New client - new problems

In Royden v Barnetts Solicitors, Barnetts got more than they bargained for when they secured Britannia Building Society’s conveyancing work. Claims for unfair dismissal, failure to consult and breach of contract were all waiting for them when they finished celebrating their win.

The concept of a “service provision change”, triggering a transfer of employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), is nothing new to employment lawyers, but are the rest of the profession, in particular those involved in tendering for work, aware of how close to home TUPE can land? Smaller or “niche” firms could be in for an expensive shock if they fail to take TUPE into account when tendering for, and pricing, client contracts.

It’s not just the lawyers who could be in for a shock. Perhaps an even more alarming concept is that a client who has re-tendered for services, because they were unhappy with their original lawyers, could end up being followed by those same unsatisfactory solicitors to their newly appointed firm.

After the win

The claimants were employed by English law firm Lees Lloyd Whitley (LLW), who undertook conveyancing work for Britannia. A number of employees working in LLW’s Birkenhead office spent a significant amount of their time working on Britannia files. In 2006 Britannia invited tenders for their work and Barnetts won all branch conveyancing referrals.

When work transferred to Barnetts in June 2007, some LLW employees claimed that TUPE applied and that their contracts automatically transferred to Barnetts. Barnetts were willing to employ affected staff, but only at their office which was some 21 miles away from the employees’ LLW workplace. The employees contended that the change in location was a material detriment entitling them to consider themselves as unfairly dismissed by Barnetts. The claimants also argued that Barnetts had failed in their duty to consult with them as required by TUPE.

Barnetts argued that that the change in workplace was an economic, technical or organisational (ETO) reason entailing changes in the workforce and that accordingly they had a defence against the dismissal claims.

The TUPE trap

There are two circumstances where a TUPE transfer can occur.

The first, “old style”, involves the transfer of an economic entity retaining its identity post-transfer.

The second, introduced in legislation in 2006, occurs when there is a change in service provider: when a service once carried out for a client by one contractor is later carried out by a subsequent (new) contractor. Employees who have their “principal purpose” of providing the service will transfer automatically to the new provider unless they specifically object. Most insourcing and outsourcing arrangements are now also caught by this type of transfer. Whilst service provision changes have been most frequently observed in cleaning, catering and security contracts, the principle also applies to the provision of professional services, as confirmed in the 2007 case of Hunt v Storm Communications.

Two of the six claimants in Royden were able to convince the tribunal that, whilst working with LLW on the Britannia files, they were indeed part of an organised group of employees who had their “principal purpose” of carrying out services. Meeting the assignment test, the tribunal held that those two employees’ contracts of employment automatically transferred to Barnetts and so too therefore did their associated employment liabilities.

The tribunal also found that the change in location constituted a substantial change in the employees’ working conditions which caused a material detriment and thereby entitled them to treat their contracts as terminated by Barnetts. Barnetts’ defence that there was an ETO reason for the change was rejected by the tribunal because the second hurdle in such a defence – namely that reason also entailed changes in the workforce – had not been satisfied.

Precautions

Winning a contract and then being surprised with the addition of unwanted, disgruntled and potentially costly inherited staff to the payroll could be a significant anticlimax to a contract win. If the costs of potential failure-to-consult claims or redundancy are not anticipated or guarded against in advance (and therefore not absorbed by the contract price), winning a contract may be more costly than not.

A little foresight goes a long way. Awareness of TUPE basics combined with a comprehensive client contract providing entry and exit provisions will significantly reduce TUPE risks. Comprehensive due diligence of employment aspects of a contract could also mitigate unwanted surprises. Finally, where possible, ensuring that no members of staff are devoted to a particular client for the majority of their working time will also prevent outgoing firms losing key staff.

TUPE is not just an issue for employment lawyers, and it is important that all parties providing professional services, including lawyers, are alive to the risks.

Paul Rae is a member of the employment team at TC Young Solicitors