24 July 2015
TUPE: ‘clients’ and ‘contractors’
The meaning of the words ‘client’ and ‘contractor’, for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), has been clarified by the Employment Appeal Tribunal (EAT) in a case where one party contracted out a service to another, who then sub-contracted the service to a third party (Jinks v London Borough of Havering).
Havering Borough Council owns a site which formerly comprised Romford Ice Rink and a car park. The Council contracted out management of the entire site to Saturn Leisure Limited, which sub-contracted the management of the car park to Regal Car Parks Limited. Regal issued parking permits, primarily to staff of the local NHS trust.
In mid-April 2013, the ice rink closed. The car park continued to operate for a few weeks until the end of April when Saturn gave up occupation of the whole site, at which point the Council took control of the premises. Initially, the Council granted a licence to the NHS trust to use the car park, before finally converting it to a public use car park a few months later.
Mr Jinks was employed by Saturn before he transferred to Regal from mid-April 2013. He claimed that, at the point at which it took over running the car park, his employment transferred to the Council by way of a TUPE service provision change. He brought a claim for constructive unfair dismissal.
At a preliminary hearing, the Employment Tribunal (ET) struck out his claim on the basis that it had no reasonable prospect of success. The Employment Judge held that in the case of a transfer by way of a service provision change, the 'client' to which the sub-contractor is bound must be the same both before and after the transfer. In this case, the client that had engaged the services of Regal was Saturn. When Saturn gave up its interest in the car park, the sub-contract between Saturn and Regal ceased. At no time was there any contractual relationship between Regal and the Council.
Mr Jinks appealed against the ET's decision on the basis that the Employment Judge had taken too narrow an approach. He should have enquired as to whether, based on the facts, the Council was or could have been the ultimate client of Regal rather than holding that, for Regulation 3(1)(b) purposes, the client of the sub-contractor was necessarily the entity to which the sub-contractor was legally bound – i.e. the contractor.
The EAT upheld the appeal. The Employment Judge had taken an 'impermissible short cut' by treating the client of a sub-contractor as necessarily being, and only being, the contractor to which it was contractually bound to provide a service. When read in conjunction with TUPE Regulation 2(1), which enables the word 'contractor' to be treated as including the word 'sub-contractor', Regulation 3(1)(b)(iii) is not so limited. Horizon Security Services Limited v Ndeze established the following principles:
- The question of who is the client for the purposes of TUPE Regulation 3 is one of fact, not law;
- There can be more than one 'client' in any given case; and
- When read together, TUPE Regulations 3(1)(b)(iii) and 2(1) show that the person on whose behalf services are provided by a sub-contractor may not necessarily be the contractor who sub-contracted the services.
The EAT concluded that the ET had misdirected itself in law and remitted the case back to an ET for reconsideration.
Says Jo Davis, partner in the employment practice: "If you are proposing to sell or acquire a business, or a part of a business, where the TUPE Regulations apply, it is sensible to take professional advice early in the negotiations to ensure compliance with the law. Failure to do so can be costly."