Although there are a number of factually specific issues in this appeal there is one clear issue of law which is not insignificant and it is this:
In a Reg 3(1)(b) Service Provision Change (SPC) is it necessary for the whole of the service to transfer or can there by an SPC where only part of the service transfers because it has been split into different functions?
The Council contracted out drug and alcohol services to the Trust. The Trust employed the claimants in the Drug and Alcohol Directorate. The Council decided to retender the service with effect from 1 January 2013. The service was split into 5 lots. Lot 1 was concerned with assessment, recovery planning and management. Lots 2 to 5 were concerned with delivery of different kinds of intervention. The successful applicant for Lot 1 would not be awarded any of the other Lots. Therefore the retendering exercise divided the service into two functions. Lifeline won lots 2 to 5, the delivery function. Arch won Lot 1, the management function. Arch refused to take any employees on after the transfer and the employees claimed unfair dismissal.
The ET Decision
Contrary to the submissions of Arch, the ET held that all of the claimants (save for a Mrs A) were involved in management and they were an organised grouping that transferred to Arch. Mrs A was also involved in management but she was a separate single organised grouping.
The EAT decision
Arch appealed on a number of grounds. Of particular interest is ground 2 which was that it was an error for law for the Tribunal to determine that there could be an SPC where the activities undertaken by the Trust were split into two separate functions (management and delivery). Arch made the following points:
1. Although under Reg 3(1) (old style business transfers) there can be the transfer of part of an undertaking, the SPC regime makes no such provision. This was clear from Reg 3(2A) which, having codified Metropolitan Resources, provided that the activities before and after the transfer had to be ‘fundamentally the same’. Activities in this context equated to ‘service’.
2. Although there can be more than one transferee (see Kimberley) this is only permissible if the activities which are undertaken before the transfer are replicated after the transfer, albeit they may be quantitatively different. It is not permissible where the constituent elements of the service are split along functional lines. The simple purpose of the SPC regime is that employees go with the work (see Eddie Stobart Ltd) is preserved. If the work is split in a way that means two or more parts of a former service are transferred, the SPC regime does not apply. To apply it in those circumstances would run contrary to its very purpose.
The EAT (Simler P) rejected these submissions. She held:
1. Reg 3(1)(b)(ii) identifies an SPC as a situation in which “activities” cease to be carried out by the outgoing provider and are carried out instead by another person. The word “activities” is not defined, and nor is it qualified in any way by words that could have been used to qualify it. For example, the provision could have said “the activities”, “all of the activities” or “the principal activities”. There is nothing in the Regulations that expressly requires that the relevant activities should constitute “all of the activities” carried out by the outgoing contractor.
2. There is no justification for substituting or equating the word “activities” with the word “service”. That could have been done, but it was not. The fact that the service that is subject to an SPC can comprise “activities” connotes that the relevant activates in a particular case may be a subset of the whole of the activities carried out by the transferor.
3. The restriction on the ambit of SPCs is found in Reg 3(3). Of particular relevance is the requirement that immediately before the relevant date there must be an organised grouping of employees that has as its principal purpose the carrying out of the activities concerned on behalf of the client. In other words, not only must the activities be fundamentally the same both before and after the putative transfer date, but there must be an organised grouping of employees, and that organised grouping of employees must have as its principal purpose the carrying out of the activities that cease and are carried out instead by the incoming person.
4. There is no reason why the SPC provisions should not in principle apply in a case involving a division on functional lines. The ways in which the activities of a service may be organised are infinitely variable. They may be organised geographically, in teams, in departments or by reference to particular functions or processes.
5. It is commonplace for contract awarding bodies to split a service into different components or functions when re-tendering, each of which is assigned to a different incoming contractor. Whether or not the SPC provisions in fact apply in any of these circumstances will depend on the application of the particular conditions within the SPC regime to the facts of the particular case. A split or change in activities is plainly a relevant consideration in assessing whether the activities cease in relation to the outgoing contractor and whether fundamentally the same activities are carried on by the incoming contractor for the same client, but at the end of the day in each case the question is one of fact and degree
6. Once a Tribunal has decided that there is a sufficient degree of similarity between the activities of the service in the hands of the putative transferee as compared with those in the hands of the transferor before the putative transfer, then the question will be whether before the change there existed an organised grouping of employees whose principal purpose was the carrying out of the activities for the client. That, again, will be a question of fact and degree, and there is no reason in principle to limit the number of organised groupings of employees to one in any SPC case.
As the EAT emphasises on a number of occasions in the judgment whether there is an SPC is often a question of fact and degree. It is not uncommon for a service to be redesigned so that the tendered service post transfer is different than the pre transfer service because some part of the service is no longer required or because there is some additional requirement. This often has the effect that there is no SPC. The decision in this case is not concerned with this sort of issue but with the position where the service is split and there is an organised grouping whose principal purpose is the carrying out of one of the functions (i.e. the activities) of the divided service.