Winning work from a new client is a great feeling. Winning it away from a major competitor can be even better, but a recent case suggests that there can be a sting in the tail because you may also find yourself inheriting your competitor's staff. This can of course be a mixed blessing, particularly if your shiny new client has moved to you because of dissatisfaction with those very people!

This issue is mainly relevant to patent attorney practices which have or aspire to have a number of very large clients which provide enough regular business to keep a core group of staff busy for significant periods of time. A matter of taste of course, but to many this is a description of professional services nirvana and there are many patent attorney firms who rely on work from just a few major clients for a substantial proportion of their practice.

The legislation that leads to this perhaps surprising result is the Transfer of Undertakings (Protection of Employment) Regulations 2006 which update earlier legislation from 1981. The regulations (normally nicknamed TUPE) are the UK's implementation of the EU Acquired Rights Directive which originated in 1977. The basic purpose of the legislation is quite simple. It means that where ownership of a business or responsibility for providing a service transfers from one person, firm or company to another then the employees who work primarily in that business or service will also transfer.

The new owner (the transferee) steps into the shoes of the old (the transferor) so far as contracts of employment, claims and liabilities which relate to employment are concerned. Staff who are subject to this transfer also have special protection against dismissal, the right to retain their old terms of employment and they also have the right to be consulted about the way in which the transfer will affect them.

For many years under the old 1981 version of TUPE it had become clear that these principles would apply to many transactions that could be generically described as outsourcing – cleaning and catering contracts, the supply of IT services to businesses etc. Providers of those kinds of services have for many years run their business models and tailored their approach to contracting and manpower planning to cope with the effect of TUPE.

However part of the point of the 2006 revamp of TUPE was to tidy the legislation up to take account of 25 years of voluminous case law developments and in particular to make explicit what had long been implicit in terms of the application of the principles to outsourcing. This was done by introducing a "new" category of situation which would lead to application of the TUPE principles, ie "service provision change". This means that where a service is provided by one organisation to another, whether through outsourcing (client to provider), second or subsequent generation outsourcing (client changes provider) or insourcing (client thinks better of the whole thing and takes the service back in house) staff who are mainly devoted to providing the service for that client will move from provider to provider with the service.

This clarification was not especially controversial but it does raise new or at least previously unremarked upon issues for providers of all kinds of professional and consultancy services, including patent attorneys.

The point is neatly illustrated by a recent Employment Tribunal decision called Hunt v Storm and Others which was decided in the Reading Employment Tribunal. Employment Tribunal decisions are not in themselves binding on other courts and tribunals. An appeal had been lodged and this would have produced some more durable guidance but we gather that this has since been withdrawn, a settlement presumably having been reached. So the Tribunal decision is all we have at present. But we think it was correctly decided.

Brown Brothers, the wine makers, had a contract with Storm Communications Limited for the provision of PR services including building good relations with wine writers etc. Ms Hunt was an employee of Storm and throughout her time with them spent between 50 and 70 % of her time working on the Brown Brothers account – a job which by everyone's admission she did very well. However, Brown Brothers eventually decided it would be sensible to put the work out to tender to see if price could be improved upon. Storm were unable to retain the account which was moved (eventually) to another PR agency called Wild Card. Storm said that they were unable to provide Ms Hunt with a full ongoing workload and were in any event of the view that her employment had transferred under TUPE to Wild Card. Wild Card in turn disputed this on the basis that Ms Hunt's contract of employment did not in terms dedicate her to Brown Brothers work and that, in any event, she did not spend all or even a disproportionate amount of her time on that work. In fact during the period of six months leading up to the change of provider she had worked only around 50% of her time on the relevant account.

The tribunal decided that Ms Hunt had indeed transferred to Wild Card because there had been a service provision change and Ms Hunt spent most, albeit not all, of her working time and effort on the Brown Brothers Account. The tribunal also correctly pointed out that proportion of time spent is not the only indicator of whether or not an individual employee is really assigned to the service in question. Other issues like the terms of the contract, the degree of identification in the minds of others of a person with that particular service etc are also to be taken into the mix.

