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TUPE and contracting out: Government retains "service provision change" in definition of transfer

04 October 2013 #Employment


Last month, the Government confirmed that there will be no repeal of the “service provision change” provisions of the TUPE Regulations, as was proposed in consultation. Many had been wondering how on earth we would return to the situation that existed prior to the TUPE Regulations 2006, which replaced the TUPE Regulations 1981. The position then was that a service provision change was treated no differently than a business acquisition and the test of whether TUPE applied was derived from a pure application of EC Directive and EC and UK case law.

Those advocating repeal argued that it would make TUPE less likely to apply, give businesses more scope to provide innovative contract bids as they would not have to inherit the existing contractor’s staff and their terms and conditions. It was said that the service provision change provisions of TUPE 2006  (“SPC”) were an unnecessary embellishment of the European Directive that brought TUPE about in the first place and tend to put small businesses off bidding for contracts.

The Government’s decision, to retain provisions not required by EC Directive, is a victory for those putting the counter argument that it is better to know in advance that TUPE will apply and take the consequences, than get into arguments each time a possible TUPE situation arises, with the battle of wits and legal argument that ensues – even if you have the chance to argue that TUPE does not apply at all. It is an example of “gold plating” of an EC Directive that works. Or to put it more plainly, “better the devil you know.”

The Government’s decision not to remove the SPC provisions is based on the belief that by removing the rules it would create significant uncertainty for businesses, individuals and the economy. It was felt that rather than help mall business,  repeal could increase the price of bidding for contracts, cause ruinous liabilities for existing incumbent contractors and increased litigation.

There will , however, be some important changes to TUPE, namely to:

  • allow the renegotiation of terms from collective agreements one year after the transfer, with the condition that the changes are no less favourable to employees;
  • clarify that for TUPE to apply to a service provision change the service provision must be "fundamentally or essentially the same" before and after the transfer;
  • allow the change to the location of a workforce to be within the scope of an economic, technical or organisational reason entailing changes in the workforce (this will mean that any employee who is dismissed in these circumstances will not be automatically unfairly dismissed (although they could still claim ordinary unfair dismissal if the appropriate dismissal procedure was not followed));
  • allow businesses with fewer than 10 employees (micro businesses) to inform and consult with their employees directly regarding the transfer (rather than through employee representatives); and
  • allow (in some circumstances) pre- transfer consultation by the transferee to count for collective redundancy purposes.
  • expressly providing that a transferee will not be bound by changes to a collective agreement made after the transfer where the transferee is not a party to that agreement (so codifying a recent clarification in TUPE case law).

Another decision of the Government that seems to be widely supported is not to remove the transferor`s obligation to provide employee liability information. The time for providing such information is instead to be increased to 28 days.

The changes proposed do not allow for the kind of flexibility in making changes to terms and conditions of employment following a TUPE transfer that many employers would like. However, the proposal allowing changes to terms and conditions derived from collective agreements made one year after transfer do provide a degree of further certainty which may help both employers and unions to negotiate harmonisation of terms, rather than have to retain a confusing myriad of terms when employees have been inherited under successive TUPE transfers.

Of course, whilst sometimes it is better to stick with the devil you know, we also know that the devil is also in the detail – which we will see in due course.

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Employment matter please contact Clarkslegal's employment team by email at employmentunit@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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