Leave No Man Behind?

What happens to caretakers, maintenance engineers and cleaners when a leasehold/freehold property is sold? New case law guidance on this issue is not as helpful as it first appears.

The TUPE headache

Most property investors are already aware that a piece of legislation commonly referred to as TUPE (Transfer of Undertakings (employee rights)) interferes with deals done to sell leasehold/freehold property. Generally, TUPE is relevant where UK staff are dedicated to that property or where they wholly or mainly provide services to that property. The TUPE rules stipulate that:

  1. there is an automatic transfer of the employment and the employment liabilities of those staff to the Buyer; where those employees get special protection from:
    • being fired because of the transfer; and
    • having their terms changed because of the transfer; and where
  2. both the Seller and the Buyer become obliged to consult the employees.

This affects caretakers, maintenance engineers and cleaners because they are often dedicated to a property or employed by a company that contracts with the property-owner to provide these services (a “service provider” company). In turn, TUPE tends to dictate that the employees should “follow the work” when there is a change of service provider or where similar services are going to be carried out for a new owner of the property.

All this can make things awkward for parties to a sale. The Buyer often doesn’t want to deal with the implications of these obligations or assume liabilities when doing the deal. Indeed the Buyer may well want to contract with a different service-provider company upon acquiring the property. However, if the parties ignore TUPE obligations, they can be sued by the employees concerned.

Lawyers make a living out of solving the practical issues which arise from these obligations. However, new case law suggests that the problem may not arise in certain circumstances.

Problem solved, given the right scenario?

New case law suggests that in deals where the identity of the property-owner changes at the same time that there is a change in the provider of caretakers, engineers and cleaners then TUPE doesn’t apply. However, when you examine the judgment, it’s not quite as simple as that.

  • This principle has been deduced from a case with a complicated set of facts, involving mortgagees/receivers and a series of transfers. Further, the possible implications of additional transfers which may have occurred in the case were ignored because the employee’s lawyer didn’t make an argument on the point. As such, there is ample scope for lawyers representing employees to distinguish the facts of the case and to make an exception to the rule above.
  • The case deliberately ignored the implications of TUPE arising for reasons other than a service provision transfer. So, if an employee argues that a transfer occurred in the same circumstances but relying on the section of TUPE relating to business transfers, he/she may still be successful in a claim against a buyer or seller.

As such, it’s still going to be worth contacting a lawyer to check if it’s worth assuming that TUPE doesn’t apply to the sale of purchase of the property.

Regardless of the above, it is still the case that where a property-owner outsources caretaking, maintenance and cleaning functions, TUPE may apply and lawyers should be consulted. The same is true where a property-owner chooses to cease such an arrangement and carry out those services in-house.

Practical issues remaining

  1. If the Seller has taken on the responsibility of provider of caretakers, engineers and cleaners itself and if TUPE doesn’t apply to the sale for the reasons set out above, then the Seller or its service provider may need to make employees redundant. If appropriate, the cost of this should be factored into the sale price.
  2. The standard legal documents affecting a property sale or outsourcing need to be looked at again and adjusted to reflect the legal implications of this new case.
  3. Otherwise, in a more general context, property-owners may find the cost of contracting with service providers goes up. The service-provider may factor in the cost of making redundancies should it lose the contract due to a sale in the future.

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