The Government is about to introduce a further review of the Transfer of Undertakings (Protection of Employment) Regulations, TUPE. This will be version number three and will come into force on 31 January 2014. Will it make a difference?
The TUPE Regulations were originally introduced in 1981, being the UK’s response to an EU Directive on the subject. It was originally envisaged that these applied to protect employees when business was either sold or transferred. In due course however, the protection was extended following a series of cases in the 1990s to cover situations where operations were outsourced.
In 2006 the Rules were reviewed with the intention of bringing clarity, particularly in relation to outsourcing. The Government is now further revising the Regulations with the intention of liberating the application of TUPE. This will have to be undertaken within the boundaries of the general EC Directive and the determination of cases by the European Court of Justice.
When considering TUPE and its effects the most important starting point is the definition of “relevant transfer”. The definition, lifted from the Regulations itself, is a situation in which either:
There is a transfer of a business, undertaking or part of a business or undertaking which is the transfer of an economic entity that retains its identity. This is referred to as a business transfer. OR
A client engages a contractor to do work on its behalf, engages a different contractor to do that work in place of the first contractor or brings the work “in-house”. This is referred to as a service provision change.
In relation to a business transfer it can be seen that this will not just include where the whole business is transferred, but also, sales/transfers of part of businesses. What is important is that the entity being transferred retains its identity after the transfer.
In relation to service provision changes there has to be a correlation between the work which is being outsourced or brought back “in-house”. The subject has been considered by the courts since the introduction of the 2006 Rules and the approach taken by judges is that the work pre and post service provision change must be fundamentally the same. Accordingly there is scope to avoid the application of the service provision limb of TUPE by making major changes to the way work is done when it is outsourced.
If there is a relevant transfer then the following consequences flow from that.
- The individuals employed in the business (or part business) being transferred or outsourced transfer with the business to the transferee taking with them their employment history, service and rights;
- Any dismissal of such an employee by reason of the transfer itself is automatically unfair;
- Dismissals connected to the transfer of the business will be unfair unless there is an economic technical or organisation reason justifying the dismissal;
- The transferee cannot change the contractual terms enjoyed by the employees who transfer;
- The transferee is bound by any collective agreement to which the transferring employees were party.
Furthermore prior to the relevant transfer occurring the transferor is required to arrange for the election of representatives of the transferring workforce and then undertake a warning and consultation exercise with those elected representatives.
The transferor is also required to provide information concerning the transferring employees to the transferee at least 14 days prior to the transfer occurring.
From the employees’ perspective should they be unhappy about transferring to the transferee then they can object. Generally such objection will bring their employment to an end by operation of law and they will have no right of claim against either the transferor or transferee. However if the objection is prompted by changes to the contractual terms of working practices proposed by the transferee then the objecting employee may have a claim for unfair dismissal against the transferor or employer.
When the Government announced that it was reviewing the application of TUPE it had two particular changes that it had in mind.
- the abolition of the service provision change as a whole. The intention was to revert to the position prior to the 2006 Regulations under which whether outsourced activity was a TUPE transfer or not was determined by the courts; and
- to reverse the judicial interpretation that prevents a transferor from dismissing employees who would otherwise be subject to relevant transfer and adopt the economic technical organisational justification of such dismissal advanced by the transferee. This is often referred to as the transferor borrowing the transferee’s ETO.
Following consultation both of those proposed changes have been dropped. The following changes will however be brought into effect.
1. A service provision change will only occur if the activity carried out under the new contract are fundamentally the same as before. As mentioned above, this largely follows judicial interpretation of the 2006 Rules. I do not anticipate any changes or problems with this.
2. Change of location can be in an ETO. Accordingly a purchaser of a business can successfully dismiss employees by reason of redundancy if as part of the transfer he has changed the place of work, presumably to existing premises operated by him.
3. Dismissals as a result of the transfer (as opposed to connected to the transfer) will no longer be automatically unfair. This may not be compliant with previous European Court of Justice decisions and so open to challenge.
4. Variation to contracts undertaken after the transfer will be allowed if the contract itself expressly provides for variation. Again this may conflict with EU Law and therefore open to challenge.
5. Collective agreements to which the employees are subject will not bind the transferee for one year from the transfer. Furthermore the collective agreements will be of static effect, i.e. the transferee is not bound by any uprating of rights under the collective agreements which occur after the transfer and to which he was not a party.
6. The employment liability information is to be provided no later than 28 days before transfer as opposed to 14.
7. For businesses with less than 10 employees they need to arrange for elective representatives for consultation prior to TUPE no longer occurs. Instead the employer can liaise direct with the employees.
Tthe new variations will take effect on 31 January 2014, save for:
- The rule regarding the employment liability information which will come into effect in April 2014; and
- The rule relating micro businesses will come into effect in July 2014.
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