The Employment Tribunal has handed down a potentially significant decision on TUPE and "workers", including workers engaged via an intermediary such as a staffing company. Although ET decisions are not binding on other tribunals and it is likely the case will be appealed, the case is of particular importance as businesses move away from traditional employer/employee structures.
TUPE should be interpreted to protect 'workers' and not just employees
It is clearly recognised in the UK that the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which emanate from the EU's Acquired Rights Directive (ARD), protects employees who are engaged under an employment contract, where the business or service in which they work transfers from one employer to another. Essentially, TUPE provides that the employees will move to the new employer, with many of their rights and liabilities intact, and with special protection against changes being made to their employment terms or from being dismissed, as a result of the transfer. These employees also have a right to be provided with certain information and to be consulted with about what is happening 'in good time' before the transfer.
The ET has now held that Regulation 2(1) TUPE which defines 'employee' under TUPE should be interpreted in line with the purpose of the ARD to include a worker (as defined in s230 Employment Rights Act 1996 which is essentially reflected in regulation 2(1) WTR 1998). The ET found that the purpose of the ARD was not limited to a specific class of individuals but instead was "to preserve" on a transfer "the different types and levels of employment rights and protections" which a Member State may afford "whatever they may be". Not to bring workers within the protection of TUPE would in the ET's view lead to "absurdity".
The ET also expressly stated in paragraphs 27 and 39 of its decision that the ARD covers persons engaged by one entity but who work for another entity. This appears effectively to mean that agency workers are covered by the decision.
What does this mean for users of "workers"?
We are anticipating that the decision will be appealed. However, in the meantime, this decision raises the importance for organisations acquiring a business or taking on a service to take particular care to understand who is engaged in that business or providing those services and on what terms. Whilst genuine independent contractors remain out of scope, potential litigation around employment status (with individuals seeking compensation for holiday pay and other worker rights around working time and pay) remains a real concern, particularly in the gig economy and post planned April 2020 IR35 which are likely to result in some contractors being treated as employees for tax purposes. A successful claim for failing to inform and consult under TUPE brings a potential award of 13 weeks' pay.
Here the claimants were cycle couriers claiming historic holiday pay and a failure to inform and consult under TUPE where the courier business they provided services to (courier one) lost a contract to an alternative provider (courier two). The claimants had provided services to courier one until 31 January 2018 and then to courier two from 1 February 2018. Whilst the couriers had been engaged as 'independent contractors', a previous ET had found that the cycle couriers were workers for holiday-pay purposes. However, for liability to pass and for the ET to have jurisdiction to hear their claims for failing to inform and consult under TUPE, the claimants needed to be employees for TUPE purposes.
Whilst to date employer due diligence in such transactions has largely focused to date on which employees are engaged in the relevant entity or service and what their rights and liabilities are; user organisations should ensure that they also understand what workers and agency workers are engaged in the relevant business or service (or who have been and therefore may seek to argue that they are protected by TUPE) and ensure that they are adequately protected against historic liabilities and the risk of workers transferring over the terms of any agreement. Likewise, those selling a business or ceasing to provide a service will need to give careful consideration to what must now be included in any statutory employee liability information provided. Indeed, this decision emphasises the importance for all parties of ensuring adequate indemnity protection is in place.
How does this affect the use of staffing companies and agency workers? Will it become easier for users to force the free transfer of contractors to lower-cost suppliers?
We repeat that this decision may be appealed. In the meantime, the impact of this decision on users of staffing companies and agency workers is not completely clear. If a "worker" is directly engaged by a user and the business or service in which they work transfers from that user to another entity, then their engagement transfers to the other entity. TUPE provides for how that transfer should take place and what information needs to be provided by whom to whom, against and against whom the individual has a claim if there is a failure to apply TUPE processes correctly.
But the position gets more complicated where a worker is engaged and supplied by a staffing company.
- Whose obligation is it to provide information to and consult with the agency workers? If the user has no contractual relationship with the agency workers on what basis can they arrange meetings or provide information? They may for example not have contact information about the workers.
- If rights are not honoured against whom does the agency worker bring claims?
- If the staffing company has given the user a blanket indemnity relating to employment claims (which it usually will have done), but the user fails to provide TUPE information (which it will be very reluctant to do – which companies want to tell their staffing suppliers that they are thinking of selling up?) and claims are raised, is it fair for the staffing company to be liable under that indemnity? Contracts between users and staffing companies will need to address this going forwards.
And what about where the staffing company's contract with the user is terminated?
- Does the decision mean that they automatically transfer and/or have a right to be taken on by any replacement supplier of staff to the user? We believe not but we suspect that agency workers may try to raise this argument.
- Does it make it easier for users to force the migration of agency workers from one staffing company to a cheaper alternative free of transfer fees? Again, we believe not in 95% of cases (unless workers are supplied and paid for on an output rather than timesheet basis) but clearly the decision makes it possible that some users will try to argue that it does, which could lead to the threat of a serious loss of revenue for many staffing companies.
There are more questions than answers at this stage. Unless the decision is overturned on appeal we believe there will need to be urgent changes to the TUPE legislation to clarify who is obliged to do what. In the meantime users and suppliers of agency workers would be wise to start including in staffing and MSP agreements express provisions dealing with how any TUPE transfer will affect relevant supplies of agency workers and the rights and obligations of all involved.