Appeal No. UKEAT/0462/10/CEA

EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON, EC4Y 8JX

	At the Tribunal
	On 10 November 2011
	   Judgment handed down on 21 December 2011

Before
HIS HONOUR JUDGE PETER CLARK
(SITTING ALONE)

ENTERPRISE MANAGEMENT SERVICES LTD	APPELLANT

CONNECT-UP LTD AND THE CLAIMANTS	RESPONDENTS

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR STEPHEN LENNARD
(of Counsel)
&
MR ZEESHAN DHAR
(of Counsel)
Instructed by:
Vista Employer Services Ltd
5300 Lakeside
Cheadle Royal Business Park
Cheadle Royal
Cheshire
SK8 3GP
	
For Connect-Up Ltd	MR ANTONY WHITE
(One of Her Majesty’s Counsel)
&
MS CLAIRE DARWIN
(of Counsel)
Instructed by:
Messrs Watson Burton LLP Solicitors
1 St James Gate
Newcastle-upon-Tyne
Tyne and Wear
NE99 1YQ
	
For Unison and Claimants	No appearance or representation	
For Mr Trout	No appearance or representation	

SUMMARY
TRANSFER OF UNDERTAKINGS – Service provision change

Employment Judge entitled to find (a) that the activities carried out by outgoing contractor were not essentially or fundamentally the same as those carried out by the incoming contractor and (b) that there was fragmentation of the service after the putative transfer date such that no SPC transfer took place.

HIS HONOUR JUDGE PETER CLARK 

1.	The issue before Employment Judge Hepworth, sitting alone at a Pre-Hearing Review held at the Leeds Employment Tribunal, was whether the employment of the individual Claimants, members of the Trade Union Unison, also a Claimant, with the exception of Mr Trout, had transferred from the First Respondent Enterprise Management Services Ltd (Enterprise) to the Third Respondent Connect-Up Ltd (Connect) under the provisions of regulation 3 of the TUPE Regulations 2006.

2.	After hearing evidence over 7 days from 22 witnesses, including the Claimants and such documents as were considered relevant in the 16 lever-arch files placed before him, by a Judgment with Reasons promulgated on 20 July 2010 the Judge held that no transfer had taken place.  Against that decision Enterprise now appeal.  This is a full hearing of that appeal with both Enterprise and Connect present as a result of a combination of the initial paper sift by HHJ McMullen QC and subsequent rule 3(10) hearing before HHJ David Richardson.  The Claimants have not attended this hearing.  Solicitors acting for Unison and its members have indicated that they support the position taken by Connect in resisting the appeal; as the Employment Judge observed at paragraph 8.15 of his Reasons, this represents a change of position by those Claimants during the course of the PHR; initially they contended for a transfer in common with Enterprise.  At the hearing before me Enterprise are represented by Mr Lennard and Mr Dhar of counsel, who appeared below.  Connect, represented by their solicitor, Mr Graham below, now appear through Mr Antony White QC and with him Ms Darwin.  Mr Trout does not attend.

The facts
3.	Leeds City Council (LCC) have LEA responsibility for some 300 schools in the Leeds area.  Prior to 2004 LCC supplied IT support services to those schools in-house.  In 2004 that service was put out to tender.  Enterprise was the sole successful bidder.  Under the terms of a Framework Agreement (FA 2004) Enterprise were granted preferred provider status.  Schools were offered two service levels; Option A was total support, that is a complete managed service applicable to all equipment and software and to both the curriculum network and the administration network.  Option B was to provide full support for maintenance of Management Information Systems (MIS) software.  This involved a SIMS helpdesk and administration network support only.  Enterprise also provided consultancy, installation of the software, hardware, technical support and training.

4.	Initially Enterprise provided services to all the LCC schools.  However by 2008/2009 that had dropped to 80 per cent, the remaining schools having moved to other providers, including Connect and R M Education Plc.  At that stage some 20 out of the 240 schools remaining with Enterprise had signed up to Option A; the remainder to Option B.

5.	FA 2004 expired on 31 March 2009.  LCC invited tenders for a new Agreement.  Enterprise decided not to tender.  As it was put by Mr Hutton, Enterprise’s Operations manager concerned with implementation of the service provided by Enterprise and a Claimant in these proceedings, in an email to Mr Edwards of Education Leeds (acting on behalf of LCC) dated 16 January 2009:

“The contract between the council and Enterprise reaches a conclusion on 31 March and having considered the quite different requirements of the new contract and the changing marketing environment for ICT support in Leeds, Enterprise very reluctantly declined to bid.”

