Employees Who Are Temporarily Laid Off Prior To A Transfer Of A Business May Still Transfer

The case of Inex Home Improvements Limited v Hodgkins and Ors has decided that TUPE can still apply to include employees who have been temporarily laid off prior to the transfer.

Under Regulation 3(1)(b) of the TUPE Regulations (“the Regulations”), employees transfer where a client engages a contractor to do work on its behalf, engages a different contractor to do that work in place of the first contractor, or brings the work back “in house”. These scenarios all represent a “service provision change” (SPC).

If there is a SPC and the following conditions are satisfied then employees will transfer to either the client (if going back in house), or to a subsequent provider.

The conditions are:

  • There must be an organised grouping of employees situated in Great Britain before the change that has as its principal purpose the carrying out of the relevant activities on behalf of the client;
  • Immediately before the change, the client intends that the activities will be carried out by the contractor (or subsequent contractor) other than in connection with a single specific event or task of short-term duration;
  • The activities do not consist wholly or mainly of the supply of goods for the client's use

In this case, H was one of a group of employees of IHI Ltd engaged on a project for TV Ltd (the client). During December 2012, the employees completed all activities associated with the most recent order, and it was anticipated that no further work would be required for a further month. The employees were therefore temporarily laid off for a month in accordance with the terms of their contracts. Following this, the client decided that the contract should be reassigned to L Ltd. H and his fellow employees brought claims against IHI Ltd, TV Ltd and L Ltd. The tribunal found that there was no TUPE transfer as, immediately before the transfer, the claimants had not been working (as they were laid off) and therefore there was no organised grouping.

The employer appealed and the Employment Appeal Tribunal (EAT) decided that there was nothing in the Regulations which stated that the organised grouping had to be engaged in the relevant activities immediately before the change of provider. The EAT stated that the purpose of the Regulations was to protect employees and this purpose would not be met if, where an organised group of employees were temporarily laid off prior to the transfer were consequently deprived of their employment rights. On that basis the EAT sent the case back to the Tribunal to consider whether, on the facts, this group of employees should have transferred to L Ltd or not.

The ruling is important for employers who regularly provide sub contracting services to clients who will be subject to the Regulations either when taking over a contract or when losing a contract where your employees are engaged on delivering a specific service for a client. Tribunals will scrutinise any anti avoidance tactics used by companies to avoid taking on transferring staff. These issues regularly crop up as part of commercial negotiations and if we regularly advise clients when dealing with TUPE in a practical commercial context.