No TUPE protection for umbrella contractors?

An Employment Appeal Tribunal (EAT) ruling on whether the Transfer of Undertakings Protection of Employment Regulations 2006 (TUPE) applied to a given set of facts raises some interesting questions as to whether the legislation could actually apply, and protect, an umbrella company contractor, ie: an employee of the umbrella working for a third party hirer. The regulations are often cited as justification for agencies to be forced to lose or to take on groups of agency workers (who are either employees of the agency or of an umbrella company) when their client decides to switch providers, including moving the services previously provided by the agency in-house.

At the risk of trying to over-simplify legislation, the complexities of which can bring experienced lawyers into a cold sweat, the regulations ensure that where there is a change of business ownership or a service provision change, employees working for the transferring business or outgoing service provider have their employment rights protected and are deemed to transfer to the new business owner or service provider.

The case of London Borough of Hillingdon v Gormanley (EAT November 2014) concerned a service provision change: three members of the same family employed by a firm which serviced the London Borough of Hillingdon’s housing decorating requirements, sought the protection of the legislation after the borough indicated that it intended to take the work back in-house.

The key question was whether the three Gormanleys were an ‘organised grouping of employees’ (a requirement of the regulations) the principal purpose of which was ‘the carrying out of the activities concerned on behalf of the client’, namely the borough.  At the earlier employment tribunal hearing it had been held that they were assigned to an organised grouping of employees working within the company on behalf of LB Hillingdon.  The EAT overturned this decision on the basis that the claimants could be asked to perform duties other than for LB Hillingdon under the terms of their employment contracts, noting that one of them was the firm’s company secretary.

Umbrella companies and some employment agencies commonly use overarching contracts of employment ‘OAC’ (currently the subject of an HMRC discussion paper: read more…) to enable its employee contractors to claim tax relief on travel and subsistence expenses to a temporary place of work, on the basis that their permanent employment (and place of work) is with the umbrella company and that there are obligations between employee and employer which exist whilst the umbrella contractor is not on an assignment with a hirer. These OAC contracts are likely to provide that the umbrella employee can work for any number of clients, thereby re-enforcing the notion that the employee would only ever work at a hirer temporarily (up to 24 months). This EAT ruling, if applied to umbrella contractors engaged under such standard umbrella OAC, would mean that the protections afforded under TUPE would not extend to them at all.