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Reform of TUPE

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) apply when the operation of a business passes from one party to another in circumstances that amount to a “relevant transfer”.

There is a relevant transfer where either:

  • There is a transfer of the whole or a part of a business or undertaking which is a transfer of an economic entity that retains its identity (a business transfer).

  • A client engages a contractor to do work on its behalf, engages a different contractor to do that work in place of an existing contractor, or brings the work in-house and there is an organised grouping of employees performing the work in question (a service provision change)

A principal effect of TUPE is that the contracts of employment and associated rights of the employees assigned to the undertaking or organised grouping transfer from the transferor (the party which employs them before the transfer) to the transferee (the party which employs them afterwards).

The Government undertook a review of TUPE as part of a wider review of employment law launched in 2010. A public consultation in relation to proposed changes to the law has now ended and the Government proposes to lay draft regulations before Parliament in December. The Department of Business, Innovation and Skills (“BIS”) has indicated informally that changes are likely to take effect in January. If that is the case, many transfers being negotiated or planned now will be subject to new rules.

Service provision changes

The concept of a service provision change was introduced in 2006 with the intention of increasing clarity as to when TUPE will apply. As part of its current review, the Government had proposed to abolish the concept based on the assertion that its intended benefits had not been achieved. However, following consultation, it has concluded that to do so would actually create significant uncertainty which could hinder commercial agreements, damaging both the labour market and the wider economy. Accordingly, service provision changes are here to stay.

The Government does, though, propose to clarify that a service provision change will only occur if the activities carried on after the change in the identity of the party who is performing the work are "fundamentally or essentially the same" as those carried on beforehand. This will reflect existing case law. It remains to be seen which wording it will use, however, and the extent to which this will resolve the uncertainty that can exist when there is some change in the nature of the work being performed as to whether it is significant enough for TUPE to not apply.

Employee liability information (“ELI”)

TUPE currently requires a transferor to provide the transferee with certain minimum information relating to the employees who are to transfer (ELI) no later than 14 days before the transfer takes place.

The Government originally proposed removing the requirement to provide ELI on the basis that the exchange of information should be left to the parties.  However, it has concluded that the obligation should remain, as it provides transferees with greater certainty of their obligations towards transferring employees. 
Further, the Government has accepted that the existing time frame is too short, and therefore intends to bring forward the deadline by which ELI has to be provided to 28 days before the transfer.

This addresses, at least to a degree, criticism that the requirement to provide information 14 days before the transfer does not meet the transferee's commercial need to have information. However, the Government has not addressed criticism about the inadequacy of the scope of the ELI. It has refused to expand the list of ELI on the basis that this would be too onerous for transferors. It will often be open to transferees to insist on wider and earlier disclosure of employee information – but not always, particularly in the case of service provision changes

Prospective transferors who are planning to conclude a relevant transfer soon after the new rules are expected to come into force should bear in mind that they might have to comply with the new 28 day deadline.

Restrictions on changes to terms and working conditions

TUPE provides that changes to an employee's terms are void if the sole or principal reason for the change is either the transfer itself or a reason connected with the transfer which is not an economic, technical or organisational reason entailing changes in the workforce (“an ETO reason”).

The practical issues concerning post-transfer harmonisation of terms have caused issues for many years. The Government is limited in the extent to which it can resolve these by the European directive which TUPE is intended to implement.  It proposes to amend TUPE to remove reference to “a reason connected with the transfer”, so that only changes which are by reason of the transfer itself will be void, unless they are for an ETO reason.  However, there is a blurred distinction between dismissals that are by reason of the transfer and dismissals that are for a transfer-connected reason, and so it is currently unclear what the practical effect of this change will be. The Government has suggested that guidance will be provided.

The effect of another of the proposed reforms relating to employees’ terms and conditions is, however, clear and will be welcomed by employers.

Under the general law, if an employer ceases to operate from a particular location and an employee is not subject to an appropriate mobility clause, the employee can be dismissed fairly by reason of redundancy.  However, the current position under TUPE is that this reason for dismissal would not entail changes in the workforce, and so would not be an ETO reason – making such a dismissal unfair (provided that the employee has at least two years continuous employment, or he commenced employment before 6 April 2012). This is notwithstanding that it will often not be practicable for a transferee to operate from the same location(s) that a transferor operated from prior to the transfer.

The Government proposes to remedy this by including a change of an employee’s place of work within the meaning of "entailing changes in the workforce".

Also, the Government proposes to provide confirmation that transferees are free to make changes affecting transferring employees which would have been permitted by an employee’s contract had there not been a transfer.  An example of where this could considerably assist employers is set out under the next heading.

