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Employment Law

Legal guidance - compliance - software

27 JUN 2016

TUPE: when a business takes over a contract, which employees does it inherit?

TUPE: when a business takes over a contract, which employees does it inherit?
Mark Stevens 
Veale Wasbrough Vizards

In Amaryllis Ltd (Formerly of Montrose Road Chelmsford Essex) v McLeod and others, the Employment Appeal Tribunal (EAT) considered the necessary conditions for a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Mr McLeod and others (the Claimants) worked for Millbrook Furnishings Industries Ltd (Millbrook), who, for 50 years, held contracts with the Ministry of Defence (MOD) for the renovation of furniture. Between 2003-2008 the renovations contract was awarded to Amaryllis Ltd (Amaryllis), who subcontracted the furniture renovation aspect of the contract to Millbrook.

In 2014, the renovations contract was retendered and was won by Amaryllis. Though many of the employees of Millbrook had been engaged in the renovation work for the MOD, Amaryllis decided that none of the employees would transfer to it under TUPE.

The Claimants brought a claim against Millbrook and Amaryllis on the basis that they believed there had been a TUPE transfer.

Employment Tribunal (ET)

The ET made reference to the fact that the department had originally been set up, some 50 years ago, to service the MOD contract relating to renovations and, on this basis the ET was satisfied that "there was, at the material time, an organised grouping of employees within [Millbrook] which had, at its principal purpose the carrying out of the activities concerned on behalf of MOD."

The ET concluded that most of the Claimants transferred to Amaryllis. Amaryllis appealed to the EAT.

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The EAT 

The EAT allowed Amaryllis' appeal, finding that when assessing what the principal purpose of the organised grouping was, the 'relevant time' is immediately before the transfer, not based on what arrangements were in place historically.

The EAT concluded that the ET had erred in its approach to the case by:

  • considering the 50 year historical period relevant
  • deciding that it was the constant purpose of the department to carry out furniture renovation work for the MOD, when between 2003-2008 Millbrook's client had been Amaryllis, not the MOD. 

Best practice 

As part of the due diligence process before a transfer of a business, employers should carefully investigate and analyse:

  • whether, immediately before the proposed transfer, there is an organised grouping of employees which has been deliberately assigned to the part of the business that is transferring
  • what the principal purpose of the organised grouping is
  • whether its activities concern a specific client.