6.	Whilst there were similarities between the proposed new contract and FA 2004 the Employment Judge found there were significant differences between the two Framework Agreements, listed at para. 5.12 of his Reasons.  The most significant difference, he found (para. 5.4) was that the new proposed contract excluded any service cover providing for curriculum systems.  This represented 15 per cent of the work of the Enterprise staff assigned to the Leeds service; the remaining 85 per cent consisted of administration work (para. 5.3) which was included in the new proposed Agreement.

7.	Connect successfully tendered for the new contract, taking over on 1 April 2009 (the putative transfer date), under the terms of FA 2009.  On 31 March Enterprise had dismissed the Claimants, but not on the ground of redundancy.  There was confusion as to the transfer position; Enterprise believed that their employment transferred to Connect.  Mr Driver of Connect, who gave evidence below, understood from LCC that since, at 31 March, Connect then had signed up 98 schools (33 per cent of the overall number of ‘Leeds’ schools; 41 per cent of the schools which had contracted with Enterprise), Connect was required to take, pro-rata, 7 of the relevant Enterprise staff.  Following the 1 April there was something of a ‘free for all’.  By 18 May 2009 Connect had 62.5 per cent of the 240 schools formerly signed up by Enterprise; a new organisation SICTS Ltd, formed by former Enterprise staff led by Mr Hutton, had 59 schools (24.6 per cent) and other schools were distributed amongst four other providers, High Tech Group, Capita Business Services, R M Education and Serco.  Capita and R M also showed interest in signing up to FA 2009, but in the event withdrew.  I should deal here with a point raised by Mr Lennard in relation to para. 5.12 of the Reasons, where the Employment Judge refers to ‘at least 5 other major suppliers’.  I accept Mr White’s submission that the word ‘major’ is there used to describe their position in the market generally, rather than the extent to which they serviced Leeds schools.

The legal principles
8.	I need not set out reg. 3 of the 2006 Regulations.  It is not contended in this appeal that an ‘old style’ transfer took place under reg. 3(1)(a).  The issue for me is whether the Employment Judge erred in law in holding that no Service Provision Change (SPC) took place within reg. 3(1)(b) read with reg. 3(3).  In connection with the SPC question I have been referred to the following EAT cases: Metropolitan Resources Ltd v Churchill Dulwich Ltd [2009] ICR 1380 (HHJ Burke QC, sitting alone); Kimberley Group Housing Ltd v Hambley [2008] ICR 1030 (Langstaff J presiding); Clearsprings Management Ltd v Ankers, on which I sat, UKEAT/0054/08/LA, 24 February 2009 and OCS Group UK Ltd v Jones (HHJ Ansell presiding) UKEAT/0038/09/CEA, 4 August 2010.  From that learning I derive the following principles to be applied when considering the reg. 3 SPC provisions in the present case: 

(1)	The prospective SPC in this case arises under reg. 3(1)(b)(ii), that is where ‘activities’ cease to be carried on by a contractor (here, Enterprise) on a client’s (LCC) behalf and are carried on instead by a subsequent contractor (Connect).

(2)	The expression ‘activities’ is not defined in the Regulations.  Thus the first task for the Employment Tribunal is to identify the relevant activities carried out by the original contractor: see Kimberley, para. 28; Metropolitan, paras. 29-30.  That was the issue on appeal in OCS where the appellant’s challenge to the activities identified by the Employment Tribunal failed.

(3)	The next (critical) question for present purposes is whether the activities carried on by the subsequent contractor after the relevant date, here 1 April 2009, are fundamentally or essentially the same as those carried on by the original contractor.  Minor differences may properly be disregarded.  This is essentially a question of fact and degree for the Employment Tribunal (Metropolitan, para. 30).

(4)	Cases may arise (e.g. Clearsprings) where the division of services after the relevant date, known as fragmentation, amongst a number of different contractors means that the case falls outside the SPC regime, as explained in Kimberley (para. 35).

(5)	Even where the activities remain essentially the same before and after the putative transfer date as performed by the original and subsequent contractors an SPC will only take place if the following conditions are satisfied:
(i)	there is an organised grouping of employees in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;
(ii)	the client intends that the transferee, post-SPC, will not carry out the activities in connection with a single event of short-term duration;
(iii)	the activities are not wholly or mainly the supply of goods (rather than services) for the client’s use.
	See reg. 3(3).  (Neither of (ii) and (iii) arise in this case.)

