope for the fragmentation of employment contracts to be more common, we would note the following:

  • Where a single service is split into two or more parts, it is now very difficult to know how to assess which transferee employees will transfer to and in what proportions, as there has been little indication of the factors that should be taken into account or the relative importance of those factors;
  • Those letting contracts will need to be aware that splitting contracts is likely to result in increased uncertainty for bidders both around which staff they will inherit – and for what proportion of their time. This uncertainty could affect pricing of bids, as well as making for a potentially disrupted start to a contract as practical ways of splitting the contracts are agreed. Organisations splitting contracts on a re-procurement or changing the configuration of geographical areas or lots will need to spend more time at the contract strategy stage to identify the likely position on handover. A logical and practical split should help minimise the prospect of bidders factoring the risk of additional TUPE costs into their bids;
  • Those bidding for services should be aware that they might inherit part-time employees who are also working for another transferee and so will want to consider practical considerations around how the employees’ hours of work will be organised between the different employers, as well as ensuring indemnities, where possible, in transfer agreements which extend to protection against claims associated with split contracts;
  • Transferors may need to consider whether certain contracts of employment need to be split on transfer. Providing documents that demonstrate how the employees’ work is currently allocated, may assist the transferees in understanding how the employment contracts might need to be split after the transfer.

Frankly, this decision raises more questions than it answers. TUPE cases are usually complex and the outcomes are almost always dependent on the specific set of facts before the Tribunal. We would therefore recommend seeking legal advice before pursuing an SPC or, indeed, any TUPE transfer.

For more information

If you would like any further information on this case or other TUPE queries, please do contact Doug Mullen.