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The Court of Appeal confirms that there is no service provision change where the identity of both contractor and client has changed

Submitted by Firm:
Addleshaw Goddard
Firm Contacts:
Michael Leftley, Sarah Harrop
Article Type:
Legal Update
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The Court of Appeal has upheld the decision of the EAT that there will be no service provision change for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) on a change of contractor where there is also a change in the client to whom the services are provided. (McCarrick v Hunter)

The statutory concept of a service provision change was first introduced by TUPE 2006 and is not derived from the European Acquired Rights Directive (ARD).  This aspect of TUPE 2006 is said to represent a "gold plating" of the rights enshrined in the ARD and, as such, the EAT had previously decided that it is not required to apply a purposive construction of this section of TUPE 2006.  Instead, there should be a straightforward and common sense application of the relevant statutory words to the individual circumstances.

In this case, the mortgagee of a property portfolio appointed receivers to take control of a portfolio of properties.  At the same time, the receivers appointed a new property managing agent to manage the properties.  The Managing Director of the previous owner company of the property portfolio, Mr Hunter, wished to assist the mortgagee and the receivers.  To this end, Mr Hunter supplied (and paid for) an employee of the previous managing agent, Mr McCarrick, to help the new managing agent.  When Mr McCarrick was dismissed, however, he brought unfair dismissal proceedings arguing that his employment had transferred to Mr Hunter personally.  The Employment Tribunal, adopting a purposive construction of TUPE 2006, upheld Mr McCarrick's claim.

Mr Hunter appealed.  The EAT allowed the appeal holding, for the first time, that there was no service provision change where there was a change of contractor and a change of client at the same time.  In reaching this decision, the EAT decided that the word "client" should be given its ordinary meaning i.e. a specific client on whose behalf the contractor carried out activities (this approach has been endorsed by the EAT in the recent case of Taurus Group Ltd v Crofts).  Mr McCarrick appealed.

The Court of Appeal agreed with the EAT and dismissed the appeal, finding that the language used in the relevant part of TUPE 2006 is only consistent with the situation where there is the same client throughout.  The Court did acknowledge that Mr McCarrick's employment may have transferred from the old to the new property managing agent but this issue was not before the Court and so no decision on this point was given.

Comment

Although the particular facts of this case were somewhat unusual, this decision (together with the EAT's decision in Taurus) confirms that there will be no service provision change transferring facilities staff to a new service provider where this is also a change of client.  Instead, liabilities for redundancies and other costs will remain with the outgoing service provider.  As a result, service providers will wish to address this risk by securing indemnities from the client

However, it should be remembered that it may be open to outgoing contractors to argue that a standard business transfer has taken place.  Indeed, the Court acknowledged this possibility in McCarrick.  It would need to be shown that there was a transfer of an "economic entity" (either significant assets or a major part of the workforce in terms of numbers or skills) that retained its identity post-transfer.

McCarrick v Hunter