In this Update, we look at cases on service provision change, on a business transfer that was deemed to occur hard on the heels of a share sale and a business transfer south of the border.

TUPE and Service Provision Change: Fragmentation

A service provision change TUPE transfer under The Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006 occurs when activities carried out by one provider are taken over by a new provider as long as there was, immediately before the change, an organised grouping of employees, the principal purpose of which was to carry out the relevant activities for the client.

When one provider is replaced by another provider the position is quite simple.  But the position can be more complex where a single provider is replaced by multiple providers.  In principle, TUPE may still apply, but not where, following the change, the services are fragmented and randomly allocated among new providers.

This was the subject matter of the recent GB EAT decision in Carewatch Care Services Ltd v Henry (a case on the service provision change provisions of TUPE).

Sevacare ended its contract with the London Borough of Haringey to provide care for Borough Residents.  London Care, Carewatch and other care providers took over. The 17 claimants in the case were employed by Sevacare as Homecare Support Assistants providing care to adults in their homes.  The care provided by Sevacare was under contracted packages of care to 168 service users.  Care to the service users was delivered by care workers who were employed on zero hours' contracts.  They were asked to take delivery of specified care for a service user, allocated to those service users and placed on the rota maintained by Sevacare.  Workers were commonly allocated to particular service users to ensure continuity of care, trust and efficiency of care delivery.  Sevacare adopted a regionalised approach so that wherever possible carers worked within one zone and were allocated clients within that zone.  Sevacare's work in Haringey was almost exclusively made up of servicing clients funded by the Council, although there were a small number of private clients who engaged Sevacare on a private basis.  Sevacare rarely allocated business to the Haringey team of carers outside Haringey Borough.  Sevacare gave notice to terminate the arrangement.  The clients were reallocated to other providers largely on the basis of postcodes.  Due diligence was undertaken to establish which carers were allocated to which clients according to the rotas that had been prepared for a six week period prior to the handover.  In some cases, all of the carers went to the same provider but in other cases, there was a split between one or more providers.  The Employment Judge concluded there had been a TUPE transfer.

London Care and Carewatch advanced three main grounds of appeal: (1) the EJ should have found that the relevant activity was so fragmented as to preclude any finding of a service provision change, (2) the EJ erred in concluding that the activities were carried out pre-transfer by an organised grouping of employees which had as its principal purpose the carrying out of the activities concerned on behalf of the client and (3) the EJ erred in concluding that each claimant was assigned to such an organised grouping.

The EAT found that there was merit in the first two grounds of appeal.  First, the EJ should have considered the possibility of fragmentation, which would negate the possibility of a service provision change.  The EJ's finding was that the activity transferred was "the provision of adult homecare to individual service users in accordance with care plans".  However according to the EAT:

"That being so the EJ should have considered whether there was fragmentation of the activity amongst the new providers.  There is no evidence that one contractor took on the majority of the work, and in relation to a number of employees, it is difficult to establish where the employment should transfer given that various service users went to different contractors.  Whilst the Sevacare work generally was organised on a regional basis, post-termination the Council-funded work was divided on the basis of both capacity and postcode.  It does not appear from the judgment that proper consideration was given to these various factors when the EJ considered fragmentation which, as is agreed, should have been at the stage when she determined whether or not the relevant activities carried out by the original contractor were fundamentally the same post-transfer."

Nor was the EJ right on the subject of whether there was an organised grouping of employees in Sevacare's employment.  The EJ considered that there was an organised grouping because the principal purpose of the activity was delivering care to service users for whom the Council was responsible.  But the fundamental flaw in this approach was that the EJ had confined her consideration to the purpose of such a grouping without first considering whether any grouping existed in the first place and, if so whether it had intentionally been formed.

Because of these two flaws, it was unnecessary to consider the issue of assignment, but the EAT did say as a matter of principle that:

"…when considering whether there was an organised grouping of employees the question is whether before the change there existed an organised grouping of employees whose principal purpose was the carrying out of the activities for the client…it follows that the assignment must be to an organised grouping of employees that exists before the change."

The case was remitted to another employment tribunal for these issues properly to be considered.

The case, in particular, reminds us there may be a problem in finding a service provision change where an outgoing provider's work is randomly allocated amongst a panel of new or existing providers.  In this regard, the case reminds us of the EAT's decision in Clearsprings Management Limited v Ankers UKEAT/0054/08.  This case involved the National Asylum Seekers Service, the function of which was to provide accommodation for asylum seekers.  Contracts were awarded to contractors to provide this service.  In the North West there were four such service providers, including Clearsprings.  On the expiry of the contracts the service was re-let.  Three contractors (but not Clearsprings) were appointed.  The asylum seekers looked after by Clearsprings were randomly allocated to the incoming contractors.  The EAT held that the service was so fragmented on its random reallocation amongst multiple providers that the service provision rules were not engaged.

Share Sales and De Facto TUPE Transfers

It is common ground that a share sale acquisition is not covered by TUPE. TUPE requires a change of employer and upon the acquisition of the shares in a private limited company, there is no change in the identity of the employer, simply of the shareholders. The company remains the same. This was most recently confirmed by the High Court in the case of ICAP Management Services Ltd v Berry [2017] EWHC 1321.

