The applicability of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is a critical consideration when drafting or advising on service agreements. TUPE will often apply where there is a transfer of a service (for example, when a service is outsourced by a client, brought back in-house, or where there is a change in service providers). However, just because there is a transfer of a service, it doesn’t necessarily mean that TUPE will apply. If TUPE isn’t expected to apply, a well drafted agreement should still include appropriate clauses to mitigate any potential risks.
When TUPE may not apply
TUPE applies to “relevant transfers,” which include business transfers and service provision changes. For a service provision change to fall under TUPE, there must be an “organised grouping of employees” whose principal purpose is to carry out the activities on behalf of the client. Therefore, if there is no organised grouping of employees, TUPE may not apply. TUPE is also unlikely to apply if the identity of the client changes at the same time as the service transfers.
Documenting this in the service agreement
In situations where TUPE is not anticipated to apply, the service agreement should usually include the following details:
- The parties’ understanding and expectation that TUPE will not apply should be documented. This won’t prevent TUPE applying, but will at least demonstrate that both parties did not believe that TUPE would apply (and so could reduce the likelihood of this ever being raised as a possibility).
- The service provider could be required to manage and deliver the services in such a way so as to minimise the likelihood of TUPE applying – for example, by not having any employees dedicated to the provision of the services.
- Appropriate indemnities to protect a party if employees do unexpectedly transfer to it under TUPE. The strength and extent of these indemnities will depend on the relative bargaining power of the parties, but it is usually reasonable for a party to be indemnified for the costs of terminating any employees who unexpectedly transfer to it under TUPE.
Things can change!
Bear in mind that even if TUPE won’t apply on commencement of the services (for example, if no employees are assigned at that point), this may change over the term of the contract. As the service provider delivers (and potentially builds on) its service delivery to the client, employees may become dedicated to carrying out the work for that client. This could result in employees becoming assigned to that service, meaning that TUPE could then apply when the contract terminates and the service is transferred (either taken in-house or taken over by a new service provider).
To avoid any surprises on termination, a well drafted contract should anticipate and include appropriate clauses to reflect the reality of what is expected to occur throughout the term of the agreement.
Don’t ignore TUPE
In circumstances where TUPE doesn’t apply, incorporating well-drafted protective clauses into the service agreement will be crucial to assign responsibilities and safeguard the interests of all parties involved. Legal advisers should carefully assess each situation to determine TUPE’s applicability and ensure that contracts are tailored to address potential risks effectively.
Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
