Stobart case highlights importance of TUPE compliance

London, UK:  The decision by the Employment Appeal Tribunal  that Eddie Stobart  Ltd had failed to comply with its obligations under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) when it closed one of its warehouses, acts as reminder to the logistics industry of the importance of adhering to the TUPE rules, warns the United Kingdom Warehousing Association (UKWA).

“The TUPE rules can create problems for service providers – such as third party logistics companies – if they win new business or give up a contract,” says Simon Edwards, UKWA’s legal adviser .

Simon Edwards, UKWA legal adviser: "TUPE rules can create problems for 3PLs if they win new business or give up a contract."

“Broadly speaking, under TUPE if a 3PL [third party logistics provider] wins a new contract, it may inherit relevant workers from the previous contractor if they have been part of a group organised to serve that particular customer.  This can mean becoming responsible for a group of workers’ accrued service and employment rights. The 3PL may even find that it has to compensate its new inherited employees for failing to consult in advance of winning the contract.”

“But TUPE impacts on a company that loses a contract too: It is sometimes difficult to demonstrate that a group of workers is dedicated to one particular contract so, if that contract is lost, the workers will not necessarily transfer across to the contractor and redundancy payments may be due if they have to be laid off.. This often happens at multi-user warehouse facilities where workers are servicing a number of clients.”

The Stobart case centered around a meat warehouse operated by the company. By 2009 only two suppliers were using the facility – Forza and Vion. Stobart’s night-shift employees worked primarily on the Forza contract and its day-shift workers worked primarily on the Vion contract.

In 2009 Vion arranged for their work to be taken over by a new logistics company – FJG.  Stobart thought that TUPE should apply to transfer the workers to FJG on the basis that the employees spent the majority of their time performing Vion work and notified them that they would transfer.  FJG did not agree that TUPE applied and did not accept that the employees were transferring.

The Employment Appeal Tribunal sided with FJG because, although the Stobart workers spent the majority of their time working for a particular customer they were not ‘organised’ on the basis of the Vion contract, but on the basis of the shift they worked.

“The point of the EAT’s decision is that it is crucial to see whether there is an ‘organised grouping’ by reference to the customer.  Where an employer has staff working on a contract that is expected to be lost and does not want to pay redundancy, the employer should ensure that employees clearly belong to a group organised by reference to the customer, for instance, referred to as ‘Contract X team’ in some way,” Edwards says.

Simon Edwards continues: “TUPE issues are often perceived as a problem for the Human Resources department to contend with, but I believe they are a key commercial issue and a company’s potential obligations under TUPE must be considered when tendering for new business, assessing the risk and pricing accordingly.

“Although the Stobart case arose out of a lost contract, if you are a 3PL business development manager it is vitally important to know what you are taking on when you pitch for new business and you should always enquire whether the existing 3PL has employees organized around the customer’s needs.  It is quite easy to see how the anticipated profit from a new contract can be eaten into by the costs that might be incurred under TUPE obligations and these should be factored in from the outset,” he says.

• UKWA members have access to a free 24-hour legal hotline where they can discuss TUPE and other legal matters relevant to their business.

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