Court of Appeal ruling on TUPE in outsourcing

The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) provide protection to employees of an undertaking that transfers from one owner to another. There has always been some difficulty in defining precisely what is meant by an "undertaking", particularly in the context of outsourcing, where the service provider's "business" of servicing a particular contract is always subject to termination of the contract.

The Court of Appeal has provided clarification on this point in the case of Balfour Beatty v Wilcox (20 July 2006). The defendant argued that because:

  • the contract was susceptible to termination and also the volume of services provided under the contract could be reduced or dropped altogether; and 
  • its servicing of the contract was heavily reliant on plant that it hired rather than owned (and would not therefore transfer to a new contractor);  

TUPE should not apply.

The Court of Appeal decided that the facts that there was no guarantee of work and that assets would not transfer to the new contractor did not prevent the unit from being seen as an undertaking covered by TUPE.

Note that since the facts of this case arose, TUPE 1981 has been replaced by TUPE 2006. The new Regulations contain specific provisions governing service transfers such as the re-award of outsourcing contracts.