The first case to reach the Employment Appeal Tribunal concerning a dispute between two law firms over the employment law implications of winning a client contract from another firm has provided ‘much-needed clarification’ on the issue, experts have said.

The EAT upheld an earlier tribunal decision that Transfer of Undertakings, Protection of Employment (TUPE) regulations do not apply where a law firm wins a contract from another firm if there is a substantial ‘run-off’ in the handing over of the files.

This means that, where a client terminates its contract with a firm in favour of another firm, the new firm will not be obliged under TUPE to take on the staff who worked on the file at the old firm, provided the client allows the old firm to complete any ongoing work on existing files, rather than transferring these to the new firm.

In the ruling last month, the EAT found that TUPE did not apply when Newcastle firm Ward Hadaway lost the Nursing and Midwifery Council (NMC) contract to London firm Capsticks.

Ward Hadaway had unsuccessfully argued in the employment tribunal that the transfer of the NMC contract in its entirety signalled a ‘service provision’ change between the two firms. It claimed the employment contracts of all solicitors and other staff who had worked mainly on the NMC contract should automatically become Capsticks’ responsibility.

However, the EAT found that no service provision change had taken place because there had been a six-month ‘run-off’ period during which Ward Hadaway had been able to complete work in progress, with no active files transferred to Capsticks.

The EAT also found that the type of work that Capsticks was to carry out for the NMC differed from that formerly carried out by Ward Hadaway, with most advocacy moving in-house.

Capsticks senior partner Peter Edwards said: ‘Clients change service provider because they want a fresh team on the case, not the return of the old team. And firms and staff are both in limbo where the current employer asserts TUPE and the new one denies it. You are forced to pursue a remedy, one way or another, usually through the tribunal.’

Ward Hadaway declined to comment.

Charles Newman, employment partner at national firm Beachcroft, said: ‘This decision provides much-needed clarification on what constitutes a service provision under TUPE. There has been much discussion among employment lawyers about the importance of run-off. This judgment suggests that if there is a substantial run-off then TUPE is unlikely to apply. If there had been a handover of existing matters and files to Capsticks, however, or if Ward Hadaway had only retained a few active files, then the tribunal would almost certainly have ruled the other way.’