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The Meaning of 'Client' for the Purposes of a TUPE Service Provision Change

on Friday, 12 June 2015.

The Employment Appeal Tribunal (EAT) has held that where a company contracts out a service, which is subsequently subcontracted the subcontractors employees may transfer into the company's employment if the service is taken back in-house.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) applies to all 'relevant transfers', including where a company (client) contracts out services (often referred to as outsourcing), re-tenders those services or brings the work back 'in-house'. These transfers are referred to in TUPE as a Service Provision Changes. There are some other tests that need to be fulfilled for the definition of Service Provision Change to be satisfied but they are not relevant to the issues discussed below.

Where there is a Service Provision Change, the new employer steps into the shoes of the outgoing employer, taking on the employees on their existing terms and conditions of employment.

In Jinks v London Borough of Havering, the Council contracted Saturn Leisure to operate an ice rink and car park. Saturn then subcontracted the running of the car park to Regal Car Parks. After Saturn gave up the contract to run the car park, the Council took control of the site ending the sub-contract between Saturn and Regal.

Mr Jinks was initially employed by Saturn, before his contract was transferred to Regal under TUPE. As the work transferred back to the Council he was dismissed by Regal. He argued that his employment had in fact transferred from Regal to the Council under the TUPE provisions and when the Council refused to employ him, he brought a claim against the Council for unfair dismissal.

The Employment Tribunal (ET) struck out the claim at a preliminary hearing on the basis that it had no real prospect of success. In the ET's view, the Council could not be said to be Regal's 'client' and as a result TUPE could not apply. The ET did not consider it necessary to hear the evidence in the case before making this finding.

Mr Jinks appealed, arguing that whilst Regal's subcontract had been with Saturn, it was entirely possible that the Council could have been Regal's 'client' for the purposes of TUPE.

The EAT upheld Mr Jinks' appeal and remitted the case to the ET to determine if the Council was, in fact, Regal's client.

The EAT held that the ET had taken a far too strict interpretation of TUPE and that the regulations had been drafted to envisage circumstances involving sub-contractors. It is a question of fact who the client is in any given situation and it is not essential for there to be a legal contractual relationship.

Best Practice

Organisations should be aware that employees of subcontractors can TUPE transfer into their employment in the event that outsourced activities are taken back in-house.

Whether TUPE applies or not, and who is the 'client' in any given situation, is fact sensitive and needs to be considered before any decisions are made to re-tender services or take them back in-house. At the start of an outsourcing relationship, organisations should consider what contractual protections should be built into the outsourcing agreement, for example indemnity protection.

For more information, please contact Michael Halsey in our Employment Law team on 020 7665 0842.