There is a widespread feeling within the business community that the recession is gradually coming to an end. Businesses are now seeming to look forward and planning for the future, rather than simply remaining in a state of limbo as part of a self preservation strategy. James Tait, Employment Lawyer, Browne Jacobson LLP.

One area which is likely to be scrutinised by businesses is looking at existing contracts and deciding whether to renew them, switch providers, or do the work themselves as the market becomes liquid again. Recent forecasts indicate that 2010 could see a rapid increase in finance outsourcing, with financial institutions taking stock and looking forward, and may become once again engaged in major outsourcing exercises. Other sectors may well follow their lead, and no doubt the public sector will be looking at ways of tightening the purse strings with the extensive cuts which have recently been announced by the coalition government. However, there are a number of issues which employers need to remain alert to when considering making any such decisions.

In 2006, the Government brought into force “new TUPE” – that is the successor to the Transfer of Undertakings (Protection of Employment) Regulations 1981. For the first time, however, new TUPE was written with a specific regulation devoted to situations which are known as “service provision changes” – i.e when work is out-sourced, in-sourced, or where there is a switch of contractor – the classic scenario being the change of cleaning firm whereby the new contractor unwittingly inherited the old contractor’s staff. The rationale behind introducing such a provision into TUPE 2006 was to make the Government’s views that these sorts of scenarios would, definitively, be caught under the TUPE regulations.
A significant consequence of not being aware of the service provision change provisions is the fact that, when triggered, the legislation will step in to preserve employees’ terms and conditions of employment, which will in turn be protected from interference by the new employer. Employees who are subjected to detrimental action for asserting their rights may also have strong unfair dismissal, or even whistle blowing, claims, and dismissing in the run up to a change of contractor may leave the new employer without any defence to any claim which is brought.

A couple of interesting recent decisions have also shown two different approaches as to how these provisions will be interpreted. Relevant questions to bear in mind are what activities are actually undertaken? And will they continue to be undertaken in a similar way by the new provider? In the 2009 EAT case of Clearsprings Management Limited v Ankers and others, a contract which provided for accommodation and care to asylum seekers was subsequently taken over by multiple new contractors. Furthermore, there was a reallocation of service users over time. It was held that the activity had been so “fragmented” that TUPE could not apply. This decision sparked commentary about TUPE avoidance by, for example, repackaging services – but the facts of this case were very specific and the usual cautionary tale that Employment Tribunals will not readily deny employees protection under TUPE should be remembered.

So far as professional service firms are concerned, it may be the case that where a firm loses a client account to another firm, the new firm acquires the staff who were engaged on that account if they were “assigned” to it – see for example the 2007 Employment Tribunal case of Royden and others v Hammonds Direct and Barnett’s solicitors. However, the more recent case of Ward Hadaway Solicitors v Capsticks arrived at the opposite conclusion, although the facts of both cases were somewhat different. These recent cases give a flavour of some of the issues which will be thrown up by any outsourcing exercise. How this will all be affected by the new coalition remains to be seen.  Prior to the election, the Conservatives, under Lord Hunt, said that they would rein in legislation relating to service provision changes on the basis that it goes beyond the European legislation which the TUPE regulations are designed to implement in this country.  

They appeared to take the view that too many transactions fall within the scope of the legislation and therefore restricts the ability of businesses to operate more effectively – with many being put off by the processes and potential liabilities which TUPE can impose.
The Liberal Democrats, however, said nothing. On careful reading of the new 31 page booklet, “The Coalition: our programme for government”, the service provision change debate is conspicuously absent. One will have to wait and see whether the pre election commentary was simply rhetoric to entice the business vote, or whether more substantial consideration ensues looking at this significant area of the law. For now, businesses will need to carry on as before.