The Employment Appeal Tribunal (EAT) has considered the correct approach to take when deciding who should take responsibility for any employees when there has been a service provision change to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply but, where after transferred, the services originally provided by a sole contractor are provided by more than one company (Kimberley Group Housing Ltd. v Hambley and Others, Leena Homes Ltd. and Angel Services (UK) Ltd.)
Leena Homes Ltd. (Leena) had a contract with the Home Office to provide accommodation and related services for asylum seekers pending determination of their applications for asylum. It provided about 140 properties in Middlesbrough and approximately 50 properties in Stockton. In 2006, Leena lost the contract to Kimberley Group Housing Ltd (Kimberley) and Angel Services (UK) Ltd (Angel).
Kimberley and Angel did not accept that the TUPE Regulations applied. Six employees of Leena who lost their jobs as a result of the change disagreed and took their case to the Employment Tribunal (ET).
The ET found that there was not a transfer of an economic entity which retained its identity (TUPE Regulation 3.1.a) but there was a service provision change (TUPE Regulation 3.1.b). There was, therefore, a ‘relevant transfer’ for the purposes of the Regulations.
The ET then considered to whom the employees’ contracts of employment and liabilities under those contracts had transferred. Based on the number of asylum seekers who were accommodated, 97 per cent of the Stockton operation was performed by Kimberley and 3 per cent by Angel. As regards Middlesbrough, 71 per cent of the operation was carried out by Kimberley and 29 per cent by Angel. The ET rejected the argument that the transferee who takes the greater part of the transferor’s activities should be treated as if it has taken all the employees of the transferor. It decided that although the people and their contracts cannot be ‘split’, the liabilities under their contracts of employment can. The ET therefore concluded that Angel had 3 per cent liability for the consequences of the dismissals at Stockton and 29 per cent liability for those at Middlesbrough. The balance of the liabilities in each case fell to Kimberley to discharge.
Kimberley appealed against the decision. The EAT held that the ET was entitled to reach the view that there had been a service provision change. However, there was no precedent for the approach it took in dividing the liabilities under a contract between two transferees on a percentage basis. An employee cannot be the servant of two masters at the same time. The ET’s ‘creative approach’ to the situation did not derive from an application of the TUPE Regulations.
The apportionment of liabilities in the case of a service provision change should be treated in the same way as when there is a transfer of an economic entity that retains its identity. The correct approach, therefore, is to establish to which part of the undertaking or business the employee was assigned. The facts will vary from case to case and may sometimes be very complicated, but the focus should be on the link between the employee and the work or activities performed.
Applying this principle, the EAT found that responsibility for the liabilities in respect of both transfers fell upon Kimberley.
If you are involved in the transfer of a business or lose or secure a contract for service provision, contact us for advice.