UK: TUPE - Change Of Client

Last Updated: 2 May 2013
Article by Jules Quinn and Mirrick Koh

In October 2012, the Court of Appeal confirmed that a Service Provision Change ("SPC") TUPE transfer can only occur where the client who receives the service, before and after the change, remains the same (Hunter v McCarrick [2012] EWCA Civ 1399).

This is relevant where a property is being sold and the seller employs or engages property managers, or other service providers (for example, security, cleaning and landscaping) to provide services at the property, and the buyer proposes to employ its own employees or change the property manager, or any of the service providers.

Prior to the Court of Appeal's decision, it was commonly accepted that, where the property manager and/or any service providers changed on completion, the employees assigned to the property (and who were employed by the seller, property manager and/or service provider) (the "Transferring Employees") transferred to the buyer, the buyer's managing agent and/or service provider. Prior to completion, the client in receipt of the services was the seller, and then after completion it was the buyer.

The Court of Appeal has confirmed that a SPC transfer can only take place if the client in receipt of the services remains the same before and after completion. Given that the client changes from the seller to the buyer on a sale, SPC transfers can no longer occur.

However, whilst a SPC transfer cannot occur in the circumstances above, a traditional Business Transfer ("BT") can still take place so that the Transferring Employees transfer from the seller's managing agent and/or service providers to the buyer's managing agent and/or service providers. A BT transfer can take place where:

  • There is a transfer of an undertaking (a property) or business; and
  • A transfer of an economic entity which retains its identity.

An economic entity means "an organised grouping of resources which has the objective of pursing an economic activity". It can include tangible (equipment and employees and intangible (goodwill) assets.

Whether an economic entity has retained its identity depends on the following factors:

  • Whether tangible assets have transferred and the value of such assets;
  • Whether any goodwill has transferred;
  • Whether the majority of employees have been transferred and are utilised by the new employer;
  • Whether any customers have transferred;
  • The degree of similarity between the activities carried on before and after the transfer; and
  • Any period during which any activities are suspended or disrupted.

Applying the above, even if no SPC transfer can take place, it is still possible that Transferring Employees transfer under a BT transfer to the buyer, the buyer's property manager and/or service provider.

TUPE - proposed amendments

Service provision change (SPC) .Under TUPE, there is a relevant transfer where a client engages a contractor to do work on its behalf, engages a different contractor to do that work in place of the first contractor, or brings the work "in-house"

The government proposes repealing the regulation on SPCs following the cases of Hunter v McCarrick and Taurus Group.

The greatest risk will be for existing service providers who assumed that TUPE would apply at the end of their contract and may now have to bear unexpected redundancy costs. Many service providers entered into existing contracts on the assumption that TUPE will apply on termination. However, the longer the delay before these changes come into force, the fewer contracts will be affected. As a result, the government plans to have a long lead-in period before these provisions are repealed.

Employee Liability Information. TUPE requires that Employee Liability Information (ELI) must be provided by the transferor to the transferee prior to the transfer. The government proposes repealing the requirement to provide ELI as there is a view that the current requirement to provide information 14 days before the transfer does not meet the transferee's commercial need to have information about employees. However, it will make it clear that a transferor should disclose information to the transferee where it is necessary for the transferee and transferor to meet their obligations to inform and consult on a TUPE transfer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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