On the sale of investment property it is essential to consider whether the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) will apply to transfer employment contracts or outsourcing contracts from the seller to the buyer.
In basic terms, there are two ways in which contracts may be transferred: either directly, in the case of employee contracts where the employer transfers its interest; or indirectly, where there is an outsourcing arrangement and a new contractor is appointed.
This second transfer is known as 'service provision change'. Failure to provide for the operation of the regulations could leave purchasers liable to claims for unfair dismissal and breach of the TUPE regulations.
A recent case - Hunter v McCarrick - has raised an interesting question about how the service provision change element of TUPE will apply where there is not just a change of contractor, but also a change of property owner.
The facts of the case are not straightforward, but it makes the point that for TUPE to apply it is not enough that work transfers from one contractor to another; there is also a requirement that the work is carried out for the same client - or, in property terms - the same owner.
In Hunter, Mr McCarrick, an employee at Waterbridge Group Ltd, had his employment contract transferred to WCP Management Limited, a property maintenance company. The application of TUPE to transfer his - and other employees' contracts - from Waterbridge to WCP was undisputed.
Subsequently, HMRC served a winding up petition in respect of Waterbridge, and BDO Stoy Hayward (BDO) was appointed LPA receivers by Aviva, a lender. BDO appointed King Sturge to manage the properties owned by Waterbridge, in place of WCP.
Potentially, this left WCP employees without a job unless their employment contracts had transferred by means of TUPE. This was what they claimed had happened.
Their case reached the Employment Appeal Tribunal, which had to interpret the TUPE regulations concerning service provision change. The contractor who provided the property management services had changed from WCP to King Sturge, but the 'client' - the person employing that contractor - had also changed, as it was BDO that appointed King Sturge, and not Waterbridge.
The EAT considered that regulation 3(1)(b), which defines 'client', should be read as referring to only one client, and that this client's identity must remain the same in order for TUPE to apply. As the 'client's' identity had changed from Waterbridge to BDO/Aviva, TUPE did not apply. The employees of WCP were out of a job.
The Hunter case was decided in an insolvency context, but if the decision is applied to the transfer of managed property, it raises the question about whether TUPE will apply in circumstances where a new owner moves outsourced management services to a new contractor. Possibly not!
The case is being appealed and so is important to be cautious about the reliance placed on it, but it clearly demonstrates an increased openness by the courts to accept that TUPE will not cover all service provision changes.