In McTear Contracts v Bennett and others, the EAT has ruled that the ECJ’s decision in Govaerts concerning business transfers (see our blog post here) should also apply to service provision changes (SPCs) covered by TUPE: where a service contract is split on re-tendering to more than one transferee, employees engaged in the service could potentially have their employment contract split into two or more part-time contracts with different transferees in proportion to the tasks they performed.
The EU Acquired Rights Directive only applies to business transfers and the SPC provisions in TUPE are gold-plating, so it would have been open to the EAT not to apply the Govaerts decision, However, it considered that treating business transfers and SPCs differently would be undesirable (not least as the same set of facts can be both a business transfer and an SPC) and indeed none of the parties argued to the contrary.
Previous UK case law took the approach that, where a service contract is split between transferees, an employee could transfer only to one transferee and could not be split between employers; the employee would transfer if “assigned” to the organised grouping carrying out the activities taken over by that transferee. This must now be read subject to Govaerts, such that theoretically an employee’s contract (or the liability for its termination) could be divided between multiple transferees.
The SPC provisions in TUPE only apply if (i) the activities after the transfer remain fundamentally the same as before (and fragmentation between multiple contractors may defeat this, for example if there is no discernible pattern of reallocation of activities) and (ii) there is an organised grouping of employees whose purpose is carrying out the relevant activities to be transferred. In some cases where a contract is being split, these tests will not be met as a preliminary step and so the SPC provisions and Govaerts should not apply – this was not considered by the EAT in McTear as the tribunal’s finding that there was an SPC was not appealed. The ECJ in Govaerts did not expressly consider the issue of assignment. It may still be open to argue that Govaerts is only relevant to an SPC once, having found separate organised groupings of employees (most of whom will by virtue of that organisation likely be ‘assigned’ to the relevant grouping), there is an employee who cannot be seen as assigned to any one grouping but rather across the whole of the original activities. Further case law will be needed to clarify the precise impact on SPCs.
However, where Govaerts does apply, this may well raise complex practical difficulties, not least where an employee’s duties are not easily split by time between the different transferees’ activities or where transferees are competitors. The ECJ did state that if, the division of the contract of employment was not possible or caused a worsening of working conditions or adverse effect on the individual’s rights, then the transferees would be regarded as being responsible for any consequent termination of the employment relationship, whether that is an actual dismissal or the individual resigns and claims constructive dismissal. McTear was remitted to the tribunal to work out the practical implications; we understand an appeal of the EAT ruling is unlikely.
In some cases it may be possible to avoid the issue by the transferor reallocating employees’ duties pre-transfer. In all cases it will be important, if possible, for the parties to consider how to deal with the risk of claims in appropriate indemnities.