Tough at the TUPE

A legal services pitch can be won or lost on the abilities of the provider’s lawyers. The strength of a firm’s brand, and competitive fee rates, cannot compensate for a service team which is a poor fit to the proposed client.

Most lawyers will be familiar with the principles of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). TUPE protects employment when the provision of a service or the control of an undertaking changes hands. Employment with the new provider or owner is treated as continuous with the employment with the previous provider or owner.

Attention was focused on the application of TUPE to professional services when it was proposed that the 2006 Regulations should exclude such services from new rules on service provision changes. These rules would make it easier for a change in service provider to amount to a TUPE transfer.

The proposed exclusion of professional services was well publicised. However, the government’s decision not to implement the proposed exclusion was not so well publicised.

The PR transfer

The employment tribunal case of Hunt v Storm Communications Ltd ET/2702546/06 earlier this year drew attention to the operation of TUPE in the professional services sector. An employee was assigned to the provision of public relations services to a client. When her employer lost the client’s work, she successfully argued that TUPE applied to transfer her employment to the client’s new service provider. This case has been hailed by some lawyers as an example of future market trends when professional services change hands.

In the legal sector, however, it is unlikely that the market will accept the application of TUPE in similar circumstances.

Clients would expect firms to absorb any TUPE risk. It is likely that firms would accept this risk because it will be limited to clients where there is a significant volume of work. The prospect of securing such work is likely to make any TUPE risk worth taking.

The law at risk?

In any event, in most cases the TUPE risk is likely to be low. Current case law indicates that a fairly significant degree of assignment is required before an employee becomes “in scope” to transfer.

The most common rule of thumb remains the proportion of time spent on the particular activity, although case law stresses that other factors may be relevant too. In the Hunt case the employee spent about 70% of her working time on the particular client’s matters. Upwards of 50% of working time is likely to have to be spent on that client’s files. Thus, by having a team of employees servicing the client the TUPE risk is reduced – although, against this background, relationships are key and clients often prefer continuity of personnel.

Lawyers’ workloads also fluctuate. In some months a lawyer may spend more than 50% of their time working with a particular client. In other months they may do very little for the same client. TUPE states that any assignment must be “other than on a temporary basis”. Most lawyers probably could not say that various client assignments are anything other than transient and variable. It is far more likely that lawyers are assigned to the law firm’s business of providing legal services to clients.

Most large clients with a high volume of legal work also have complex arrangements regarding legal service provision. Legal services are provided by a mixture of in-house lawyers and a panel of external service providers. A client may gradually stop giving one firm a certain amount of work and increase the amount of work it gives to another firm. It is arguable that the service provision change rules do not bite in the absence of a clear switch over from one provider to another.  

Professional perspective

In any event, arguing the application of TUPE is likely to be viewed as bad form commercially. When a law firm loses a client, there is usually a drive to maintain existing contacts. This may help position the firm well for a future tender. Arguing the application of TUPE is unlikely to serve the firm’s reputation well with the outgoing client, and others who observe the legal market.

Employees themselves may argue the application of TUPE even if their employers do not. However, professionally many lawyers may not want to move to a new employer that did not expect them and does not necessarily want them.

Nevertheless, law firms and their clients should be aware of the possible application of TUPE on winning or losing client work. The same applies to other professional services employers. It will be interesting to see how case law develops through the courts in the future.

Jacqueline McCluskey, Senior Associate, Employment, Dundas & Wilson

REGULATIONS: TUPE AND SERVICES

TUPE Regulations 2006 apply inter alia to “service provision change”, where a client ceases to carry on certain activities and contracts them out, or resumes activities previously contracted out, or activities previously carried out for a client by one contractor are carried out instead by another, and further conditions are satisfied.