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When contracts change hands, it’s not always clear which company is responsible for the employees
Words: Chris Tindall
When one company buys another the rules are clear – the purchasing company becomes responsible for the employees who are protected by the Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly known as TUPE. If the purchaser does not want all the employees, it must pay them redundancy at their existing terms and conditions. However, when a contract changes hands, the matter can be less clear cut, as a recent case has shown.
TUPE or not TUPE? That was the question recently vexing Mr Justice Underhill sitting at an employment appeal tribunal brought by Carlisle haulier Eddie Stobart.
His decision has significant implications for any company that wins or loses a contract and shows that employee transfer rights can be complex.
In 2009, Stobart closed its site in Manton Wood, Nottinghamshire, where its primary work was warehousing and transport of meat in bulk on behalf of suppliers. The company had lost three of the five meat suppliers it offered warehousing to at the depot.
One of these suppliers, Vion, quickly found another company to continue storing and hauling its meat – FJG Logistics, based in Scunthorpe.
Stobart said it could show, with records generated by radio frequency guns used by operatives for reading barcodes, that 35 warehouse employees were working specifically on the Vion contract for at least 50% of their time.
It argued that this therefore constituted an “organised grouping of employees” – essential for TUPE regulations – and that they should all begin working for FJG Logistics.
Staff bring proceedings
However, FJG refused to accept there had been a service provision change, or that it was even possible to identify who was working on which contract at the Manton Wood warehouse.
The staff in question, naturally fearing that they were falling between the cracks and would have neither a job nor a redundancy payment, took action – some with the help of their union. Believing they were being dismissed unfairly and wrongfully, they brought proceedings against both firms.
The employment judge found in favour of FJG and this led to Stobart’s recent appeal, which it lost. Responsibility for the 35 employees now reverts to Stobart. In law, they are entitled to redundancy at their existing terms and conditions or the offer of suitable alternative employment.
Mr Justice Underhill agreed with the first judge that it was not possible to accurately identify which staff were working on which contract.
Indeed, even the majority of staff concerned were unable to say that they regarded themselves as assigned to one contract or another.
But what does this judgment mean for other companies? Wasn’t this just a solitary case hinging on specific employment practices used only by Eddie Stobart?
David Poddington, partner at Taylor & Emmet solicitors, TUPE specialist and FJG’s representative at the appeal, thinks not. “There is no evidence that what Eddie Stobart was doing at Manton Wood was exceptional,” he says. “If you walked into the Manton Wood warehouse in February 2009 and asked to be introduced to the Vion team, you wouldn’t have been able to. That’s how most warehouses are organised. Typically, you might not have a corner of your warehouse dedicated to a particular customer.
Advantages and disadvantages
“It’s more likely that it’s all done through barcodes and recording the stock, and whatever is going through is just tracked and the people working there do whatever they are asked to do.” Poddington says the outcome of this case will have advantages and disadvantages for those working in the logistics industry.
“If, as in the Eddie Stobart case, a company organises their employees mainly by shift pattern, and they therefore work on a number of contracts, it is most likely that TUPE will not apply in relation to a service provision change. This could mean that if a contract is lost the company could be left with unwanted employees.
“If the employees could be re-deployed somewhere else in the company, however, then the company is able to retain the employees’ skills and expertise.” He says it is probable that in the past, transport companies have taken on staff when a contract has changed hands when they did not need to do so. “It is highly likely that there have been occasions when people have looked to staff in respect of volumes going through warehouses and percentage of time, and accepted a TUPE transfer would take place. This case suggests they may not have needed to do this.” Peter Woodhouse, partner at Stone King solicitors, says the case makes it clear that just because a contractor needs fewer staff after it loses a contract, it does not necessarily mean that the winning contractor must take them all on.
“It is common for operators, caught up in the euphoria of a contract win, to fail to consider the TUPE implications,” he adds. “Sometimes the losing contractor, either in an attempt to minimise their costs or to scare the winning contractor away, talks up the TUPE implications. So, sometimes the winning contractor suddenly finds itself having to decide whether or not to take on staff – for whom it will not have costed.
“TUPE is not intended to operate in all cases where a business loses a client, but is intended to protect employees who have effectively become integral to a particular contract or service provision.
“Courts and tribunals will look carefully at how the losing contractor has organised the work and assigned staff to it.” Rothera Dowson employment lawyer John Buchanan says the judgment reminds everyone that a service provision change is not always a simple process.
“It’s a two-stage test: is there an organised grouping of employees, and, if so, how many are there and how much time do they spend on it?” He adds: “Just looking at how much time is spent servicing a particular client is not enough.” ■
Further Information
Stobart appeal judgment: http://tinyurl.com/cw3cre6 TUPE guide explaining the provisions: http://tinyurl.com/n4zemz TUPE Regulations in full: http://tinyurl.com/cx5pctn ACAS information about TUPE: http://tinyurl.com/clfny8q