TUPE - Change Of Client

In October 2012, the Court of Appeal confirmed that a Service Provision Change ("SPC") TUPE transfer can only occur where the client who receives the service, before and after the change, remains the same (Hunter v McCarrick [2012] EWCA Civ 1399).

This is relevant where a property is being sold and the seller employs or engages property managers, or other service providers (for example, security, cleaning and landscaping) to provide services at the property, and the buyer proposes to employ its own employees or change the property manager, or any of the service providers.

Prior to the Court of Appeal's decision, it was commonly accepted that, where the property manager and/or any service providers changed on completion, the employees assigned to the property (and who were employed by the seller, property manager and/or service provider) (the "Transferring Employees") transferred to the buyer, the buyer's managing agent and/or service provider. Prior to completion, the client in receipt of the services was the seller, and then after completion it was the buyer.

The Court of Appeal has confirmed that a SPC transfer can only take place if the client in receipt of the services remains the same before and after completion. Given that the client changes from the seller to the buyer on a sale, SPC transfers can no longer occur.

However, whilst a SPC transfer cannot occur in the circumstances above, a traditional Business Transfer ("BT") can still take place so that the Transferring Employees transfer from the seller's managing agent and/or service providers to the buyer's managing agent and/or service providers. A BT transfer can take place where:

There is a transfer of an undertaking (a property) or business; and A transfer of an economic entity which retains its identity. An economic entity means "an organised grouping of resources which has the objective of pursing an economic activity". It can include tangible (equipment and employees and intangible (goodwill) assets.

Whether an economic entity has retained its identity depends on the following factors:

Whether tangible assets have transferred and the value of such assets; Whether any goodwill has transferred; Whether the majority of employees have been transferred and are utilised by the new employer; Whether any customers have transferred; The degree of similarity between the activities carried on before and after the transfer; and...