NEWS ANALYSIS: Legal case spells transfer trouble

Under a recent legal ruling, in-house comms heads could be forced to employ the account team of a sacked agency. But few in the client world are taking any notice.

NEWS ANALYSIS: Legal case spells transfer trouble
NEWS ANALYSIS: Legal case spells transfer trouble

‘Stupefied’ means to put into a state of little or no sensibility; to benumb the faculties; to stun, as with a shock, narcotic or strong emotion. And it is exactly the right word to describe the PR industry’s response to the employment regulations known as the Transfer of Undertakings (Protection of Employment) Regulations 2006, or TUPE 2006 for short.

But the case of Hunt vs. Storm Communications, Wild Card PR and Brown Brothers Wines (see box, right) has thrown TUPE 2006 into sharp focus for all those who work in PR.

Despite this, a recent survey by Gyroscope has shown that less than half (46 per cent) of senior communications managers are aware of the legislation’s full implications, and less than one third (31 per cent) of organisations have taken any steps to mitigate its effects.

Yet the regulations – now supported by case law – will have a profound and damaging effect on any clients (org­anisations that currently use external agencies, or that might do in the future) that do not act now to work with the regulations in the future.

Service provision
The new regulations introduce ‘Service Provision Transfers’. A service provision change occurs where serv­ices (such as PR) are contracted out, brought back ‘in-house’ or reassigned to a new contractor.

Unless certain exemptions are met, according to our legal advice, any employees who were dedicated to the in-house activity or external account will automatically have their employment transferred to the new service provider with their exis­ting terms and conditions preserved.

It is important to note that this is not optional for employers: it is automatic and legally enforceable.

The impact of TUPE 2006 on agencies has been widely discussed – but the implications for clients are equally challenging. Crucially, if the work has been moved away from an agency, and has been taken in-house, then the client may find that they are the new service provider.

For example, if a client decides to sack an agency and take the work in-house – perhaps because it does not believe that the agency’s team is competent – it may have to acquire the account team as employees: they will enjoy protection of emp­loyment, and they may even have much better pay and benefits than the organisation’s in-house staff.

Similarly, if the client decides to change agencies, it may again find that the new agency is required by law to acquire the account team of the previous agency; and if it appoints an agency to manage work that was previously carried out in-house, its in-house staff may be required to transfer to the agency.

A defensive strategy is vital. As a first step, says Chris Filor, a specialist emp­loyment lawyer working with Gyroscope, clients should check to see whether they already have a TUPE liability.

Specifically, they need to investigate what proportion of their time each account team member at each of their agencies spends on their account.

If they currently spend more than 50 per cent of their time on their account, they could be defined as having ‘the principal purpose’ of working on the client’s behalf, and hence they may
represent a liability under TUPE.

Clients that do face a TUPE liability should not sack any agencies or put any work out for tender until they have red­uced the liability: in essence, advises Filor, they need to ‘manage down’ the amount of work going through any affected agency until no member of the agency’s team can
define working on their business as their ‘principal purpose’. This may of course affect other aspects of their contract with an agency: expert advice is essential.

Watertight contract
Clients that do not have current TUPE liabilities should ensure they avoid them in future by making it a condition of the agency’s contract that it will not allow any employee to bec­ome a liability under TUPE – for example, by ensuring that no employee will spend more than 50 per cent of their time on their account.

They may also seek indemnities against any liability that they might acquire through an agency’s failure to comply. This may affect their current contract (assuming they have one) and new contract terms will need to be drafted.

Organisations should also review the contracts and terms of their current in-house employees, and consider if and how these should be redefined to prevent TUPE-related problems if they ever decide to outsource any of their PR or corporate communications activity.

In summary, the communications industry is quite justified in feeling that TUPE 2006 is ill-conceived, ill-considered and ill-executed. However, it is the law, and clients and agencies alike must find viable ways of protecting their interests while working within it.

A WATERSHED CASE...  

In June, an employment tribunal ruled that agency PROs have the right to transfer to a rival firm following a client re-tender. This was the first instance of TUPE (Transfer of Undertakings [Protection of Employment]) being applied to PR.

The tribunal ruled that Karis Hunt, a former account manager at Storm Communications, legally had the right to follow her client, Brown Brothers Wines, to Wild Card PR when the account was re-tendered.

Hunt was made redundant from Storm Communications when Brown Brothers Wines – her biggest client – stopped using the agency and turned to Wild Card.

Hunt was documented as having spent 52 per cent of her time working on the Brown Brothers Wines account, but claimed to have spent 70 per cent of her total time, including out-of-office hours, on that client’s business.

Wild Card’s solicitors argued that because less than 55 per cent of Hunt’s documented time was spent on Brown Brothers Wines, TUPE did not apply. The chairman of the tribunal, however, judged in favour of Hunt.

There have been further hearings to decide the extent of Hunt’s financial compensation, according to David Grey-Jones, solicitor at law firm Thomas Mansfield, who is representing Hunt. No final decision had been reached as PRWeek went to press.

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