TUPE and Sub-Contracts

The EAT confirmed last week in Jinks v London Borough of Havering UKEAT/0157/14/MC that TUPE can apply to a transferor and a sub-contractor, protecting the employment of employees under a sub-contract if there is a service provision change. The EAT held that even though there may be no direct contractual relationship between a client and subcontractor, since the contractor breaks the direct-link as “the middle man”, employees can and should be protected in these scenarios.

Facts
A Council had contracted out the running of a car park to a contractor (Saturn Leisure Ltd) which then sub-contracted the work to a sub-contractor (Regal Car Parks Ltd). The Claimant was employed by Regal Car Parks Ltd. When the contract ended and the work reverted back to the Council, the Claimant argued that he became an employee of the Council under Regulation 3(1)(b) TUPE. The Council argued that TUPE did not apply to the Claimant and, consequently, the Claimant brought a claim for unfair dismissal.
Regulation 3(1)(b) limits the application of TUPE to a service provision change in which activities cease to be carried out by a person (“a client”) on its own behalf and are carried out instead by another person on the client’s behalf (“a contractor”). The Council sought to rely on a restrictive interpretation of the Regulations, arguing that “a contractor” or “sub-contractor” was limited to those with a contractual relationship with the Council only and therefore only employees employed by the contractor in this case would be subject to TUPE provisions.
Judgment
The Claimant’s claim was struck out by the Tribunal as having no reasonable prospect of success. The Tribunal took the view that as the Council was the “client” of the contractor, the sub-contractor relationship was too remote for the purposes of Regulation 3.
However, on appeal, the EAT drew a different analysis. The EAT found that, in reality, Regal Car Parks Ltd were carrying out the activities subject to transfer on behalf of the Council and therefore TUPE applied to the Claimant. The EAT provided the following guidance:

1. it is a question of fact to establish who is the client under Regulation 3;
2. there can be more than one “client” in any given case;
3. Regulation 3(1)(b)(iii) must be read in conjunction with Regulation 2.

Even though there was no relationship between the Council and Regal Car Parks Ltd, the subcontractor was clearly undertaking work on behalf of, and for the benefit of, the council.
The EAT’s decision has ramifications for organisations that outsource work to a contractor who in turn sub-contract that work to a third party. Transferors are now at risk of inheriting employees of the sub-contractor when the contract between them and the contractor comes to an end and the activities are brought back in-house. Transferors in these situations must either ensure that they have made a financial provision for these potential costs or seek suitable indemnities from the contractor.
For more information on how to limit potential liabilities under TUPE, please contact a member of the Employment Team.

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