Service provision changes: when does TUPE apply?

What is a service provision change?

A service provision change (SPC) occurs when:

• a service performed in-house is contracted out (first generation SPC);

• a service already contracted out is moved from one contractor to another (second generation SPC); and

• a contracted-out service is taken back in-house.

For example: A company, Law Ltd, employs its own IT team to look after its IT software, support and maintenance function ('IT function'). It decides to outsource its IT Function to IT Inc. That may amount to a first generation SPC.

After two years, and not happy with the service from IT Inc, Law Ltd decides to transfer the IT Function to another external IT provider, IT Services Ltd. That may amount to a second generation SPC.

Finally, after a further year, Law Ltd realise they would be best having the IT Function back in-house and terminate the contract with IT Services Ltd. That may also trigger a SPC under (c) above. In each of these situations there are various conditions (set out below) that need to be met if they are to amount to a SPC and governed by TUPE.

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When will TUPE apply or not apply to a SPC?

For TUPE to apply, the following conditions for an SPC must be met:

1. Before the transfer, the activities were carried out by a team (known as an "organised grouping") who are dedicated to performing those activities on behalf of the client (and in our example above, Law Ltd if the 'client').

   The team can be just one employee (or more). Using the example above, TUPE would not apply if IT Inc. used different ad-hoc IT advisers on a day-to-day basis to provide the IT Function services to Law Ltd. For TUPE to apply, IT Inc. employees must be organised by reference to the requirements of the client and be identifiable as members of IT Inc's staff working principally on the IT Function for Law Ltd. Whether or not there is an organised grouping of employees is a question of fact in each case and is often a topic of contention between the parties.

2. The activities carried out by the new provider must be "fundamentally the same".

   This will be for a tribunal to consider on the facts and they will look at the nature of the activities (before and after the transfer). There is no need for the activities to be identical. The activities should be defined in a common sense and pragmatic way.

   If the activities become so fragmented, then it is unlikely that they will be classified as fundamentally the same (and a SPC has not taken place). In one case, the Employment Appeal Tribunal confirmed there was no SPC where activities previously carried out by one contractor were awarded to several contractors. The EAT held that there was no "discernible pattern of reallocation of the activities" carried out by the original contractor in order to determine which of the new contractors these activities had been allocated to.

3. The client must be the same person.

   There will not be an SPC if the client for whom the services are being carried out changes. The only "change" in an SPC is a change in the identity of the person carrying out the activities.

4. The contract must not be for the supply of goods or a single specific event or task of short term duration.
   
   There will not be an SPC if:
   
   - the activities consist wholly/mainly of the supply of goods for the client's use; or
   
   - the client intends that the activities will be carried out in connection with a specific single event or task of short-term duration.
   
   Using the example above, if Law Ltd had engaged IT Inc. to simply install software on their computers for a period of a week, then this would be a situation where a client is buying in services on a "one-off" basis and TUPE would not apply.

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What to do if you think TUPE may apply:

There are other scenarios where TUPE would not apply, for example, where there is a temporary cessation of the activities. It will depend on the particular facts and it is important that an assessment as to whether TUPE may apply is carried out at an early stage. This will ensure that you carry out your legal obligations under TUPE (if it does in fact apply) and avoid financial exposure to your organisation later down the line.

As a starting point, you should:

1. take legal advice early on;

2. identify what the services are and whether they will remain the same;

3. identify which type of SPC might apply (first generation, second generation or back in-house) and consider raising early enquiries about how the employees are organised and what activities they actually carry out; and

4. identify who will (or could) transfer.