TUPE Service Provision Changes: the transfer of part of an activity and the plurality of organised groupings

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1 P a g e 1 TUPE Service Provision Changes: the transfer of part of an activity and the plurality of organised groupings by Richard Ryan Parklane Plowden Chambers March 2016

2 P a g e 2 Arch Initiatives -v- Greater Manchester West Mental Health NHS Foundation Trust & Others (2016) EAT/0267/15/RN (the Arch case) The new President of the EAT, The Honorouble Mrs Justice Simler DBE, has clarified the scope of the Service Provision Change (SPC) regulations within TUPE, in a judgment delivered in January 2016 but only recently published on the EAT and Bailii websites (March 2016). It confirms the general understanding that the transfer of all activities is not required for TUPE to apply and, furthermore, that activities may be split along functional lines, as well as quantitative lines. It also confirms that there is scope for a single person to constitute a SPC, even where that person is part of a wider service/activity which is itself split up upon the transfer (and therefore the single person transfers, potentially alongside other organised groupings or indeed multi-organised groupings, to the same transferee). This case will be of interest to all solicitors who advise businesses which operate contracts for services either as an end user (client) or contractor (service provider) particularly in the context of the public sector and the reconfiguration of contracts on a re-tendering, where it is sometimes particularly difficult to identify transferring staff (if any). It will be of equal interest to the private sector, because the case has general application. Background The putative transferor was the Trust and the putative transferee was Arch; the latter disputed that TUPE applied as alleged. The service provided by the Trust to the client (Bolton Council) was the management and provision of drug and alcohol treatment services in the Bolton area, under a number of contracts requiring it to deliver combined case management and treatment interventions using nurses, doctors, and substance misuse practitioners, amongst others. It was a sophisticated service and, with the ever-changing epidemiology of drug and alcohol misuse, over the years different ways of carrying out assessment and treatment were adopted. Increasingly, the focus was on promoting recovery, rather than maintenance. The nine Claimants included eight who worked within the Trust s drug team (CDT) and one Claimant (Mrs Aulton) who worked within the Trust s alcohol team (CAT). The service operated by Arch following the transfer, which was known at the time as Lot 1, or the Single Point of Access and Assessment (SPAA) was, in effect, a case management service where users were to be assessed and referred for treatment. Lots 2, 3, 4 and 5 involved the various forms of treatment for users (called interventions ) and the other third party, Lifeline, accepted that TUPE applied to these Lots, so those carrying out the treatment would transfer to them. Therefore, the service was, with effect from 1 January 2013, split into 5 Lots. In simple terms, Lot 1 would be the planners and controllers assessing the users, while Lots 2 5 would be the doers involved only in treatment. Lot 1 became the most controversial Lot, as Arch alleged that no TUPE transfer took place because, primarily: 1. The activities of SPAA were not fundamentally or essentially the same; it was a pure and sole case management with no treatment aspects to that service, which did not exist before. Arch also argued that the focus on recovery was new. 2. There was no organised grouping and in particular no dedicated teams working as organised groups with clear and structured line reports.

