TUPE Service Provision Change – A Change of Direction?

20 Mar 2012

In the case of Eddie Stobart Limited (ES) v Mr J Moreman and Others, FJG Logistics Limited and Mr M Cooper the Employment Appeal Tribunal (EAT) had to decide whether TUPE applied to a relatively common situation.

The facts are that meat was warehoused at Manton Wood and then distributed to retailers.  After ES bought Manton Wood, 5 major customers reduced to 2. One of the remaining customers supplied mainly ASDA Stores.  This meant that their orders were "picked” in the warehouse by the nightshift.  The products for the other major customer, Vion, were picked mainly by the dayshift.

ES subsequently closed Manton Wood and took the position that the dayshift employees, who picked for Vion, were transferred to FJG Logistics (who took over the Vion contract) and that consequently 58 employees became employees of FJG.

ES identified the 58 as employees "assigned” to the Vion contract, employees who spent more than 50% of their work on Vion related activities by reference to work actually done and a few by management assessment of what management thought they did.

35 of the 58 people who lost their jobs and were not paid notice or redundancy money by ES (who said that they had transferred under TUPE to FJG) and nothing by FJG (who said they had not transferred at all) claimed unfair dismissal, wrongful dismissal and a protective award.

The key question was whether there was a transfer that fell within the service provision changes part of TUPE.

For regulation 3(3)(a)(i) of TUPE to apply, there must be an "organised grouping”.  The wording of the provision is as follows:

"3(3) The conditions referred to in paragraph (1)(b) are that:

(a) immediately before the service provision change:

(i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;”

The Tribunal Judge did not accept ES’ argument that just because the dayshift picked mainly for Vion, they were an organised grouping which was an essential element for there to be a service provision change.  The reasons he gave were:

  • When three previous customers had left following the ES acquisition, none of the employees were transferred, probably because ES did not consider that any were part of an organised grouping for TUPE purposes.
  • The organisation of the workers was done by reference to shift systems and job function and not by reference to customer.
  • The only reason for the dayshift picking almost exclusively for Vion was because that is when Vion orders had to be picked and they were the only customer on the dayshift.

None of the pickers would say that they were part of the Vion team as there was no "Vion Team”.

The EAT entirely agreed with the Tribunal Judge’s decision.

Service Provision Regulations do not apply if employers carry out activities that happen to be for a customer.  They do apply when employees are organised so as to be a recognised team working for that customer.  If ES had organised groupings called The Vion Team, then TUPE would have been activated.

This case is probably a mixed blessing!  Logistics companies will need to decide whether they reorganise their employees to have client specific teams to reduce their costs if contracts are lost.  On the other hand, corporate clients of logistics companies, who have sufficient commercial power, may want to ensure that their logistics companies do not have teams dedicated to their contract.  The advantage of this would be that there might be more cost saving opportunities when contracts come up for retender as any new contractor would not be saddled with TUPEd staff.