TUPE provides protection to employees where a business is being transferred or services are being outsourced, brought in-house or moved to another entity. But who is an employee for these purposes?
Identifying employment status
Unhelpfully there is no single definition of ‘employee’. For tax purposes, an individual can either be employed or self-employed. But for employment law purposes there is also a middle ground, known as worker status. And even employment law doesn’t use the same definition for all purposes.
The standard definition of employee, found in the Employment Rights Act 1996, is an individual who works for another person under a contract of employment, and a contract of employment means a contract of service or apprenticeship. These individuals enjoy the gold standard of employment protections, including the right, after two years’ service, not to be unfairly dismissed.
A worker is generally defined as an individual who works for another person under any other contract where they undertake to personally perform work or services for another party. However, an individual won’t be a worker if they carry on a business or profession and the other party is a customer or client of that business or profession. For example, if Mr Smith engages Paul Jones Plumbing to fit his bathroom, Mr Jones won’t become Mr Smith’s worker – Mr Smith is simply one of his business’ clients.
Workers enjoy more limited rights than employees, but they still benefit from important protections – including the right to paid holiday and to receive the national minimum wage. Most cases involving people in the gig economy have focused on these rights, most likely because the threshold for ‘worker status’ is lower, but perhaps also because a worker could – at least in theory – still be self-employed for tax purposes.
However, while there has been considerable litigation and political discussion about the rights afforded to workers, to date there has been little consideration as to whether workers should transfer under TUPE.
Who are employees in a TUPE situation?
Confusingly, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) define an employee as “any individual who works for another person whether under a contract of service or apprenticeship or otherwise but does not include anyone who provides services under a contract for services”. Traditionally, a ‘contract of service’ has meant an employment contract, while the phrase a ‘contract for services’ has been used to describe the relationship between a worker or self-employed person and their client.
Consequently, most organisations have operated on the basis TUPE only applies to transfer persons falling within the ‘standard’ definition of employee. However, the recent Employment Tribunal decision of Dewhurst v Revisecatch t/a Ecourier and City Sprint held that TUPE also applied to workers – and that the only individuals who were excluded were “independent contractors who are genuinely in business on their own account”.
What does this mean for employers?
While Employment Tribunal decisions are not binding on subsequent tribunals, and the case may yet be appealed, assuming this decision is correct its impact for employers could be significant:
- Employers will need to inform and consult with appropriate representatives of both employees and workers who are affected by a TUPE transfer. Failure to do so could result in an award of up to 13 weeks’ pay for each affected ‘employee’;
- Employers will need to provide specified employee liability information to the new employer. While they should have this information for their employees, they may not have this information for their entire workforce – not least as much of the information to be provided is specified in the statement of terms and conditions which, until April 2020, only has to be provided to employees, as opposed to workers. Failure to provide this information could result in claims for compensation by the new employer and the starting point is that compensation should be at least £500 per employee;
- Employers may find that businesses due to inherit employees in a TUPE situation are more insistent on obtaining warranties and indemnities in respect of any workers not included in an agreed ‘employee list’ to protect themselves in the event those workers seek to argue they should have transferred under TUPE.
Workers will not, however, be able to bring claims for unfair dismissal, nor will they be eligible to receive statutory redundancy pay (being rights which are only available to employees fitting the ‘standard’ definition).
But while employers may be able to avoid these costs – and may want to wait and see if the decision is appealed, before changing their approach – what is clear is that workers’ rights, and the gig economy, will remain a hot topic into 2020 and beyond.