In what circumstances will a tribunal decide that a director of a company providing services which have been re-tendered has transferred to the new provider when the new contract has been placed elsewhere? The test is the same for any employee. Are they part of “an organised grouping of employees ... which has as its principal purpose the carrying out of the activities concerned on behalf of the client” within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the “TUPE Regulations”).
The position was recently considered in the case of McAleavey and Morrison -v- The City of Edinburgh Council and others. In this case, the original provider had a contract with The City of Edinburgh Council to provide services to the homeless. It only had one client. The claimants were directors of the provider. The tribunal investigated the extent to which the directors were engaged in direct service provision but could not reach any firm conclusion. There was an issue of credibility on the part of the claimants as it was clear that they had identified the fact that this issue was the key factor in their claim.
However, the evidence showed that the directors were engaged in significant strategic matters on behalf of the provider. Mr McAleavey had a job description which set this out, and his role included the need to focus on a time consuming and arduous re-tendering process, working closely with the Board etc. The tribunal recognised the distinction between the work required by the claimants in “maintaining the institution”, which was separate and apart from the work required in delivering the services to the homeless.
The employment tribunal decided that the claimants were not part of the organised grouping which had transferred back to the Council (who had taken the services in house).
The claimants appealed, arguing that the decision was perverse. The employment appeal tribunal was keen not to set fixed guidelines as to how such cases should be determined, but indicated that they are likely to depend upon consideration of the following factors:
- The amount of time being spent in service delivery in comparison with other matters;
- The amount of value in respect of the time spent on service delivery as against other matters;
- The terms of the contract of employment and any related job description;
- How the cost may have been allocated to different parts of the business.
No doubt the size of the organisation will also be a material factor. In some smaller organisations, the directors may be much more closely involved in the hands on delivery of the services.
The court considered that it was possible in these cases to make a distinction between the activities required by the client contract and those activities which were designed to “keep the show on the road”. Within the context of this particular case, the work required to register with all regulatory bodies, for example, the Care Quality Commission was, on balance, regarded as falling into the latter category. Any work involved in the re-tendering process would also clearly do so.
Summary
The issue as to whether or not an employee has transferred to the new provider pursuant to the TUPE Regulations can make a big difference to the profitability of a contract. Efficiency savings may lead to redundancies, but these cost money. Therefore, it may be better to argue that the employee has not transferred in the first place.
From the perspective of the director of the provider who has lost the contract, the effect of this decision is more stark. The loss of the tender can also mean that s/he is left without a job!