TUPE - No Service Provision Change where Client does not Remain the Same
CT Plus (Yorkshire) CIC v Black and others,
In the recent case of CT Plus (Yorkshire) CIC v Black and others, the Employment Appeal Tribunal had to consider whether there had been a service provision change (SPC) under the TUPE regulations where a new contractor was continuing to provide a service, but not on behalf of the original client.
Legal Background
TUPE applies where there is a 'relevant transfer'. This might be the traditional sale and purchase of a business or a situation where:
- a 'client' outsources an activity (for example office cleaning) to a contractor
- the 'client' moves the activity from one contractor to another
- the 'client' takes the activity back in-house
In these circumstances appointing a contractor, or bringing a service back in-house, is known as an SPC.
Facts
CTP Ltd operated a park-and-ride bus service under a contract with the Council for which it received a substantial subsidy.
Stagecoach, a private sector travel company, decided to run its own unsubsidised bus service along the same route, for its own commercial interests.
The Council was not permitted to run a subsidised service in competition with a commercial service. Therefore, the Council terminated its contract with CTP Ltd the day before Stagecoach started operating its service. CTP Ltd did not wish to continue their service without the subsidy.
Stagecoach declined to take on CTP Ltd's drivers, arguing that there was no transfer under any of the provisions of TUPE. CTP Ltd brought a claim to determine whether TUPE did apply.
Employment Tribunal (ET)
The ET held that there was no TUPE transfer. It found that the activities in question constituted the running of a park-and-ride bus service and these activities had been carried out by CTP Ltd prior to the termination of the contract with the Council.
It also found that the same activities were carried out by Stagecoach, following the termination of the contract with CTP Ltd.
The ET concluded that Stagecoach was not running the bus service on behalf of a client but rather ran the route as a commercial venture of its own. The definition of an SPC was therefore not met. CTP Ltd appealed against this decision to the EAT.
Employment Appeal Tribunal (EAT)
The EAT dismissed the appeal.
The EAT held that it is a requirement of an SPC that the client remains the same throughout. Stagecoach was carrying out a service on its own behalf, not on behalf of the Council as a 'client'.
The EAT went on to define the term 'client' in an SPC as 'an organisation that is in a position to carry out activities either itself or by commissioning them from others to carry out those activities on its behalf'.
Best Practice
In any situation where a contractor is taking over an existing service or activity, it will need to think carefully about whether it will inherit the existing service provider's employees under TUPE. Part of that will be a careful analysis of whether the 'client' has remained the same.
In addition, any contractor who is taking on an activity will need to consider the risks of TUPE not applying at the end of their contract period. If there is a possibility of TUPE not applying, should the contractor share the cost of potential redundancies with the client?
Whilst the facts of this case are a little unusual, they highlight the importance of contractors having clear written contracts which set out what will happen on exit, both if TUPE applies and if it does not.