In Aguebor v PCL Whitehall Security Group the EAT helpfully discusses the interplay between the concept of a business transfer under reg 3(1)(a) of TUPE and a service provision change under reg 3(1)(b) of TUPE and reg 3 of the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006.

The two concepts are not mutually exclusive.  On outsourcing or tendering for services there can be both a business transfer (although this is more difficult to establish in practice) and a service provision change.  So if, for technical reasons a service provision change does not apply, it remains open to be argued that the business transferor rules apply, and vice versa. 

Secondly, it is a condition for the application of the service provision change rules that there is, prior to the change, an organised grouping of employees, the principal purpose of which is to carry out the relevant activities for the relevant client.  In Amaryllis Ltd v McLeod the EAT has ruled that the principal purpose of any organised grouping of workers must be assessed at the point immediately before the change of provider, and not historically. 

TUPE: the difference between a business transfer and a service provision change

Under TUPE, a business transfer takes place when there is a transfer of an economic entity retaining its identity (TUPE, reg 3(1)(a)).  A service provision change TUPE transfer occurs simply when activities cease to be carried out by one person and, are instead, carried out by another person (TUPE, reg (3)(1)(b) and reg 3 of the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006).  Applying these definitions to outsourcing, it is much easier to find a service provision change TUPE transfer than a business transfer as the former merely requires a change in the person carrying out the activities concerned, rather than the transfer of a business.  But service provision change has its limitations.  One of these is that, for a service provision change, the activities concerned must, following the changeover, continue to be carried out on behalf of the same client (see Hunter v McCarrick [2013] ICR 235).  If not the service provision rules do not apply.  But could there still be a business transfer in those circumstances? 

This issue was addressed by the EAT in Aguebor v PCL Whitehall Security Group UKEAT/0078/14/JOJ.  In this case the claimant was employed as a security officer by Securiplan Plc at Thames House a large office building on the edge of Maidenhead.  There was then a service provision change and the claimant's employment transferred to another security company PCL.  PCL's contract for security at Thames House was the tenant of Thames House, an organisation known as PGS.  When the tenancy ended and the lease reverted to the landlord, Standard Life, the latter appointed management agents, MJ Mapp Limited who, in turn, appointed a new security company, Ward Security.  Ward declined to take over the claimant's employment under TUPE.  The service previously carried out by PCL and which Ward was now providing was for an entirely new client, Mr J Mapp.  It asserted there was, for this reason, no service provision change because the client had changed.  It relied upon Hunter v McCarrick.  The employment tribunal agreed there was no service provision change and therefore no transfer to Ward Security. 

The parties then sought to persuade the employment tribunal Judge that there might be a business transfer instead.  The Employment Judge refused to recognise this possibility saying: "it cannot be a TUPE transfer.  It could only be a service provision change". 

On appeal, the EAT overturned that decision and remitted the matter for rehearing before a fresh employment judge.  As HHJ Richardson stated:

"TUPE is designed to protect employees who are caught up in the transfer of the business for which they work.  It contains two different gateways into protection.  The first gateway is found in regulation 3(1)(a), which applies where there is a transfer of an undertaking or part of an undertaking.  The second gateway is found in regulation 3(1)(b) which applies where there is a service provision change.  The former is derived from European law, the latter from domestic law; there are fundamental differences between them."

But said the Judge the two gateways are not mutually exclusive.  It remains open to the employer or the employee to rely upon the business transfer gateway if, for technical reasons (as in the present case) the service provision change rules do not apply.  However, although the EAT did not decide this point, it might be difficult to establish that there was a transfer of a stable economic entity where the client has changed.  This was a point that Elias LJ left open in Hunter v McCarrick and it was a matter that the employment tribunal will have to consider on remission. 

Service provision change: an organised grouping of employees

For a service provision change TUPE transfer, there must have been, prior to the change, an organised grouping of employees, the principal purpose of which was to carry out the relevant activities for the relevant client.  In Amaryllis Ltd v McLeod UKEAT/0273/15/RN the EAT considered that the principal purpose of any organised grouping of workers must be assessed at the point immediately before the change of provider, and not historically.

Millbrook Furnishings Ltd carried out work for the Ministry of Defence for many years renovating wood and metal furniture. Between 2003 and 2008 it did so as a sub-contractor to Amaryllis. From December 2012 the MoD awarded new contracts under a framework agreement.  In 2014 the furnishings renovations contract was retendered among four contractors on the framework agreement.  Millbrook was unsuccessful on the retender and instead the contract was awarded to Amaryllis. 

The question was whether there was an organised grouping of employees in place prior to the transfer of work to Amaryllis, the principal purpose of which was to carry out the activities concerned on behalf of the MoD.  It was accepted that Millbrook's employees were spending just shy of 70% of their time on the MoD renovations contract.  Nonetheless, the Employment Judge considered that it was appropriate to consider evidence relating to the past.  The Employment Judge was satisfied that the department had originally been set up with the specific purpose of servicing the MoD contracts, and although that grouping now serviced other customers, the MoD was still the largest customer. He found TUPE applied.

Amaryllis appealed.  The EAT upheld the appeal.  It was not sufficient that a department carries out significant work for a client. It must be organised for the principal purpose of carrying out that work for the client.  The relevant time is immediately before the transfer. 

The Employment Judge was wrong to look at the matter on a historic basis. And it was incorrect to take into account work done on furniture renovation by Millbrook between 2003 and 2008 when Millbrook was a subcontractor of Amaryllis.  During this time the MoD was not a client of Millbrook.  Millbrook's client for this work was Amaryllis.  That period could not be taken into account as, even if there were, during that period, an organised grouping of employees, the grouping concerned was not dedicated to carrying out the activities for the relevant client.