TUPE and workers: case update

The rise of the gig economy has generated a host of cases on employee and worker status – and now it's produced a decision about the scope of TUPE which may radically change how businesses go about business transfers and outsourcing/insourcing.   

The case has been brought by three bike couriers against Citysprint and another courier company, Ecourier.   One of the claimants previously won his claim alleging that he was a worker engaged by Citysprint.  The case concerns an alleged TUPE transfer from Citysprint to Ecourier – but the couriers can only claim compensation if TUPE transfers the contracts of workers (and the rights and liabilities attached to those contracts) as well as those of employees.   

It has long been thought that TUPE could theoretically apply to workers because of some ambiguous wording in the Regulations – but previously businesses have taken a pragmatic view that only employees are covered.   However, the Employment Tribunal in this case has made a clear ruling that TUPE transfers the contracts of workers as well as employees.  This decision was based on the purpose of the original EU Directive which TUPE implemented – the purpose being to protect a wide class of individuals protected under the employment laws of EU member states.  "Workers" covers a range of non-employees, including some freelancers, casual staff, many LLP members and others.

At first sight, this creates an enormous headache for businesses going through sales, acquisitions or service provision changes.   Assuming the Employment Tribunal is correct about the law, they will now need to inform and consult with a wider group of staff about any proposed transfer and measures to be undertaken by the incoming employer.  Failure to do so correctly will now result in a larger compensation bill, as the penalty is 13 weeks' pay for each affected employee (including workers).   The incoming employer will also inherit a larger group of new staff when the transfer takes effect, with all the additional costs that entails – and, as a result, more due diligence will be undertaken on non-employees who will transfer.  Indemnities and warranties in the transfer agreement will need to be widened to cover all potential liabilities in relation to transferring workers. 

But it's important not to overstate the effect of the case.  Only employees are able to bring claims for unfair dismissal and this decision doesn't change that.   So there is little to stop the incoming employer from terminating the contracts of any workers who would otherwise transfer under TUPE, then re-engaging any it wants to keep on terms of its choosing.  Although the incoming employer would be responsible for any notice payments due under the contracts (if any), these can be priced into the overall deal. So although this decision will make some deals more complicated, the risks and costs can be managed with careful planning and well-drafted contractual documentation. 

It's likely that this decision will be appealed.   In the meantime, businesses will need to be alive to these issues when negotiating commercial deals which engage TUPE.