In recent years, the drafting of TUPE clauses in outsourcing agreements seemed to have settled down. Lawyers acting for customers and suppliers have come to know what to expect and whilst the odd quirky situation still arises requiring some bespoke drafting, in general terms, lawyers have been able to issue standard terms that have evolved to a settled state over the years.

However, there are two recent developments that we would suggest should cause those drafting TUPE provisions in 2023 to pause, take time to reflect, and consider whether any changes need to be made to the standard provisions that they have been using.

Sunsetting of EU law
The basic principle of the Retained EU law (Revocation and Reform) Bill is that EU-derived secondary legislation (such as TUPE) will be revoked on 31 December 2023, unless specifically preserved by Ministers.

The Government has not, at the time of writing, confirmed whether TUPE will be specifically preserved in its entirety.  The suspicion is that it will be preserved, as revocation of TUPE would have a huge impact. But nothing is guaranteed.

Even if not preserved by the Government, there are elements of TUPE (for example, the concept of a service provision change) that do not derive directly from EU legislation and are concepts that have been introduced by the UK of its own volition (“gold-plating”). If TUPE were not to be expressly preserved by the Government, it is possible that such gold-plated elements would remain under UK law, resulting in a strange situation where TUPE in its gold-plated form could apply to service provision changes, but not in its basic form to more traditional TUPE transfers.

Given the uncertainty, those currently drafting TUPE provisions in outsourcing contracts, may wish to consider in their drafting the possibility that TUPE will not exist (or not exist in its current form) by the time that the contract comes to an end.

Outsourcing contracts (especially those that have an employee transfer under TUPE on commencement) typically envisage that TUPE will apply on expiry of the contract and have “exit provisions” under which employees transfer to a successor contractor, with indemnities drafted accordingly.

Contractors entering into such contracts now might be thinking about scenarios in which TUPE might not apply on exit, which would mean that employees would not transfer to a successor contractor and would instead remain employed by them, but with no work to do if a contract is lost.  Customers may also be keen to ensure that a workforce does transfer to a successor contractor on expiry of a contract, especially in relation to a contract that requires employees with knowledge of the service to remain in place in order to deliver the service.

We are starting to see contracts that contemplate the possibility that TUPE may not apply on exit in its current form and which include drafting that apportions the risk of such a scenario (eg redundancy costs) or seeks to implement the principles of TUPE as a contractual obligation.

Fragmentation
Until relatively recently, those of us working with TUPE operated on the basis that an employee could not be split in two as a result of a TUPE transfer.  If a current service provided by one supplier was fragmented and the service would in the future be provided by multiple providers, then the TUPE analysis was done on a “whole employee” basis:

• Was the employee “assigned” to the service provided by Supplier A? If so, they transfer to Supplier A
• Was the employee “assigned” to Supplier B? If so, they transfer to Supplier B.
• Was the split of the employee’s work such that they were assigned to neither service A nor Service B? If so, the employee does not transfer under TUPE and remains with their current employer.

However, a number of recent cases (the ECJ decision in ISS Facility Services v Govaerts and the EAT in McTear Contracts Ltd v Bennett) surprised some of us by finding that in some circumstances, where there are multiple transferees, the employment contract of an employee (and liabilities in connection with that contract) could be split between each of the transferees in proportion to the tasks performed by the worker.

The McTear case involved a contract to replace kitchens in North Lanarkshire Council’s social housing estate, serviced by Amey. That contract was then split into north and south regions, with one contract awarded to Mitie Property Services UK Ltd and the other awarded to McTear Contracts Ltd. Amey undertook an analysis of work carried out by its staff and allocated one team to Mitie and one to McTear.  Mitie and McTear refused to take on the 23 Claimants on the basis that their time had been split between work on the north and work in the south and therefore none of them were “assigned” to the contract that they were taking on.

The Tribunal at first instance operated on the basis of existing case law (and without the benefit of the recent ECJ decision in Govaerts) finding that employees and liabilities could not be split between transferees. Either an employee was assigned to the service transferring to a particular transferee or they were not. They found that the employees transferred to Mitie and McTear as per the identification of assignments provided by Amey.

The EAT hearing came after the ECJ decision in Govaerts and they upheld the appeal, remitting the case to the Tribunal for it to consider its decision in light of the updated interpretation of TUPE by Govaerts.  It is now for the Tribunal to consider whether individual employees might have their contracts of employment and related liabilities split between Mitie and McTear.

In this case, the key issue will be who is liable for unfair dismissal and redundancy payment claims from the Claimants (with the possibility that the liability for individual Claimants may be split between the two contractors).

The issue of fragmentation is a challenging area.

On the one hand, imagine a service in which employees work evenly on all aspects, but it is then split with 70% of a contract awarded to Supplier A and 30% to Supplier B. Is it right that (under the current law) Supplier A inherits 100% of the employees, whereas Supplier B inherits none of the employees. Supplier A is left with more employees than it has work, and Supplier B with no employees to carry out its work.

On the other hand, in practical terms, one has to ask how realistic a split contract of employment is and how employees can serve two masters.  Even if their time is very clearly split (eg two days for Supplier A and three days for Supplier B), what about issues such as overtime?

These decisions are therefore of practical consequence, but also impact on the drafting of TUPE provisions as suppliers may now seek an apportionment of liabilities (eg redundancy pay) in line with the Govaerts principles.

Just when we thought things were settled, TUPE continues to present challenges.