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Losing Clients/TUPE Regulations

06/05/2010

It is not uncommon for a business to put a specialist team of workers in place to service specific clients. But what happens when that client decides to stop giving the business any more work and instead instructs a competitor?

Professional services firms often find themselves in this position, a client may have used the firm for accountancy, legal advice, advertising or PR for many years but for various reasons chooses to instruct a new firm for future work.

TUPE affords employees some protection but the circumstances of when TUPE Regulations do or do not apply was put into question recently in a case involving a solicitors practice. John Hassells, Employment Partner at KBL Solicitors explains: “Ward Hadaway Solicitors (WH) acted for the Nursing Midwifery Council (the NMC) for a number of years. It had built up an organised team to service the work it received from the NMC. Then the NMC decided, going forward, to use another firm, Capsticks. WH argued its team of employees transferred to Capsticks under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). If this argument was successful it would mean Capsticks inherited the relevant employees and associated employment liabilities”.

Under the TUPE, where there is transfer of 'activities' from one contractor to another- and there is also an 'organised grouping of employees' working on those activities before the transfer, their employment will transfer to the new contractor with protection under TUPE.

The Employment Appeal Tribunal's (EAT) Judgement was that WH's employees did not transfer to Capsticks because the NMC had allowed WH to finish the work and files it had been given. In other words it had run off that work. As WH finished off the work it had and it was not transferred to Capsticks solicitors, the tribunal determined there was not transfer of employees.

Even if this was not the case, the EAT said there still would not be a transfer because the activities Capsticks performed were not fundamentally the same as those performed by WH.

So, what can 'clients' and 'contractors' learn from all of this? Well, firstly, foresight and planning is important. When a contractor is tendering for work careful consideration must be given to the potential application of TUPE. Will the 'client' indemnify or share the risks and costs if the contractor is deemed to inherit employment liabilities from the old contractor? Who will pay the costs associated with the new contractor's employees, if the new contractor loses the work in the future?

Alternatively, the contractor and client may be able to alter the nature of the activities/services so they are sufficiently different from those performed by the old contractor. There may also be opportunities for the contractor to alter the way it organises its personnel internally. "With proper planning, careful negotiations, and some practical measures, all with one eye on the TUPE" John says "the risks and costs associated with TUPE in these situations can be minimised".

Should you require any advice or assistance in relation to the above or any other employment matter please contact John Hassells at KBL on 01204 527777.