Substantial change to the material detriment of the employee

Where a transferee makes, or proposes to make, a substantial change in the working conditions of a transferring employee to his material detriment, the employee can refuse to transfer and claim unfair dismissal against the transferor or resign post transfer and bring such a claim against the transferee.  That will continue to be the case. A point raised during consultation was the injustice to transferors of facing unfair dismissal claims because of proposed changes to be made by transferees. The Government has responded that transferees can protect themselves with indemnities – but this will often not be possible, particularly in the context of service provision changes, and in any event, an indemnity is only as good as the indemnifier’s ability to pay.

However, the inclusion of a change of an employee’s place of work within the meaning of "entailing changes in the workforce" could have an effect on this aspect of TUPE. Currently, a change in workplace will often be considered to be substantial and to an employee’s material detriment – even if there is a mobility clause in their contract.  However, as it will be possible for transferors to dismiss transferring employees where a change in workplace also gives rise to a redundancy situation, the impact of this should largely be negated.

Changes to collective agreements

TUPE will be amended to allow renegotiation of terms derived from collective agreements one year after the transfer, provided that the changes are no less favourable to the relevant employee. The Government believes that this will enable employers and employees to consider changes that are mutually beneficial.

It will also amend TUPE to expressly provide for a ‘static’, as opposed to a ‘dynamic’, approach to the transfer of terms derived from collective agreements. Under a dynamic approach, if a transferor was party to a collective agreement which the transferee was not, the transferee would be bound to honour changes in employment terms, such as pay rises, agreed under collective bargaining arrangement following the transfer, despite having no involvement in that process. Under the static approach, in such circumstances the employees’ collectively agreed terms crystallise upon the transfer.  The European Court has this year confirmed that it is the static approach that must be applied, and so the amendment to TUPE shall merely confirm the current legal position (see John Merry's blog of 19 July 'No Dynamic Interpretation of TUPE).

Protection against dismissal

The Government proposes that dismissals will only be automatically unfair where they are by reason of the transfer – and not also (in the absence of an ETO reason) where they are connected with the transfer, as is currently the case. The intention is to increase the freedom to make dismissals on a TUPE transfer.

However, as is the case with regard to the proposed change to the restriction on changing terms (see above), there is a blurred distinction between dismissals that are by reason of the transfer and dismissals that are for a transfer-connected reason. The Government acknowledges that there might be "some short term uncertainty" for the parties in adjusting to this change, but considers that there will eventually be more certainty than currently exists with the words "connected with".  It is questionable whether that will be the case.

Duty to inform and consult over collective redundancies

It is common for redundancies to take place after a TUPE transfer. If so, there may be overlapping obligations to inform and consult under TUPE and in respect of the collective redundancies where 20 or more are proposed to take place within a 90 day period.

Legislation will be amended to make it clear that consultation by the transferee before the transfer can count for the purposes of the statutory requirements relating to collective redundancies, provided that the transferor and transferee agree and the transferee has carried out meaningful consultation directly with transferring employees. This will not be practicable in some cases, for example where there are unresolved issues between the parties to the intended transfer, the transferor wants to protect its commercial interests, or where there is a service provision change and the outgoing contractor is not cooperative (nor bound by the terms of its contract to cooperate).

There are several issues that the Government needs to consider before this change can be implemented, including at what point pre-transfer consultation for the purpose of collective redundancies can begin.

In practice, it is currently common for the transferor and transferee to jointly consult with transferring employees pre transfer in respect of collective redundancies, despite the fact that this approach is risky and has never been tested in the courts. This change is therefore likely to be of considerable practical benefit.

Transferors should be wary, however. Any who agree to a transferee having access to its employees before the transfer should ensure they know what is being said and that no misrepresentations are being made by either the transferee or the employee representatives.

Micro businesses

The obligations to inform and consult under TUPE do not always work well for “micro businesses”, as there is a requirement to go through representatives when it often makes more sense to deal directly with the individual employees. The Government therefore proposes to allow them to do this in cases where there is neither a recognised union nor existing representatives.

There is currently some uncertainty about the definition of “micro business”, as the Government on some occasions has defined them as those employing 10 or fewer employees and on others as those employing fewer than 10.

The law relating to relevant transfers is complex and requires specialist advice. For further information in relation to TUPE, contact me (T: 01952 211011; E: christopher.piggott@lblaw.co.uk) or Will Morse (T: 01432 377152; E: will.morse@lblaw.co.uk).