(6)	Finally, by reg. 4(1) the Employment Tribunal must decide whether each Claimant was assigned to the organised grouping of employees.

Employment Tribunal decision
9.	The Employment Judge made the following findings, based on his findings of primary fact:

(1)	The activities carried on by Enterprise prior to 1 April 2009 (the putative transfer date) were the provision of ICT support for administrative and curriculum systems to schools in Leeds (para. 8.5).

(2)	Enterprise did have an organised grouping of employees which had, immediately before 1 April 2009, the principal purpose of carrying out the activities on behalf of LCC (para. 8.6).

(3)	After 1 April 2009
	(i)	there were significant differences between the activities carried out by Connect, when compared with those carried out by Enterprise before that date (para. 5.12) and
	(ii)	the break up of schools serviced by Enterprise amongst Connect and four other suppliers was not a case of no fragmentation simply because only Connect provided services under FA 2009; other companies provided ICT support for LCC.
(iii)	there was no transfer of Claimants to Connect 

(4)	The question of assignment under reg. 4 did not strictly arise.  It is dealt with at para. 8.10.  There was no SPC.

The appeal
10.	I should deal first with a point raised by Enterprise by way of amendment to para. 44 of their grounds of appeal at the rule 3(10) hearing stage with the permission of Judge Richardson.  The submission is that it was open to the Employment Judge to consider whether there were two activities, the provision of administrative and curriculum support and that only the former was the subject of an SPC.  

11.	Interesting though the question is as to whether activities (like undertakings in reg. 3(1)(a)) can be split into parts for the purpose of determining the SPC question, having been taken by Mr Lennard to his closing written submissions below I agree with Mr White that this point, separating out different activities, was not taken below.  It would require further fact finding.  Mr Lennard advances no exceptional reasons why he should be allowed to take what I find to be a new point on appeal.  In these circumstances I shall not permit him to take the point now.

12.	The principal challenge in the appeal is to the Employment Judge’s finding that the activities carried on by Connect were significantly different from those carried on for LCC by Enterprise.  That appeared to be the view of Mr Hutton, then of Enterprise, on 16 January 2009 when he emailed Mr Edwards.  Mr Lennard submits that the Judge ought to have found (para. 8.5) that the activities carried on by Enterprise on behalf of LCC was the provision of administrative network support; however, he does not challenge the factual accuracy of the description formulated by the Judge at para. 8.5.  In these circumstances I am unable to find any ground in law for interfering with that formulation (see OCS Group).

13.	As to the post-1 April 2009 activities carried on by Connect, I have heard argument as to the breadth of the differences identified by the Judge at para. 5.12.  Certainly the final two items (f) and (g) are not relevant to the SPC (as opposed to reg. 3(1)(a) transfer) question.  

14.	I do not find it necessary to descend into the minutiae of this part of the argument.  I am satisfied that the Judge was entitled to conclude, as a matter of fact and degree, that the omission of curriculum work, representing, it is common ground, some 15 per cent of the work done by the organised grouping of Enterprise employees dedicated to the LCC schools service, meant that the activities carried out by Connect were not essentially or fundamentally the same as those carried on by Enterprise.

15.	However, the Judge went further.  He considered the break up of schools formerly serviced by Enterprise between Connect and the five other providers, including SICTS.  In my judgment the Judge was entitled to reject Mr Lennard’s submission that those providers were irrelevant because they were not parties to FA 2009.  LCC did not dictate to schools which provider(s) they were to use; the Framework Agreement merely identified LCC’s preferred provider.  Hence the ‘free for all’ allowing for a number of providers to supply the service to schools at their discretion.  Looking at the figures at para. 8.8, adopted I note, from the closing submissions on behalf of the Claimants below, the Employment Judge was entitled to conclude that post-1 April the provision of services formerly provided by Enterprise were so spread amongst other providers as well as Connect that no SPC had taken place on that basis.  

16.	Taking both factors together, the change in the activities and fragmentation of service providers post-1 April 2009, I have no hesitation in rejecting Mr Lennard’s contention that the Employment Judge’s conclusion, that no SPC transfer took place, was legally perverse, recognising, as did Mr Lennard, the high hurdle which he is required to surmount.

17.	In these circumstances this appeal fails and is dismissed.