In our January TUPE update we discuss a case from the European Court on the subject of service provision change. This arose from the taking back by a client of a service previously outsourced in order for the client to carry out the service on its own behalf for the future.

We illustrate the difference between the rules in the EU Acquired Rights Directive and the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006. Secondly, we move to the treatment of service provision change in Great Britain and Northern Ireland and examine the short term contract exception to the service provision change rules.

In-sourcing and the Acquired Rights Directive

In Administrador de Infraestructuras Ferroviarias (ADIF) v Luis Aira Pascual [2015] EUECJ C- 509/14, the European Court has considered the application of the business transfer rules under the Acquired Rights Directive to a case where a public authority which had outsourced the management of transport units at Bilbao terminal in Spain to a contractor and then took the service back in house.

ADIF is a public undertaking responsible for the service of handling intermodal transport units (shipping containers) at Bilbao terminal. The service is provided to Renfe Operadora. ADIF outsourced the management of that service to Algeposa. Algeposa provided that service in ADIF's own facilities, using cranes which belonged to ADIF. Use of the cranes was necessary in order to provide the service.

In June 2013 ADIF informed Algeposa that it did not wish to extend the agreement beyond the end of the month on the ground that, as from that date, it would provide the service itself, in-house with its own staff. ADIF therefore indicated to Algeposa that it was not going to take over Algeposa's rights and obligations as regard to Algeposa's employees.

Consequentially Algeposa carried out a collective dismissal of a number of workers, including Mr Aira Pascual, who had hitherto been assigned to the performance of this service. Mr Pascual bought a claim before the Bilbao Labour Tribunal asserting there was in fact a transfer of an undertaking and therefore his dismissal should be annulled or declared unlawful and that ADIF should be ordered to reinstate him within its staff.

The Labour Tribunal upheld Mr Pascual's claim and awarded him compensation. It also held that the dismissal was contrary to article 44 of the Spanish Workers' Statute as interpreted in line with the Acquired Rights Directive. ADIF appealed to the High Court of Justice of the Basque Country which, in turn, considered that the position was insufficiently clear and referred the matter to the European Court.

In giving its opinion, the Court noted that the Directive applies to public undertakings engaged in economic activities whether or not they are operating for gain. So the mere fact that the transferee was a public law body could not be a ground for ignoring the Directive.

The Court also noted that the Directive is capable of applying to a situation in which an undertaking decides to terminate its contract with that other undertaking and carry out that work itself.

In order to determine whether there was a transfer of an economic entity retaining its identity, however, it was necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business, whether or not tangible assets such as buildings and moveable property were transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees were taken over by the new employer, whether or not its customers were transferred, the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended.

In particular, in assessing these factors, a national court must take into account, among other matters, the type of undertaking or business concerned. A case on similar facts had already been the subject of a judgment in the European Court (CLECE (Case C-463/09)) where a local authority had taken back in house a cleaning service and had declined to take on the contractor's employees, sourcing its requirements for the future elsewhere.

It considered that there was no transfer of an undertaking in such a situation. But, as the European Court pointed out in Pascual, CLECE was a case where the undertaking was essentially labour intensive or based on manpower, requiring no significant assets for its operation. But in the present case, it appeared that the equipment that ADIF made available to Algeposa, in particular the cranes, were essential to the activity in issue in the main proceedings. They were put at Algeposa's disposal and Algeposa could not carry out the contract without them.

Likewise ADIF needed to regain the assets to continue the activity. And of course it is trite law that it is immaterial whether or not ownership of tangible assets transferred. Use of material assets was made available. So because this was, in contrast to CLECE, essentially an asset reliant undertaking, the failure of ADIF to take on the old contractor's employees was not fatal to the transfer of an undertaking.

The outcome therefore was that the Acquired Rights Directive does cover a situation where a public undertaking entrusts, via public service operating agreement, the performance of an activity, providing essential facilities and equipment to perform that activity, so that when that agreement is terminated without taking over the employees of the old contractor, those employees have a claim for breach of the Directive.

Of course, in the UK the above facts would give rise to a service provision change under either under TUPE or the NI Service Provision Change Regulations. But in the rest of Europe, the service provision change rules do not apply and it is in those instances that the application of the Directive on in-sourcing depends on whether, in a labour intensive function, the staff are taken over or whether, in a asset reliant function (as in Pascual) assets are taken over.

TUPE and short term contracts

Are events following a putative service provision change relevant in determining whether it was the client’s intention that the contract awarded be short term, and caught by the sort term task exception?

Yes, said the EAT in ICTS UK Limited v Mahdi UKEAT/0133/15/BA.

ICTS had a contract to provide security services to Middlesex University at one of its former campuses. Middlesex sold the site but ICTS continued as service provider. The new owner then put the security service out to tender.

Mr Mahdi lost his job when the contract was taken over by a new contractor, First Call. First Call disputed there was a TUPE transfer on a number of grounds, one of which was that whereas ICTS had a contract to secure an operating site, First Call had a contract simply to look after the site pending its redevelopment by the new owner.

The new contract was, therefore, First Call said, a contract for a single specific task of short term duration and so excluded from being a service provision change by virtue of TUPE, Reg 3(3)(a)(ii) (see the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006, Reg 3(2)(a)(ii)).

The exclusion only applies, however, where it is the client’s intention that the activities concerned are to be carried out in connection with a task of short term duration. An employment judge accepted Fist Call’s argument that when the contract had been granted it was the intention that the contract was to be for a limited period, to look after the site pending construction.

But by the time of the hearing no planning permission had been obtained and no building work had commenced. On appeal, the EAT said this may have been relevant, and should have been taken into account by the employment judge. The employment judge therefore erred in law in not doing so, and the case was remitted for a re-hearing by the employment tribunal.

Given that the EAT has already decided, in Robert Sage Ltd v O’Connell [2014] IRLR 428 that an intention is more than a “hope and wish”, subsequent events, said the EAT, can be relevant in deciding a client’s intention for the purposes of TUPE, Reg 3(3)(a)(ii) (SPC Regs 3(2)(a)(ii)).