Henry Cort considers this issue
The increasing sophistication of facilities
Facilities management contracts have, historically,
not been the subject of intensive legal examination. This is
because services were often provided to procurers such as local
authorities or large institutional investors in-house, without the
need for extensive formal documentation beyond detailed
Developments in the commercial sphere have focused
legal attention upon the legal framework under which facilities
management services are delivered. For instance, the increasing use
by government bodies and larger institutions of competitive
tendering to obtain the best price for their facilities management
needs, and in particular the use of long-term facilities management
contracts under the UK Private Finance Initiative.
Under more recent documentation facilities
management services are often procured under term agreements for
several years, and in the case of UK Private Finance Initiative
agreements of 10 years or more are common.
The use of contracting-out and longer term
agreements has led to an increased emphasis upon the allocation of
attendant risk, including that arising from the impact of employee
The development of TUPE
The Transfer of Undertakings (Protection of
Employment) Regulations 1981, as amended by subsequent legislation
(and commonly referred to as TUPE) represent the implementation
into UK law of a European Directive concerned with safeguarding
employees' rights in the event of transfers of businesses or parts
of businesses (the "Acquired Rights Directive" (Directive, No
The scope of TUPE, and the Directive underlying it,
have been expanded significantly by the European Court of Justice
taking a wide and purposeful approach to interpreting their
intended scope. In addition, the Directive's scope is to be
slightly widened by Directive 98/50/EEC, which must be brought into
force in the UK by national law before 1 July 2001.
The effect of TUPE
Where TUPE applies then a statutory transfer of
employees and employment rights and obligations including
redundancy and personal injury claims and obligations occurs from
the outgoing employer to the new employer. Some rights, such as
pension provision, are not transferred but the greater part
Pre-transfer dismissals which are connected to the
transfer may, under TUPE, give rise to claims against the new
employer. Obligations to inform and consult workforce
representatives in "good time" before the transfer also arise.
Whether the new contractor or employer may
negotiate changes to the terms and conditions of transferred
employees' employment without breaching TUPE is soon to be the
subject of a decision of the House of Lords. The Court of Appeal
has stated that they may not.
How TUPE can apply to facilities management
For TUPE to apply there must be a transfer of an
"undertaking". However, the European Court of Justice view of this
concept includes some scenarios where:
- services are contracted out to external providers;
- services are brought back in-house following contracting-out;
- where one external service provider is replaced by
It is not possible to avoid the effect of the
Regulations by agreement and whether a transfer has occurred is a
question of fact in each case.
There is a large amount of (sometimes conflicting)
caselaw examining the boundaries of TUPE. One case of particular
importance is a 1997 decision of the European Court of Justice,
Suzen -v- Zehnacker Gebaudereinigung Gmbh Krankenhausservice. This
concerned the transfer of a term cleaning contract from one
contractor to another and lays down guidelines which suggest that
many facilities management arrangements may come within the scope
of the Directive underlying TUPE, including:
- that assets are not transferred is not of itself determinative
of whether a transfer has occurred;
- where the new employer takes over a significant part of the old
workforce in terms of numbers or skills a transfer is quite likely
to be deemed to have occurred; and
- the majority of employees do not need to be taken over by the
new employer for a transfer to occur.
English caselaw has clarified that it is not
possible to avoid TUPE by refusing to accept a transfer of any of
the outgoing contractor's staff.
Relevance to procurers of facilities management
TUPE difficulties can have a disruptive effect
amongst staff and generate negative publicity for the service
procurer. Possible examples of such difficulties are:
- Where contracting out for the first time, a statutory transfer
of employees to the contractor may occur under TUPE which leads to
upset amongst transferred staff. There may also be claims by the
contractor against the procurer where the contractor wishes to
change terms and conditions of employment of transferred staff
after the transfer but may have not been made fully aware of them
before the transfer. Such disputes can have a detrimental effect
upon the morale of retained staff and relations with trades unions.
The procurer may be brought into the action, at least for the
purposes of giving evidence.
- Where changing contractor, a dispute may arise concerning the
conduct of the outgoing contractor towards the transferred
employees. This may generate unwelcome publicity and the procurer
may be brought into the action.
- Where bringing services back in-house the procurer will be
transferee and may therefore be liable to TUPE claims arising out
of, for instance, unfair dismissal, alterations to terms and
conditions, personal injury claims and other transferred
Managing the risk
Many procurers of facilities management services
seek to protect themselves against claims and potential involvement
in claims. Protection sought often includes the use in facilities
management contracts of pre-emptive measures restricting the
ability of a facilities management contractor from dismissing or
materially altering the terms and conditions of relevant employees'
employment contracts during the period prior to the expiry or
termination of a facilities management contract. This may be backed
up by indemnity protection against contractor behaviour which is or
may be contrary to TUPE.
A protocol has recently been agreed for dealing
with MoD external procurement, and revised guidance has also been
issued to local authorities and government departments. Potential
contractors should be aware that, notwithstanding the exclusion of
pension rights from the transfer under TUPE, contractors will be
expected to provide comparable pension arrangements.
This area of the law is developing quickly and
provisions are often widely drawn. How widely they should be drawn
is a difficult question which is affected by the state of the law
at the date of the contract.