In this month’s 'How do I Handle It' Jack Balmer, Solicitor within the Employment Team at Tughans Solicitors considers an Employer’s obligation in relation to bringing back in-house an outsourced out-of-hours IT service.  This month’s problem concerns:

I am an HR manager at an organisation which relies on externally contracted staff to deliver out-of-hours IT maintenance to the rest of the business. However, we have reviewed the shift patterns worked by our internal IT team and believe that they can assume this responsibility, which would create a cost-saving. Our contract with the external contractor is due to run for another year and given this, I am unsure if TUPE will apply. How do I handle it?

Where a proposed re-structuring involves activities moving in-house from an external contractor, the first legal consideration is whether or not TUPE will apply. In Northern Ireland, TUPE is split into two pieces of legislation.  In this case, the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006 (the Regulations) are relevant. Your second consideration will be your organisation’s contractual arrangements with the external contractor, which should be set out in a written contract or tender document.

The Regulations will apply where an activity is moved in-house. This change is defined as follows:

“activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf”

From this, we can see that the Regulations focus solely on the “activities” which are carried out for your benefit, and who they are carried out by. Where they apply, they do so “as an operation of law”; automatically and regardless of any contractual terms. Therefore, even though your contract with the external contractor is due to run for another year, a service provision change (SPC) can occur in your circumstances. The Regulations do not apply only at the beginning or end of a contract.

An SPC will only occur if certain preconditions are met. Primarily, these are that immediately before the SPC, there is an “organised grouping” of employeeswhose “principal purpose” is carrying out the transferring activities. There is no statutory definition of “principal purpose”, but generally we would consider an employee who is engaged for 50% or more of their working time in the transferring activity to be affected. If the relevant external staff carry out wider activities than the activity which you want to bring in-house, you might decide that they do not meet this threshold, and that the Regulations do not apply.

If they do apply, you will have to assume the employment of the external contractor’s affected employees on the same terms and conditions as they currently enjoy, unless they opt out of the transfer.

You should check your contract with the external contractor for relevant provisions, including clauses dealing with service provision changes, termination and any penalties which might be triggered. Both these and the cost of assuming the external contractors staff may impact your anticipated cost saving.

The application of the Regulations is often complex, fact-specific and imposes obligations on both those assuming and transferring affected employees. You should take legal advice at the outset to help ensure compliance and minimise your potential exposure.