So what does this mean in practice for patent attorneys?

It means that a change of provider of professional and/or consultancy services will potentially lead to transfer of staff heavily involved in the "old" service to the new provider. We might say that in general in a law firm, an accounting practice or a firm of patent attorneys, professional staff will work on a variety of different issues for a wide range of clients so that, in most cases, a result similar to Hunt v Storm is unlikely. Superficially this feels right but of course the truth is that in many firms of patent attorneys individual attorneys, or groups of attorneys, will work for a substantial chunk of their time and in a concerted way on either a single major project or on a variety of issues for a single client. While they may be available in theory to do other work for other clients, the controlling issue is what is actually happening on the ground during the run up to the change of provider.

The DTI (as was) appeared to recognise this during the early stages of its consultation exercise on the 2006 amendments and the possibility of a specific professional services exemption was mooted. But there were a number of problems with this. First, it would have been hard to define professional services and there was a risk that a variety of staff groups who were not intended to fall within the exemption would lose their rights as a result. Also there was a sense that there was no sound philosophical basis on which to deprive professional services workers of rights that apply to others or indeed to relieve professional services firms of obligations that apply to the whole of the rest of the economy. So the exemption was dropped.

For professional services firms this will create some significant management headaches. Where skills are in short supply, as in the patent profession, firms are unlikely to welcome the prospect of good people being automatically gifted to the opposition when they have won an account . The prospect of this sort of transfer may be destabilising for the staff themselves leading to a fall off in loyalty and productivity. Equally, firms who have won an account with a view to feeding their own existing fee earning infrastructure may be dismayed to find that they will immediately acquire a new workforce which may not be what they would have chosen themselves and which increases overheads. That might result in redundancies but it is legally very risky simply to select those who have recently arrived. The whole combined workforce should be looked at as a whole. Again, this destabilises the maximum number of people. Also, bear in mind that these risks don't just relate to fee earning staff. The same principles will apply to their PAs and to other professional support staff who are assigned to the service in question. As ever, where there is a risk there is also an opportunity. Losing a big account is a major headache and in extreme cases may lead to redundancies. So much the better if that particular headache can be passed on to a competitor or (conversely) if a workforce dogged by skills shortages can be supplemented by good people plucked from and trained at the expense of a rival organisation!

In our work over the past few months we have seen a range of examples of how this new environment for professional services firms is working out in practice, including in the patent attorney profession. In some sectors, there are signs of quite a cutthroat approach with the outgoing supplier putting weaker members of staff on to accounts which they sense they are about to lose so that those staff are then dumped on the new supplier. Mid year pay increases also start to appear. More able staff are miraculously found other, unrelated, things to do. In other cases we are seeing rival suppliers working together quite effectively to neutralise the risks TUPE poses to both of their businesses, sometimes even involving the client in question in the process. It is the client of course that will ultimately pay for whatever happens because the effect of all of this may be to increase costs and ultimately fees. Clients also face the prospect of changing suppliers on the basis that they are not getting value out of an incumbent supplier's people, only to find the same old faces turning up at their shiny new supplier .

Hopefully in the longer term, common sense will come to the rescue. Specialist professional service providers in particular tend to be participants in limited, well-defined markets and will hope that during the course of a ten or fifteen year cycle they will get the opportunity to pitch to a wide range of potential clients. At any given time they could find themselves in the role of incumbent, pretender or inheritor. What goes around tends to come around and mutually assured destruction can be a powerful moderator of behaviour. We expect that in time the relevant professional services sectors – whether accountants, consultants, lawyers or patent attorneys will develop industry protocols for dealing with these issues just as the IT, facilities management and logistics sectors have in the past.

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For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Alexa Highfield on +44 (0)121 213 2396 or Amie Ryalls on +44 (0)121 213 2360

This published article may contain information of general interest about current legal issues, but does not give legal advice.