GUIDANCE NOTE ON TUPE – A Brief Summary of What to Consider when Tendering to Provide Outsourced Services

When an organisation (the client) decides to delegate a business activity to an external supplier (the supplier) it will frequently put the business activity out to tender. This article aims to give a brief summary of the employment law issues which need to be considered by suppliers who wish to tender for that business activity and, specifically, considers the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE).

Whilst I will deal mainly with the issues that arise on an original outsourcing (i.e. where the client originally carried out the business activity itself before deciding to outsource), similar principles will apply where there is a change of supplier (a “second generation outsourcing”) and where there is a re-tendering of a supply of services contract where no outsourcing is involved.

TUPE – main points to consider:

•  The Automatic Transfer Principle – under this principle, if TUPE applies, the supplier will inherit all of the employees assigned to the business activity as well as all rights, liabilities and obligations in relation to those employees. By way of example, a company employs its own maintenance team to look after the maintenance of its buildings. It decides that it would be cheaper to outsource the buildings maintenance and puts the maintenance contract out to tender. The supplier who is ultimately successful in tendering for the contract will inherit the existing maintenance team. If it wishes to reduce the number of maintenance people it employs, it will need to show that there is an economic, technical or organisational reason (ETO) for the dismissals, and then carry out a redundancy process, but all maintenance staff will need to be considered for redundancy, not just those who were previously employed by the client. A dismissal which arises as a result of a TUPE transfer which is not for an ETO reason will be automatically unfair.

• The client or the outgoing supplier must provide the incoming supplier with certain information about the transferring employees before the transfer takes effect, including their identity and their terms of employment.

• There are obligations on both supplier and client to inform and consult the affected employees in relation to any “measures” which will be taken as a result of the transfer.

• Employees can avoid being transferred to the supplier by objecting to the transfer of their employment but, if they do so, their employment ends automatically on the date of the transfer and they have no right to a redundancy or other termination payment (regulation 4(7) and (8), TUPE). However, if the reason for the objection is a proposed fundamental breach of contract by the supplier, the employee may claim constructive dismissal (regulation 4(11), TUPE and section 95(1)(c), Employment Rights Act 1996 (ERA 1996)). Liability for this may stay with the client (or outgoing supplier), or transfer to the (new) supplier, depending on the circumstances. In addition, if the transfer would involve a substantial and materially detrimental change in working conditions, the employee may resign and treat the contract as terminated (regulation 4(9), TUPE).

• TUPE can apply in the same way on termination of an outsourcing arrangement, so that the transferred employees may transfer back to the client (if the work goes back in-house) or to a new supplier if the client decides to award the contract to another supplier. In this situation, the client could end up taking on more employees than it originally transferred to the supplier, if the supplier has assigned extra employees to the function during the course of the contract. Since it can be hard to predict how the supplier will organise the service and therefore whether TUPE will apply in the future, it is advisable to deal with this from the outset in the service agreement between the client and the supplier that deals with the original outsourcing.

Exceptions and exclusions

TUPE provides that it will not apply to a service provision change where:

• The contract is wholly or mainly for the supply of goods for the client’s use (regulation 3(3)(b), TUPE).

• The client intends that the activities will be carried out “in connection with a single specific event or a task of short-term duration” (regulation 3(3)(a)(ii), TUPE). Unfortunately, it is not clear from the wording of TUPE or case law whether this exemption applies where there is either:

  1. a single event (whatever the duration) or a task of short term duration; or
  2. if it applies only to events or tasks that are both one-off and of short-term duration.

It is also difficult in practice to be certain what is meant by short-term duration. However, BIS’ view in the Guidance is that both characteristics are necessary to satisfy the exemption from TUPE. It compares a contract for the provision of security advice over a period of several years in the run-up to the Olympic Games (to which the exemption would not apply, as although the event is one-off, the contract is not of short duration) with a contract to provide security staff at the Games themselves (to which the exemption would apply because the contract relates both to a one-off event and is of a short-term duration).

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About Belinda Lester
I am the managing director and founder of Lionshead Law a specialist employment law and HR consultancy company.

2 Responses to GUIDANCE NOTE ON TUPE – A Brief Summary of What to Consider when Tendering to Provide Outsourced Services

  1. David Howells says:

    Interesting note. Thank you.

    Can TUPE be avoided in a business agreement by the vendor of the business agreeing to keep responsibility for the affected staff?

    • No TUPE can’t be avoided. If TUPE applies, then the transfer of affected employees is automatic. However the Transferee can require indemnities from the Transferor in respect of any claims by affected employees as part of the sale/purchase agreement.

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