Outsourcing: Key TUPE Decision for the Logistics Sector

The recent Employment Appeal Tribunal ("EAT”) decision in the case of Eddie Stobart Ltd v Moreman & Others provides welcome guidance as to what constitutes an "organised grouping of employees” for the purposes of a service provision change under Regulation 3(3)(a)(i) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE”) where a contract is outsourced from one contractor to another.

Facts

The 35 Claimants were employed by Eddie Stobart Ltd ("ES”) at a depot at Manton Wood in Nottinghamshire ("the Manton Wood Depot”), which ES closed in April 2009. At the time of closure, ES provided warehousing and distribution services to two clients. The shift patterns were such that night-shift employees worked principally on tasks required by the Forza contract, whereas day-shift employees worked principally on tasks required by the Vion contract.

When the Manton Wood Depot closed, FJG Logistics Ltd ("FJG”) was awarded the Vion contract. ES considered that all employees engaged wholly, or employees who had spent more than 50% of their time, on "Vion-related work” should transfer to FJG. ES therefore wrote to each of the affected employees, informing them that:

they constituted an organised grouping of employees whose principal purpose was to carry out the work required by the Vion contract (within the meaning of Regulation 3(3)(a)(i) of TUPE);

a relevant transfer, by way of a service provision change, had occurred, with FJG as the transferee; and

accordingly, the contracts of employment assigned to that grouping had transferred to FJG (by virtue of Regulation 4 of TUPE).

FJG did not accept that there had been a service provision change or that any of the employees identified by ES as being assigned to the Vion contract had transferred to them and the Claimants were dismissed by ES.

The Claimants brought claims in the Employment Tribunal against ES and FJG for unfair dismissal, wrongful dismissal, breach of the information and consultation obligations under Regulation 13 of TUPE and redundancy payments. .

The Tribunal's Decision

The Tribunal held that the Claimants were not an "organised grouping of employees” and that, consequently, there was no service provision change under TUPE. The Tribunal held that the Claimants spent all, or the majority, of their time working on the Vion contract because of the way in which ES organised its shift patterns and not because they undertook activities which were client specific. As there was a 24-hour operation at the Manton Wood Depot, a shift system of some sort was inevitable, as was the fact that there would be a division of labour within each of those shifts.

The Appeal

ES appealed against the Tribunal's decision but the EAT agreed with the Tribunal, concluding that the Tribunal "came to the right answer for the right reasons”.

The EAT held that "regulation 3(3)(a)(i) of TUPE does not merely say that the employees should in their day to day work in fact (principally) carry out the activities in question: it says that carrying out those activities should be the (principal) purpose of an "organised grouping” to which they belong.” The employees must therefore be organised in some sense by reference to the requirements of the client (in this case Vion) and not simply, as here, by reference to a combination of circumstances (essentially, shift patterns and working practices on the ground). By March 2009 the employees found themselves to be working mostly on tasks for the Vion contract; however this was not as a result of any "deliberate planning or intent” on the part of ES.

What does this mean?

The EAT emphasised that there must be a certain degree of planning and intent on the part of the employer; it is simply not sufficient that the employees principally carry out the relevant activities on behalf of the client without any deliberate planning or intent. Rather, carrying out the relevant activities should be the principal purpose of the "organised grouping” to which they belong.

This decision therefore provides a degree of clarity regarding the often complex situation that arises where a contract is outsourced from one contractor to another and emphasises the need for legal advice to be sought at the earliest possible opportunity in relation to what the position is in law and the commercial options available. Where there is no client-focused element of organisation to meet the client's specific needs, the argument for an "organised grouping of employees” may be weak or non-existent.

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