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TUPE liabilities on change of contractor

11 May 2010

Taking over a construction or civil engineering contract may be good for business but it brings with it the now familiar headache of employee liabilities under TUPE. These can range from undisclosed bonuses, arrears of pay claims, unfair dismissals and discrimination claims, and in some cases, where the outgoing contractor fails to inform and consult as required by TUPE, awards of up to three months pay for all affected employees. None of this is helped by the lack of clarity about when TUPE applies.

In the words of a former President of the Employment Appeal Tribunal (EAT), it is "something like a game of hazard … in which the stakes increase dramatically according to the numbers involved, … requiring intense concentration … in which no one does half so well as the lawyers who have become indispensable as its croupiers." His words refer to different employment law provisions, but are equally applicable to TUPE.

The following arrangement is common place in the civil engineering industry:

  • Work for a utility company or contractor, installing cables or pipes in a particular area is carried out by sub-contractor A
  • The contract with sub-contractor A expires on, say, 1 April 2010 and all new assignments arising after that date are given to sub-contractor B. However, sub-contractor A completes all work in progress, retaining their employees for that purpose and making them redundant in stages as and when work is completed.

The natural assumption would be that TUPE applies in these circumstances; however, this may not always be correct. The following case, which concerned the legal profession itself, may be of some comfort to those taking over such contracts (but less comfort to those losing them).

The Ward Hadaway case

Ward Hadaway Solicitors v Love & Ors [2010] was a battle between two firms of solicitors over whether TUPE should apply. If it did apply, one firm would be liable for any unfair dismissal awards and if it did not, the other would be liable. The individual employees did not care which.

Ward Hadaway (solicitors) had been a member of a panel who provided legal services to the Nursing and Midwifery Council. The council decided to tender out its work to a single provider, Capsticks, with effect from the date of expiry of its contract with Ward Hadaway, 1 October 2007. However, all work in progress as at that date remained with, and was completed by, Ward Hadaway. That work was expected to last for at least six months.

In order for TUPE to apply under the service provision change rules:

  • immediately before the service provision change, there must be an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of activities on behalf of the client
  • on the service provision change, those activities cease to be carried out by the first contractor or the client and are carried out instead by another (contracting out or contractor change) or by the client (i.e. contracting in)

In this case, it was accepted that there was an organised grouping of employees whose principal purpose had been the carrying out of activities on behalf of the council. However, the employment tribunal concluded that the activities in question were the cases Ward Hadaway was dealing with as at 1 October 2007, all of which remained with Ward Hadaway - so there was no change in who carried out those activities. They also concluded that the activities carried out by Capsticks were sufficiently different from those carried out by Ward Hadaway not to amount to the same activities.

The first point is the significant one for construction and civil engineering companies. The EAT confirmed that the tribunal was entitled to conclude that the activities were just the work in progress and not the expectation of future work. The EAT commented that expectation of future work could possibly constitute an activity but in this case it was at most an opportunity to be on standby in case more work arose.

This ruling, when applied to the civil engineering example used earlier where, from a specified date, all new assignments are to go to a new contractor but existing assignments remain with the old, strongly suggests that TUPE does not apply. Therefore:

  • all liabilities including for redundancy pay and unfair dismissal remain with contractor A
  • contractor B does not need to concern themselves with whether or not the old contractor complied with the information and consultation requirements.

If there is any doubt, you should assume TUPE does apply and plan accordingly. The Ward Hadaway case could nevertheless be used in negotiations between the contractors or if a dispute arises which leads to an employment tribunal claim.

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