What happens when TUPE transfers are split between organisations?

Laura Morrison outlines the implications for employers of a recent ruling on the Acquired Rights Directive

The Court of Justice of the European Union (CJEU) had to consider what happens when a contract is split between multiple transferees. This case was about a cleaning contract, which was put out for tender in three lots. The client awarded two lots to one company and the third lot to a second company. The claimant was a manager for all three lots. She spent 85 per cent of her time working on the first two lots and 15 per cent of her time working on the third lot. The referring Belgian court had decided, before the case reached the CJEU, that there was an economic entity that had retained its identity.

Balancing rights

The CJEU sought to balance the interests of the employee and the transferee. It considered that it would be unfair if the claimant transferred on a full-time contract to the transferee that held the first two lots, because she only worked part time on those lots. The CJEU instead decided that the Acquired Rights Directive (the European legislation that implements TUPE in the UK) does not preclude an employee's employment contract being split into two or more contracts in proportion to the tasks the employee carries out. It is for national courts to decide how to ‘distribute’ an employment contract. This means an employee's contract could be split between two or more transferees and the result could be part-time employment with each of the transferees. 

If it is impossible to divide the employee's contract, or it would adversely affect the employee's working conditions, the CJEU confirmed that the contract may be terminated. The transferees would be regarded as responsible for the termination, even if the employee initiated it.

One of the difficulties with this approach (for a transferee) is that a dismissal in these circumstances would inevitably be ‘by reason of the transfer’, putting it into automatic unfair dismissal territory. It would be difficult to argue that there was an economic, technical or organisational reason entailing changes in the workforce that would avoid a finding that the dismissal was automatically unfair.

UK position

The CJEU's decision is groundbreaking and contrary to the well-established position in the UK. The Employment Appeal Tribunal has decided that an employee's employment could not be split in the way the CJEU proposed. However, there are two types of transfer in the UK: business transfers and outsourcing/consequent changes in service provider (service provision change). Service provision change is a UK concept that is not in the Acquired Rights Directive. This might provide a route for UK courts to distinguish this case from transfers that only meet the requirements of a service provision change. This is not a complete answer: it is possible for a service provision change also to meet the test of a business transfer, so HR professionals need to be alive to that (not uncommon) possibility.

Future impact

Until we have a UK court judgment applying this decision, we expect little will change in practice in the UK. There is also the question of the Brexit effect. The Withdrawal Act allows the government to make regulations setting out circumstances in which specified UK courts and tribunals would not have to follow retained EU case law. This may provide UK courts with a means of sidestepping this decision.

In the meantime, working out who is assigned to an ‘economic entity’ or ‘an organised grouping of employees carrying out activities’, and who is not, will remain as important as ever. Transferees should be more cautious about any situation that leaves employees in limbo. 

In outsourcing contracts, it would be sensible for clients to require, or at least ask, current providers and future providers to work collaboratively to ensure a smooth transition of services and employees. It is also important that warranties and indemnities in any commercial agreement between the parties are reviewed, bearing in mind that arguments about split employment could be raised and unanticipated liabilities could arise as a result. The potential for employees' employment to be split between parties could give rise to complex decisions, but with careful planning it need not divide the parties involved.

Laura Morrison is a managing practice development lawyer at Dentons