Service provision changes: assessing whether a transfer of employees has taken place

June 17, 2016

The recent Employment Appeal Tribunal (EAT) decision in Amaryllis Ltd v McLeod (2016) has provided helpful clarification for assessing whether a transfer of employees should take place following a service provision change.

A service provision change occurs in three situations:

  1. where an organisation outsources certain activities to a contractor;
  2. where activities cease to be carried out by one contractor and are instead are carried out by a subsequent contractor; or
  3. where the activities cease to be carried out by a contractor and are instead brought back in house.

It should be noted that, unlike in England & Wales where there is one set of TUPE Regulations which also cover service provision changes, the Regulations in Northern Ireland covering service provision changes are distinct from the TUPE Regulations. The legislative framework is, however, broadly comparable.

The Regulations provide that in order for employees to automatically transfer when there is a service provision change, there must have been, prior to the change, an organised grouping of employees, the principal purpose of which was to carry out the relevant activities for the relevant client.

In Amaryllis Ltd v McLeod the EAT considered that the ‘principal purpose’ of any organised grouping of workers must be assessed at the point immediately before the change in service provider takes place.

The Claimants worked for Millbrook Furnishings Ltd who had a contract for many years with the Ministry of Defence (MOD), amongst other clients, to undertake specific work. Amaryllis then won the MOD contract but decided that none of the Millbrook employees would transfer to them under the Service Provision Change Regulations.

At first instance the Employment Tribunal found that a transfer had taken place. The Tribunal accepted that Millbrook’s employees were spending almost 70% of their time on the MOD contract but noted that this in itself did not mean it was ‘dedicated’ to the MOD or that its principal purpose was to service the contract with MOD. The Tribunal was, however, satisfied that the department had originally been set up with the specific purpose of servicing the MOD contract, and while the group of employees now serviced other customers, the department had not ‘morphed’ from one dedicated principally to servicing the MOD contract to one operated principally to service the needs of all customers which happened to include the MOD as the largest customer.

Amaryllis appealed. The EAT allowed the appeal holding that it was not sufficient that a group of employees carries out significant work for a particular client, but that the grouping must be organised for the principal purpose of carrying out that work for the client and the relevant time for assessing whether this is the reality of the situation is the point in time immediately before the transfer takes place. The EAT decided that the Tribunal at first instance was wrong to look at the matter on an historic basis. Ultimately the decision of the Tribunal was set aside and as a result the employees did not transfer.

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Employment Team at Cleaver Fulton Rankin for further advice or information.

Jonathan Simpson T: 028 9027 1304 E: j.simpson@cfrlaw.co.uk