EAT Guidance on TUPE Service Provision Change Exception

The EAT has given guidance to tribunals considering an exception to the TUPE service provision change (SPC) rules.

In Swanbridge Hire & Sales Ltd v Butler, Shaws had a contract to build boilers at a power station. It subcontracted the task of insulating the boilers to Kitsons. After 10 months, its relationship with Kitsons broke down and it engaged Swanbridge instead. Swanbridge took another eight months to finish the contract. When Kitsons’s employees brought claims for outstanding wages etc., Kitsons argued that there had been a SPC under TUPE and that the employees and any liability for their claims had transferred to the new contractor, Swanbridge.

Swanbridge argued that there was no SPC as the exception in Reg 3(3)(a)(ii) TUPE applied. This provides that there will not be a SPC where the client (Shaws) intends that the relevant activities (boiler insulation) will be carried out "in connection with a single specific event or task of short-term duration". The tribunal considered that the exception did not apply and held that there had been a SPC and so liability for the claims transferred to Swanbridge.

The EAT disagreed and overturned the tribunal decision. The tribunal should have decided what Shaw’s intention was (at the time it changed subcontractors) as regards the duration of Swanbridge’s task. It had failed to do so. It should also have considered whether Swanbridge’s task of insulating the boilers was of short-term duration. The judge had wrongly considered the length of the entire contract (18 months), rather than the length of the task that Swanbridge was contracted to do (eight months). The EAT remitted the case to the employment tribunal to determine whether a SPC had occurred.

The purpose of this exception is to avoid TUPE applying where a client buys in services from a contractor on a one-off basis. However, the precise scope of the exception is unclear, leading to uncertainty in contracting-out situations. This case makes it clear that tribunals need to determine the client’s intention at the time it enters into the contract to see whether it intends that the activities will be carried out in connection with a single specific event or task of short-term duration.

The EAT commented on another aspect of this exclusion which has caused a lot of debate –whether an event has to be of short-term duration if the exclusion is to apply, or whether the short-term duration requirement only applies to tasks. In its view, the short-term duration requirement applies to both tasks and events. However, as it found that insulating the boilers was a “task” and not an “event”, its comments are not binding on other tribunals. There have been no binding decisions on this issue to date and where views have been expressed they have not been in agreement. A binding decision on this point would be helpful in clarifying the scope of the exception.