3 P a g e 3 The original tribunal rejected the above grounds, amongst others. It found that although SPAA was in some respects a new service, the activities were fundamentally or essentially the same. Whilst there were four main differences, those differences did not undermine this conclusion. In addition, the Claimants constituted two organised groupings; eight of the Claimants were organised into a grouping of (drugs team) case managers and the other (Mrs Aulton) formed an organised grouping of one, as a Team Manager of the alcohol team. It was a matter of design rather than happenstance that she carried out this role. All were assigned to their respective grouping, despite Arch suggesting otherwise. The decision of the EAT Arch appealed to the EAT, raising the following key issues: the meaning of the word activities (Reg 3 (1) (b)) and whether activity must equate to service. whether the ET adopted a too narrow approach to the relevant questions, that is, whether it (i) wrongly focused on the Claimant s activities - the case management functional services - rather than carrying out an analysis of the whole of the activities and (ii) completely failed to analyse what then happened to the whole of the service, focusing instead on the activities carried out by Arch within SPAA. whether the Employment Judge made a hard edged error of law in holding that there can be a transfer of part of a service or part of an activity under the SPC provisions. whether it was open to an ET to find that there can be more than one organised grouping of employees per transferor. The EAT held that the statutory words have their ordinary meaning and are to be applied in a straightforward, commonsense way to the facts properly found. What constitutes activities and whether they are fundamentally the same, and what constitutes an organised grouping, are all questions of fact and degree for the fact finding Tribunal. There was no error of law or impermissibly narrow approach. Arguments based on fragmentation and assignment were also unsuccessful. The key points to note are set out below. Part of an activity Whilst Reg 3(1)(a) makes express provision allowing for the transfer of part of an undertaking whereas under the SPC regime no such provision is made (and the draftsman could have provided for the part-transfer of an activity but did not), there is nothing in TUPE that expressly requires that the relevant activities should constitute all of the activities carried out by the outgoing contractor. Therefore the relevant activities in a particular case may be a subset of the whole of the activities carried out by the transferor. Indeed, activities is undefined and unqualified; it is not to be read as equating to the word service. Therefore, there is nothing in principle to prevent only some of the activities that form part of the service from being considered in the context of an SPC. The limiting conditions are those identified at Regulation 3(3), that is, not only must the activities be fundamentally the same both before and after the putative transfer date, but there must be an organised grouping of employees, and that organised grouping of employees must have as its principal purpose the carrying out

4 P a g e 4 of the activities that cease and are carried out instead by the incoming person. This is where the previous case of Kimberley Group v Hambley (2008) became relevant, a case which involved the service/activities being divided between two new providers X and Y- a percentage of the work going to X and the rest to Y (therefore it was the same service/activities but at lower volumes). Although this type of division of activities involved a quantitative split the same principles could be applied to the Arch case. At paragraph 20 the EAT held that there is no reason why the SPC provisions should not in principle apply in a case involving a division on functional lines. The ways in which the activities of a service may be organised are infinitely variable. They may be organised geographically, in teams, in departments or by reference to particular functions or processes. It went to state, at paragraph 21, that A split or change in activities is plainly a relevant consideration in assessing whether the activities cease in relation to the outgoing contractor and whether fundamentally the same activities are carried on by the incoming contractor for the same client, but at the end of the day in each case the question is one of fact and degree. Narrow approach? The EAT also found that the ET Judge had a wider focus than just the Claimants, as he expressly referred to the need to be mindful of not taking too narrow a view of the issue, and when he came to set out his findings as to what the activities were, he made clear that he had taken a broad holistic view. He had regard to all of the evidence in the round. Also, it was unsurprising that there was less focus on the activities in the hands of Lifeline than there was in relation to Arch, given the circumstances of the claim and the acceptance by Lifeline that TUPE applied. As an aside it is interesting to note that Arch relied on a measures letter sent by Lifeline (which proposed a redundancy situation) to support its contention that the activities were radically different, but in the view of the EAT that letter demonstrated that the measures Lifeline proposed to take after the change identified the potential for ETO changes in the workforce rather than demonstrating that the service post-transfer was fundamentally different. Plurality of organised groupings and the Seawell (disaggregation) point Arch contended that TUPE does not cater for more than one organised grouping of employees and to have more than one group is to have more than one activity. However, this argument had even less merit in light of the rejection by the EAT of the part of an activity argument (see above). Arch also argued that it was clear that Mrs Aulton was not and could not be regarded as an organised grouping of one since she managed the team and was therefore part of that (alcohol) team; it was, they said, a wholly integrated role so the ET Judge s disaggregation of Mrs Aulton into a group of one was an error of law. This was the Seawell point (Seawell Ltd v Ceva 2013). However, based on Rynda (UK) Ltd v Rhijnsburger (2015) (and, to some extent, Eddie Stobart v Moreman (2012)) the facts surrounding Mrs Aulton s role were different and the EAT found that a single employee can, in these circumstances and if the facts permit, constitute an organised grouping. Therefore, it was a finding open to the ET. Mrs Aulton was put in place as the Team Manager of the alcohol team; secondly, she was not doing the role for any other client than Bolton; and thirdly, nobody else was, on the Tribunal s findings, assisting her in that singleton management role. In other words, there was deliberate planning and organisation both by the Trust and Bolton in that regard.

