We currently provide services to clients by way of an arms-length arrangement and have staff who regularly provide services to one particular client. The client is considering terminating that arrangement and either doing the work themselves, or possibly passing it to another contractor. What happens our staff, currently providing the services, in such circumstances?


Patricia Rooney of Tughans writes:


Firstly, I suggest you check the contract with your client to ascertain the termination rights and any particular contractual provisions surrounding such an arrangement.

Increasingly, contracts for the provision of services will include exit provisions stating what you must do if your contract is terminated and the services are going to be carried out by someone else.

The scenario you describe sounds like a potential transfer of the services, which means the arrangement could be governed by the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006 (the Regulations). If so, this means that your employees, engaged in providing the services, would transfer to the client -if the client takes the services in house - or transfer to another contractor if the client intends to continue to outsource the services. Your staff would transfer on their existing terms and conditions of employment, with continuity of service. There are special provisions about their pension rights.

The Regulations would operate here provided that immediately before the termination of the contract and the transfer of the services, your employees form an organised group which provides the services as the main purpose of their job. You should be aware that even one employee might be caught by operation of these Regulations.

If the Regulations are triggered you will have to inform and consult staff representatives about the proposed transfer of services, allowing the employees to have a ballot to elect their own representatives, in the absence of a union or other internal employee council/forum. As part of that information and consultation process, you must inform the representatives about the transfer, the reason for it, the date of the transfer, implications etc long enough before the termination of your contract to allow a full consultation process with those representatives. The client/the new service provider should feed into this consultation process and explain what will happen once your contract has been terminated and the new arrangement starts.

You should be aware that failure to follow a proper consultation process places you at a risk of a complaint to the Tribunal where, if successful, an award of up to 13 weeks’ pay could be made for each employee.

In addition, under the Regulations, you will be required to provide written information about your employees either to the client/the new service provider. There may also be a provision in your contract requiring you to do this. The information will include details of wages, working hours, benefits, disciplinary matters etc and must be provided at least 14 days before the date on which the termination of the contract takes effect and your staff transfer. Again, you should be aware that failure to fully comply with this requirement under the Regulations leaves the Company at risk of a tribunal claim with an award of £500 per employee.

It is important to remember that subject to a few exceptions, a dismissal in connection with, or as a result of, the transfer will automatically amount to unfair dismissal and would allow the employee to issue proceedings at Tribunal. Under the Regulations, your employee does have the right to object to transfer to the client/the new service provider but in so doing, the employee is effectively dismissed without any right to notice. In the event that an affected employee does object to transfer to the client/new service provider you do not have to retain him in alternative employment.

As indicated above, the identity of those employees who might transfer to your client/service provider when the services are moved will depend on how they are organised, the amount of work they carry out for the client and whether their provision of these services is the principle purpose of their job. It may be some of your employees will not transfer and will remain with you. I would suggest therefore it is crucial to have adequate documentation which will identify whether your employees do form an organised group within your workforce providing these services and if so, what amount of their time is spent in currently providing these services to your client. This, and your contract, will determine whether or not your staff will transfer as a result of the termination of this contract and what your obligations may be.