Is there a TUPE transfer if there is a "temporary disintegration" of a business identity?

Is there a TUPE transfer if there is a "temporary disintegration" of a business identity?

In Mustafa v Trek, the Employment Appeal Tribunal considered how the Transfer of Undertakings (Protection of Employment) Regulations 2006 applies if there is a “temporary disintegration” (as it was described in the case) of a service. 

In Mustafa v Trek Highway Services Ltd, the Employment Appeal Tribunal (EAT) was concerned with the identity of a business when it is transferred from one contractor to another.   The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) afford employees a number of protections, including their continued employment, if there is a relevant transfer of an 'undertaking'.  For there to be a relevant transfer, in the case of the sale of a business, the entity (or undertaking) needs to “retain its identity” after the transfer; in the case of “a service provision change” – e.g. the outsourcing of a service – then the activities carried on by the new provider need to be “fundamentally the same” as those carried on by the previous provider.  The two concepts of “retaining identity” and being “fundamentally the same” may be slightly different in some cases but in this case amounted to the same thing.

The courts have considered, in a number of cases, whether TUPE (or one of its European equivalents) applies if there is a “temporary cessation of activities”.  For example, it has been held that TUPE did apply to the transfer of a lease of a seasonal inn during its closed season (Ny Molle Kro, 1989, ECJ) and to the change in the provider of a bar in a social club, even though the bar had been closed for four months because the bar licence had been withdrawn (Wood v Caledon Social Club, 2010, EAT).

It has also been held that if a service is 'fragmented' after a service provision change, then TUPE does not apply.  This may occur, where, for example, one provider is replaced by a number of different providers.

In Mustafa v Trek, the EAT considered how TUPE applies if there is a “temporary disintegration” (as it was described in the case) of a service. 

Transport for London (TfL) had outsourced highway maintenance to Amey Highways Services Limited (Amey), which in turn had outsourced a part of that service to Trek Highway Services (Trek).  The main contract between TfL and Amey was due for renewal on 31 March 2013 and following a re-tendering exercise, new contractors were appointed from 1 April 2013.  In the lead up to the change, there was dispute between Amey and Trek which led to Trek refusing to provide its services.   There was a period of 12 days when Amey was only able to fulfil its contract with TfL using a variety of contractors to do specific tasks on an ad hoc basis.  On the face of it, this looks like a classic “fragmentation”, although it was described in argument in the case as a “disintegration” of the service.

When the new contractors started to provide the service, they refused to allow the former employees of Trek onto site or to employ them; and argued there had been no TUPE transfer.

The Tribunal initially held there was no TUPE transfer.  It said this was not a case of a 'temporary suspension' of the service because unlike the facts in Ny Moolle Kro and Wood there was, in fact, no cessation of the activities: they continued to be provided by Amey via a number of other contractors.

On appeal, the EAT held that the Tribunal had made an error of law.  It said that the entity, comprising the employees of Trek and the equipment they used, could have continued to exist during the 12 day hiatus even though that entity was not providing any service.  The Employment Tribunal had not considered this possibility and so the EAT ordered the Tribunal to consider the facts again and to decide whether the entity had retained its identity during the 12 day period of the suspension of activities together with some other issues that the Tribunal had failed to address.

While it seems that this issue had never come before the EAT, it is not uncommon for there to be disputes between contractors and their client in the period leading up to the replacement of a contractor following a re-tendering process.  A contractor may sometimes withdraw, or threaten to withdraw, from performing the services early.  This case makes it clear that even if the contractor does refuse to perform the services for a period of time, this will not necessarily mean a new contractor will escape the consequences of TUPE.  A new contractor and the client will have to accept that the relevant employees may well transfer to the new contractor notwithstanding the old contractor breaching its contract by not providing the services. 

The case is also a useful reminder of the some of the strong employee protection principles that apply in sometimes confusing or messy real life situations.  For example, businesses need to be aware of the risk of there being a TUPE transfer even when a business has not been operating for a while – even many months. This may happen, for example, on a closure for refurbishment – or for some other reason – with a new operator running the business afterwards.  Even if a business is taking on a property which appears unused or vacant, there may be a risk of it inheriting employees from a previous business which had operated there, provided of course that the new business is “fundamentally the same” as the old one.

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