However, in exceptional circumstances, where, following a share sale acquisition, the acquiring company assumes supreme control over the acquired company, a de facto TUPE transfer may occur. The main authority for this is the decision in Millam v Print Factory (London) 1991 Limited [2007] ICR 1331. In Guvera Limited v (1) Butler (2) Blinkbox Music Limited (in liquidation) (3) BB Music Holdings Limited (in administration) UKEAT/0256/16 Lavender J had the opportunity to consider these principles.

In this case, Blinkbox was a music streaming service. It was acquired by Tesco in 2012; but by January 2015 Tesco wanted to sell it. On 23rd January 2015 Guvera UK bought the shares in Blinkbox. This was orchestrated by a Mr Michael De Vere, a director of Guvera. Apparently, this was without the authority of Guvera and its CEO and Chairman, Mr Herft.

In considering the facts, the employment tribunal divided events into three time periods.

(1) From January until the end of April 2015, the business remained with Blinkbox. Mr De Vere became a Director, having been given 90 days by Mr Herft to turn the business around.

(2) From April to 11th May 2015. During this period Mr De Vere resigned as a Director of Blinkbox. Insolvency was a prospect for Blinkbox and Guvera was considering its options and was interested in acquiring Blinkbox's assets and about 20 employees. But the tribunal found that there was no transfer in this period as the business remained under the control of the Blinkbox Company.

(3) But on 12th May 2015, Mr King, Guvera's Chief Technical Officer, arrived at Blinkbox following Mr De Vere's departure and he continued there until Blinkbox went into administration on 11th June 2015. The tribunal found there was a transfer of an undertaking to Guvera at the start of this period because it assumed day to day control of the business in a way that went beyond the mere exercise of ordinary supervision or information gathering, between a parent and subsidiary.

Mr Herft, on behalf of Guvera, now took control of the Company and the tribunal found that he exercised influence over a number of key business decisions, redundancies were implemented and decisions were effectively now made by Guvera. According to the employment tribunal "standing back and looking at the bigger picture these features did, it seems to me, reflect the reality in which, from the start of the deferred period, Guvera did assume day to day control of the business of Blinkbox, crossing a line beyond the element of de facto control and information acquisition which comes with being a corporate parent in a way that amounted to taking over conduct of its day to day activities". Guvera was therefore held liable for claims made by employees who had been dismissed.

Guvera appealed. First, it appealed against the transfer of undertakings point. But the EAT considered that the employment tribunal had focused on the correct test. One of the factors relied upon by Guvera, was that it had not taken on the responsibility of an employer by paying employees' wages. The EAT found this argument unattractive. If the law was as Guvera intended, a company which took control of an undertaking, exercised the powers of an employer over the employees and in particular chose to make them redundant, could say that the Regulations did not apply to it because it did not pay the employees' wages due. This would be too easy a way around TUPE. The EAT has previously pointed out in Housing Maintenance Solutions limited v McAteer [2015] ICR 87 that it is undoubtedly one of the consequences of a transfer that the transferee assumes the obligation of an employer. One relevant factor in deciding whether there has been a transfer may consist of action taken by a transferee, such as payment of wages. But the key test is whether there has been a change in the legal or natural person who is responsible for carrying on the business and who by virtue of that fact incurs the obligations of an employer vis-à-vis employees of an undertaking (Landsorganisationen Denmark v Ny Mølle Kro Case C-287/96 [1989] ICR 330).

Nor did the employment tribunal go wrong in pinpointing the date of the transfer itself. There was a clear finding of fact that the assumption of control by Guvera was on 12th May 2015 when Mr King, Guvera's Chief Technical Officer arrived at Blinkbox and took control of matters following Mr De Vere's departure.

TUPE South of the Border: No Redundancy Payment when Pub Business Transferred

In Cahill T/A Jerpoint Inn v Greene (RPA/17/21) the claimant Greene worked as a bar worker in the inn in Thomastown, Co. Kilkenny.  Her employer, Mr Cahill, a sole trader, ceased operating the business and entered into a lease/purchase agreement with a third party partnership.  After this, Greene continued to work in the business in the same capacity although the new proprietors stated that they did not regard her as having transferred to their employment with continuous service.  The new job was to be on the basis of a "clean slate" start.  Having failed to resolve the issue of her continuous service, she put in a claim for a redundancy payment against Cahill.

An Adjudication Officer allowed the claim.  The decision was overturned on appeal to the Irish Labour Court.  The Labour Court held that on the lease purchase agreement and assignment of the lease of the pub to the third party partnership, there was a transfer of an economic entity retaining its identity.  Applying the European Court test in the decision of Spijkers v Gebroeders Benedik Abattoir CV (Case 24/85) to the present case, there was a transfer of all stock, all furniture and equipment, fixtures and fittings, the publican's licence, use of the premises, accounts, the customer base and brand name of the business and goodwill.  Finally there was no interruption or closure of the business and the activities before and after the transfer mirrored one other.  And, of course, the complainant herself was taken on by the third party partnership.  Accordingly, there was a transfer of an undertaking.  As a result, she had not been dismissed and her continuity of employment was unbroken over the transfer.  The same outcome would have arisen if the business had been situate north of the border as, on these facts, there would also be a business transfer under Reg 3(1)(a) of the UK TUPE Regulations.