Businesses are not always free to change lawyers, rules tribunal

The Transfer of Undertakings (Protection of Employment) Regulations 2006, better known as TUPE, were designed primarily to protect workers whose companies change hands. TUPE makes sure that their jobs transfer to the new business owner.

TUPE also applies, though, when one company takes over responsibility for the provision of services previously done by another. In those cases the liability for the people carrying out the work transfers from the old service provider to the new one.

The Regulations were at the heart of a case involving building society Britannia. It switched law firms, taking its work from Lees Lloyd Whitley to Barnetts.

An Employment Tribunal has ruled that some of the employees who worked on Britannia jobs were entitled to employment at the new firm under TUPE. The employees objected to the distance they would have to travel to work there. They resigned and sued for unfair dismissal.

The dispute is the first major case in which TUPE has been applied to professional services firms and it could change the way that companies deal with their external lawyers said Michael Ryley, an employment law expert at Pinsent Masons, the law firm behind OUT-LAW.COM, and author of the book TUPE: Law and Practice.

"TUPE has always applied to professional services, but a lot of people hadn't realised that," said Ryley. "In fact when TUPE was reviewed in 2006 there was a discussion about whether professional services should be taken out of scope, but they weren't. It is that decision that is coming home to roost."

The application of TUPE means that clients of law firms could find themselves changing firms only to have the same lawyers as before work on their accounts.

This can happen when employees of the outside firm are considered to be 'assigned' to a single client.

"There is no definite answer on what that means. Generally the risk of employees at a supplier being  assigned to a client arises if they spend more than half their time on that work and increases the more they do," said Ryley. "However, you could be assigned to work principally for one client, even though it only takes up 30% of your time, if that work is the one you always do as a matter of priority."

The Britannia case was complicated because press reports suggest that the building society did not want the same people working on its business, which is why it changed firms. Companies could find themselves switching suppliers because of quality concerns only to find the same people doing their work.

Ryley said that TUPE will not necessarily solve the problem and that clients should make their requirements clear in any contract with a new firm.

"Clients can deal with this by having a service level agreement saying they want the right to ask that the people working on its account are changed if it is not satisfied with the work," he said. "This is easier said than done if the supplier is a small firm. There may just not be other people to do the work."

Ryley said that companies hiring or changing their law or accountancy firms might have to use the kinds of commercial agreements that are used for other services in order to deal with the change.

Firms bidding for work from potential clients may now want to ask for the employment details of those currently working for the company so that they can factor in the cost of any TUPE transferees, he said.

"In commercial agreements this already takes place – the company supplies information on who is working on their business and makes sure in a new agreement that the new supplier commits to providing that information at the end of the agreement for the next tendering process," he said.

"This was not a problem for professional services companies in the boom years where talent was at a premium and where, if a contract was lost, there was other work for the employees; but in the recession we might see more firms arguing that there has been a TUPE transfer when they lose a contract, thereby offloading the surplus staff." said Ryley. 

Thank you to barrister Daniel Barnett for bringing this case to OUT-LAW's attention.