5 P a g e 5 Unfortunately for Arch, at the time of the alleged transfer, they only considered whether all of the Claimants constituted one organised grouping (which they did not) and failed to consider whether they were dealing with two organised groupings, aligned to the same function or management of that function. Comment The Arch case confirms a number of important concepts relating to the interpretation and meaning of the SPC provisions and deals with the age old conundrum of whether TUPE applies to a remodeled service and in particular a service which is divided along constituent or functional lines. In effect, Lot 1 (SPAA) was made up of a plurality of organised groupings, one of which was Mrs Aulton on her own. Perhaps that is the most interesting aspect of the EAT Judgment, along with the part of an activity analysis. The DBI Guidance on TUPE (June 2009, pp6-7 and largely repeated in the updated guidance in January 2014) appears to have been correct all along: A service provision change will often capture situations where an existing service contract is retendered by the client and awarded to a new contractor. It would also potentially cover situations where just some of those activities in the original service contract are re-tendered and awarded to a new contractor, or where the original service contract is split up into two or more components, each of which is assigned to a different contractor. In each of these cases, the key test is whether an organised grouping has as its principal purpose the carrying out of the activities that are transferred. It should be noted that a grouping of employees can constitute just one person, as may happen, say, when the cleaning of a small business premises is undertaken by a single person employed by a contractor. Indeed, albeit not a standard TUPE case under Reg 3(1) (retention of identity, economic entity, etc) the Arch case highlights the ongoing problems associated with the single ladies (this is not a reference to the Beyonce song in 2008, but to the 1994 case of Schmidt, the cleaning lady and her mop) jurisprudence in the context of the UK s SPC provisions. This is because it tentatively reaffirms the fact that under the gold plated SPC provisions there is scope (and has been since 2006) for a single person to constitute a SPC, even where that person is part of a wider service/activity which is itself split up upon the transfer (and therefore the single person transfers, potentially alongside other organised groupings, to the same transferee). In effect in Arch, the case management activities were a subset of the service and although it may have been a more natural step to look for one organised grouping associated with such function, that did not take into account the full picture for the purposes of TUPE. The EAT made it absolutely clear that there is no reason in principle to limit the number of organised groupings of employees in any SPC case and, as it is easier for a single person to be captured by the SPC provisions rather than the standard TUPE provisions, a potential TUPE argument arises for the single employee, who may well (according to the transferor s internal structures) be separate from other larger and more obvious organised groupings. This is more likely to arise where employees are split or divided into teams or departments by the transferor, but largely work in the same function or constituent part of the service (i.e. that is their principal purpose). The warning given by the EAT in the Arch case at paragraph 43 of the Judgment (to paraphrase, don t take this as an invitation to easily find an organised groupings of one, particularly where the employee is simply a manager of a team) is sound advice which will be of

6 P a g e 6 interest to all employment lawyers, but as we all know, in the cut and thrust of advising a client on TUPE risks during a tendering process, you ignore the theoretical risks at your peril and/or the client (if bidding) may need to factor the risk into their price for the work. If indemnities (as agreed between the parties) can t help your client and the relevant single lady (or man) is well advised, then you may end up at the Tribunal. Conclusion In summary, care must be taken not to elevate this decision, made on its facts, into a quasi principle of law, tempting though that may be. However, perhaps that is the only constant theme in all of the recent leading TUPE cases on the SPC provisions and therefore it may not prevent this case joining their ranks, particularly given the most interesting principle which comes from it (in my view, at least). Namely, that there is no reason in principle to limit the number of organised groupings of employees to one and therefore a SPC could take place in the form of multiple groupings, each of various shapes and sizes. This concept a plurality of organised groupings may lead to more inventive arguments by those wishing to rely on TUPE, although by the same token the larger the number of (alleged) groupings the weaker the case may become that the activities were fundamentally or essentially the same. Of course, in any event, where there is a division in a service or a significant remodelling the most likely and obvious argument by a transferee is that the activities in their hands are not fundamentally or essentially the same. But when a transferee wishes to dispute the applicability of TUPE they never are, are they? The full judgment can be found on the Bailii website: