TUPE: Eddie Stobbart Ltd v Mr J Moreman & others (UKEAT/0223/11)
The recent Employment Appeal Tribunal decision in the above case provides clarification on what constitutes “an organised grouping of employees” in relation to a service provision change.
Regulation 3(1)(b) of The Transfer of Undertakings (Protection of Employment) Regulations 2008 (TUPE) concerns transfers where work carried out by a contractor on a client’s behalf ceases to be carried out by that contractor and is subsequently carried out by another contractor. The service being provided to the client by the original contractor (the transferor) transfers to the subsequent contractor (the transferee) – a “service provision change” is said to have taken place.
Regulation 3(3)(a)(i) of TUPE establishes that for a service provision change to take place, there must be “an organised grouping of employees…which has as its principal purpose” providing the service concerned.
Regulation 4(1) of TUPE then provides that employees will transfer to the incoming service provider if they were previously “assigned” to that organised grouping of employees.
Eddie Stobart Ltd’s site at Manton Wood was concerned with warehousing meat on behalf of suppliers and delivering it to processing or retail outlets. Prior to the site’s closure in April 2009, there were only two suppliers – Forza and Vion. Forza supplied meat only to ASDA, whilst Vion supplied a variety of customers. Different customers would place orders for delivery at different times of the day: for instance, ASDA’s orders were placed such that its products for delivery had to be picked almost exclusively by the night shift. As a result, employees on the night shift worked principally on tasks relating to Forza’s contract with Eddie Stobart Ltd (ES) whilst employees on the day shift worked principally on tasks relating to the Vion contract.
When the Manton Wood site closed, Vion arranged for its work undertaken at the site to be carried out by FJG Logistics Ltd (FJG). ES considered a service provision change to have taken place and wrote to the employees it regarded as having worked principally on tasks relating to the Vion contract, informing them that their employment was transferring to FJG. FJG denied that any service provision change had taken place or that the employees concerned had transferred to them. The employees subsequently raised various claims against ES and/or FJG at the Employment Tribunal including claims for unfair dismissal and wrongful dismissal.
FJG applied for the claims against it to be struck out on the basis that, by the claimants’ evidence, they were not assigned to any particular client of ES. The Employment Tribunal Judge considered the matter at a Pre-Hearing Review, along with the issue of whether an organised grouping of employees existed.
The Employment Tribunal Judge decided that the fact that the claimants spent all or the majority of their time on tasks relating to the Vion contract was not, on its own, evidence of the existence of an organised grouping. The factors which appear to have influenced the Employment Tribunal Judge are:
• when ES had previously lost clients no transfers had occurred, which suggested ES did not consider the work undertaken for those clients to have been carried out by an organised grouping of employees dedicated to them;
• the work at Manton Wood was not organised by reference to ES’s clients but by a shift system – in light of the nature of the work a shift system was inevitable whilst even more inevitable was the requirement for a division of labour within each shift;
• the fact the claimants found themselves spending all or the majority of their time on tasks relating to the Vion contract resulted from the time of day Vion’s own customers placed their orders and not ES’s organisation;
• the majority of the claimants were unable to identify themselves as members of the Vion team. There were in fact no such teams – all ES’s employees worked on all its contracts, albeit that some clients’ work fell to be done when certain employees were on shift.
The Employment Tribunal Judge went on to say that, although he had only considered whether an organised grouping of employees existed, and not whether any of the claimants had been assigned to any such group, the evidence of the former was so scant that ES had no realistic prospect of successfully establishing that a service provision change had taken place.
ES appealed against the Employment Judge’s decision on the basis that it was sufficient for ES to show that there was a group of employees who, as a matter of fact, worked principally on tasks relating to the Vion contract; the Employment Judge had erred, according to ES, in finding it necessary for the employees to be organised as, in effect, members of a Vion team.
ES argued that the literal words of regulation 3(3)(a)(i) supported their position as did case law – there was a grouping of employees identified as working principally on tasks relating to the Vion contract whose principal purpose was to carry out such tasks. Further, in the logistics industry, it would be rare to find employees organised as required by the Employment Judge’s approach. The decision was therefore objectionable as a matter of policy.
ES also suggested that the Employment Judge had considered a different issue (the question of the existence of “an organised grouping”) to the issue raised in FJG’s strike out application, which related to whether employees were “assigned” to any such grouping. However, the Employment Appeal Tribunal swiftly dismissed this suggestion on the grounds that the two issues overlapped; identifying who is assigned to an organised grouping necessarily involves establishing how the organised grouping is comprised.
The Employment Appeal Tribunal disagreed that the wording of regulation 3(3)(a)(i) supported ES’s position. Distinction was drawn between principally “carrying out…activities” and those activities being the “principal purpose” of the organised grouping. In the Employment Appeal Tribunal’s view regulation 3(3)(a)(i) requires some organisation by reference to the client in question. It does not cover situations where a group of employees, in practice, carries out work for a particular client without any deliberate planning or intent.
Further, the Employment Judge’s decision was not objectionable on policy grounds as in the circumstances of a transfer, employees should know where they stand – this will be clearest where a particular employee is assigned to a recognised team serving a particular client.
The Employment Appeal Tribunal’s decision confirms that the fact that a group of employees works mostly, or even entirely, for a particular client is, on its own, insufficient evidence of an "organised grouping", as required to satisfy regulation 3(3)(a)(i) of TUPE.
The distinction between the need to be able to identify an “organised grouping” and the need to identify employees who are “assigned” to any such grouping is important as, in our experience, businesses will often consider only the second issue but do so by proceeding directly to a slightly different question of whether, and if so which, employees are assigned to the work arising from a particular service contract. They then work backwards along the lines that if employees are undertaking the work, they must be assigned to the grouping and, therefore, a grouping must exist. The EAT judgment has made it clear that that approach is flawed.
Although the proportion of time that employees spend carrying out work for a particular client will be relevant to the question of whether they are assigned to an organised grouping, for there to be a service provision change under regulation 3(1)(b), and a legitimate transfer, it must first be shown that the employees are deliberately organised into an identifiable group for the purpose of serving a particular client.
Organisations with a few, key clients, who carry out specific tasks for such clients and are likely to be significantly affected by a client taking their business elsewhere, should consider organising their employees into clear, client-focussed teams to avoid the risk of those employees principally engaged on one client’s work not “following the work” should the client in question change their service provider.
Although it is expected that employees in a particular team will spend the majority of their time working for a particular client, they will not necessarily be required to spend all of their time working for that client, which will allow organisations to retain some functional flexibility.
In summary, our advice is that if a service contract is let or re-let and a question arises of whether there has been a transfer by way of a service provision change, the staged enquiring process will need to be as follows:
1. Is there an “organised grouping of employees” which has as its principal purpose the carrying out of the activities of a service contract?
2. If so, has the carrying out of those activities transferred to another provider?
3. If so, which employees, if any, were “assigned” to the organised grouping?
29 February 2012.