Service provision changes under TUPE: can a number of parties collectively be "the client" for TUPE purposes?

6 minute read
25 March 2015

In a decision of particular relevance for those in the real estate sector, we learn this month that a 'client', for the purposes of a service provision change under TUPE, may include the plural. The result is that a service provision change may occur where there is a common intention between two or more different entities to contract with the same service provider.

Property managers, owners, landlords, tenants, sellers and buyers must once again turn their minds to TUPE with the decision in Ottimo Property Services Ltd v (1) Mr Duncan and (2) Warwick Estate Properties Ltd.

Building on the decision in Hunter v McCarrick, this decision looks again at what is a 'client' for the purposes of a service provision change under TUPE. In Hunter v McCarrick we learned that the client must remain the same before and after a transfer for a service provision change to occur (albeit there may still be an old style business transfer, depending on the circumstances). This decision does not change that. But, we now learn that "a" or "the" client can in fact mean more than one client.

So, where two or more different entities contract with the same service provider, TUPE can apply in the event that there is a common intention between some or all of those different entities to subsequently contract with a different service provider.

The case

A service provision change occurs under TUPE where a client contracts for or changes contractor in respect of a service or activity. Most commonly in a property context the services will involve activities such as cleaning, security or grounds maintenance, as well as property management itself.

Hunter v McCarrick told us that where the client changes at the same time as the service provider, then there could be no service provision change for the purposes of TUPE. "The client" means just that, the same client before and after transfer.

Ottimo considered the meaning of "a" or "the" client in a different context. The question here was whether the client meant only a single client or whether it could also mean more than one client.

In Ottimo, a Site Maintenance contractor provided services in respect of 12 separate blocks of residential housing on the Britannia Village estate. Each block (known as BV1, BV2 and so on), had its own residents' managing company which contracted separately with a contractor which subsequently became Ottimo. Mr Duncan was employed as Site Maintenance Manager carrying out his duties in respect of each block managed by Ottimo.

Management contracts for five of the blocks subsequently moved to other contractors but Mr Duncan carried on as before with enough work remaining to keep him occupied. However, over the course of four months in mid-2012 Ottimo lost its contract for another five of the remaining blocks, with Warwick being appointed by each block's managing company. This left Mr Duncan not having enough work to do and Ottimo took the position that he had transferred to Warwick. Warwick disputed this.

The Employment Tribunal (ET) found that each block's managing company was a separate legal entity which had entered into its own separate contract for the site maintenance services. These were on common terms but had been entered into at different times. The ET decided that the client could only mean a single client entity, and the fact each of the blocks contracted separately meant there was no service provision change across the board.

This was overturned by the Employment Appeal Tribunal who said that the client could be comprised of more than one entity provided that there was some form of common intent in entering into the contracts collectively, (providing the clients remain the same before and after the transfer and therefore satisfy the Hunter v McCarrick test).

One of the conditions for a service provision change to take place is that the client intends the new service provider to carry out the activities going forward. In a single client scenario, that intention is likely to be relatively straightforward to identify. However, the condition still has to be satisfied where more than one client is involved - there needs to be some evidence of common intention to appoint the new provider. This could arise through contractual arrangements or even by practice.

The Ottimo case has now been sent back to the ET for them to look at whether there was a common intention among the various residents' managing companies or not.

What to watch out for?

Property managers, owners, landlords, tenants in commercial premises, buyers and sellers will need to look at arrangements carefully to consider whether a service provision change might occur if there is any element of commonality in appointing service providers.

Watch out for:

  • umbrella contracts,
  • consortium contracts;
  • preferred supplier arrangements; or
  • where there is no contract, any other link in how the parties operate on the ground, which demonstrates the necessary common intention.

Weigh up the benefits of 'bulk-buying' against the increased TUPE risk and consider contracting separately for services of this nature. Most importantly, don't be caught out by assuming that TUPE will not apply when retendering services just because there are a number of customer entities involved.

Separate contracts may help reduce the risk, but as this case shows, will not necessarily be an absolute bar to TUPE applying.

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