Plus ça change?

Contracts to provide services, when transferred, will generally fall under TUPE. The Service Provision Change (SPC) concept introduced in 2006, covering situations where outsourcing, insourcing/in-housing or re-tendering exercises take place, has raised interesting issues for lawyers to grapple with, not just when advising their clients but also when planning for their own firm’s provision and use of services.

In order for a service provision change to occur, the post-transfer activities must be substantially the same as the pre-transfer activities, but need not be identical. A SPC may occur where a client ceases to carry out activities on its own behalf and assigns them to a contractor; the activities are reassigned to a subsequent contractor or contractors; or activities carried out by a contractor or subsequent contractors are brought back in-house to the client.

An employment tribunal decision in 2009, Royden v Barnetts Solicitors (see Journal, June 2009, 52) caused much excitement in the legal press. It held that two employees of a solicitors’ firm, who spent the majority of their time on work referred by one particular client, transferred by way of SPC to another firm when it took over that client’s work. This case seemed to highlight the worst fear of the SPC provisions that a team of employees might transfer from one firm (or any organisation for that matter) to another following a client’s decision to change provider, regardless of whether either firm wanted that to happen or whether the client’s decision to change provider was due to dissatisfaction with the team of employees in the first place. It should be remembered however that as a first instance decision this did not set a precedent that such a change would always result in a transfer.

The issue was raised again last year in Ward Hadaway Solicitors v Love (see Journal, September 2010, 52), and further guidance has emerged. The EAT upheld a tribunal’s decision that no SPC occurred when a legal services contract was switched from one firm of solicitors to another. The tribunal found that only the work that the outgoing firm actually received, not its expectation of and availability to do other work, counted as “activities” that could be caught by the TUPE Regulations.

Crucial, then, is the meaning of “activities”. An SPC involves “activities” ceasing to be carried out by one person and subsequently being carried out by another, e.g. by outsourcing. There is, however, no definition of “activities” in the 2006 Regulations.

The EAT has given guidance that a tribunal should ask itself “as a matter of fact and degree” whether the activities carried on by the alleged transferee are “fundamentally or essentially the same as those carried out by the alleged transferor”. It expressed the view that Parliament could not have intended to exclude transfers entailing some minor differences in the nature of the tasks carried on or the way in which they are performed, from the new concept of an SPC. The EAT suggested that (i) relocation of the activities, or (ii) the fact that a new contractor performs some additional duty or function, would both be such minor differences. However, it saw no need for a formal list of factors which the tribunal must consider before it can decide whether or not there was an SPC transfer.

The types of service provision changes listed in the regulations all envisage activities carried out by one person before the transfer being carried out by a different person afterwards. This means that the post-transfer activities must be identifiable as the pre-transfer activities for a service provision change to occur. Evidence about the content and performance of the two contracts is likely to be pivotal. Ward Hadaway illustrates the reluctance of the EAT to interfere with the findings of fact by the original tribunal, and in particular how the “activities” are defined.

In practical terms, while each case will have to be looked at on its own facts, it appears that a client deciding to change its advisers and requiring all open files to move across to the new adviser may trigger SPC, whereas a new firm joining a panel of advisers and/or only receiving new instructions will be less likely to be caught. From a resourcing standpoint, firms need to be aware of the risk of loss of staff where client teams have been assigned to servicing a particular client, and the contract is lost. Conversely, staff who are split across client teams are unlikely to be transferred on a single client loss, but may be under-utilised after that loss, leaving the firm with the cost of redundancy. While resourcing decisions cannot revolve around risks of transfer at a future date, firms should be aware of the potential consequences of client procurement decisions.

Jane Green, partner, Employment, Maclay Murray & Spens LLP; convener, employment law specialist panel