Does an employee on long term sick leave transfer under TUPE?

For employers involved in a business acquisition/disposal or a change of service provider, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) can give rise to practical and legal challenges, including potentially unintended and expensive consequences in relation to employees.

TUPE generally applies to automatically transfer the employment of employees in a “business” when there is a change in owner. Where services are being outsourced, taken in-house or transferred to a new provider by a client (a ‘service provision change’), TUPE may also apply to automatically transfer (to the new provider) the employment of those employees who form an organised grouping with the principal purpose of carrying out the services.

The critical question in such scenarios is which employees will transfer? In some cases this will be clear cut but in our experience, there are many scenarios where this is not the case. The question of whether any particular employee is ‘assigned’ to the transferring business/services and is therefore ‘in scope’ to transfer is fact specific. Whilst the amount of time spent by the employee working in the business or on the services is clearly relevant, it is not the only consideration.

So does an employee on long term sick leave transfer?

The Employment Appeal Tribunal (“EAT”) has now handed down a helpful decision looking at the situation of an employee “permanently” absent on long term sick leave at the time of a TUPE transfer i.e. where there were no reasonable grounds for belief that the employee would return to work in the future. (BT Managed Services Ltd v Edwards and anor).

Mr Edwards was part of a team of BT engineers providing maintenance services to Orange for its mobile networks. He was absent on long term sick leave and after unsuccessful attempts to return to work had been kept ‘on the books’ by BT as an employee in order to receive payments under a permanent health insurance policy and then later, from BT itself. However, Mr Edwards didn’t undertake any work and there was no expectation that he would again be able to do so. Orange retendered the contract and, as a result, the maintenance services were awarded to Ericsson Ltd in place of BT. The parties agreed that this was a service provision change under TUPE. Mr Edwards had been on sick leave for around 5 years at the time services were transferred and Ericsson, as the incoming service provider, did not agree that Mr Edwards transferred to it under TUPE, although it accepted that his colleagues in the team providing the services did transfer.

The Tribunal and EAT agreed with Ericsson, Mr Edwards did not transfer under TUPE and remained employed by BT. Just because he would have been working on these particular services had he been well enough to return, was not sufficient to say that he was assigned to the organised grouping of employees. In order for TUPE to apply to transfer Mr Edwards’ employment there needed to be more than just an administrative link or historical connection to the services. There needed to be some participation in (or, where an employee is temporarily absent, an expectation of future participation in) the grouping’s activity and so the fact that his absence had been viewed as permanent for some time meant that he could not be said to be assigned to the organised grouping of resources and would not transfer under TUPE.

 What does this mean for employers?

Employers should give careful consideration to TUPE issues on entry into or exit from a contract to provide services to a client and on the sale and purchase of all or part of a business:

• Where possible do due diligence and ask questions regarding the employees potentially assigned to the business or the services, including those who are absent for any reason.
• Despite the EAT decision in Edwards, do not assume that because an employee is on long term sick leave, they will not transfer under TUPE. The EAT was clear that those absent temporarily or where there is a reasonable belief that the employee will return to work (e.g. maternity leave, non-permanent sick leave, temporary lay-off) can still be assigned to the relevant grouping of employees and transfer under TUPE. It is only where the absence can be viewed as permanent and there is no expectation that the employee will be returning to work to participate in the activities (as was the case with Mr Edwards) that their absence will exclude them from the service provision change transfer – exactly what constitutes a temporary absence or a reasonable expectation of the employee returning is likely to be difficult to identify and fact specific and so employers should approach the issue with caution.
• Employment issues can be crucial and must be given careful consideration on any business acquisition or at the time of tendering, pricing a bid or negotiating a new services agreement. Appropriate indemnities for any unintended or unexpected employees should be built in.

 Edwards also provides a helpful reminder of some of the issues employers must manage and keep under review where an employee is on long term sickness absence:

• Where an employee is absent on long term sick leave they remain an employee even after their sick pay (and any permanent health insurance entitlement) has been exhausted. As such, they will continue to accrue an entitlement to paid holiday even whilst they are off sick, although a recent EAT decision indicates that this will be limited to 18 months (see here).
• Be clear of any express or implied contractual obligations to continue to pay employees during long term sickness absence. Mr Edwards had exhausted his entitlement to permanent health insurance payments but BT continued to make payments to him after this, although the basis and reason for the on-going payment is not clear from Edwards.
• As this case demonstrates, an employer could find itself continuing to employ someone even though the services and contract they have been working on prior to their sick leave has transferred completely to a new service provider. However, any decision to dismiss must be taken with extreme care and on legal advice, particularly where the employee in question is entitled to permanent health insurance.