Major Changes to TUPE Proposed

BIS (the Government Department for Business, Innovation & Skills) has recently announced that it proposes to make fundamental changes to the TUPE 2006 Regulations.

The key proposals include:

• Repealing entirely the ‘service change’ provisions, (affecting outsourcing, retendering and bringing work back in house’) to align the definition of a transfer with the wording of European law.

• Repealing the requirement to provide employee liability information but making it clear that the transferor should disclose information to the transferee where it is necessary for either party to comply with their obligations to inform and consult staff.

• Amending the provisions which restrict changes to contracts; give protection against dismissal and permit the right to resign in response to a substantial change in working conditions of the employee, to more closely reflect European law and case law.

• Amending the provisions relating to economic, technical or organisational reasons (by which employers are potentially allowed to dismiss or agree changes to contracts) to include changes in the location of the workforce, allowing closer alignment with redundancy dismissal law.

• Providing that the transferee business can consult on collective redundancies with the transferring employees ahead of the transfer as part of their collective consultation obligations.

• Allowing businesses with fewer than 10 employees  (micro businesses) to inform and consult with their employees directly regarding the transfer (rather than through employee representatives) in cases where there is no existing Union or representatives

The Government is also asking whether:

• Protection of terms derived from collective agreements should be limited to one year, after which transferees would be able to make changes

• Whether a transferor should be able to rely on a transferee’s economic, technical or organisational reason for changes in the workforce, as a reason for pre transfer dismissal of employees.

The Consultation closes on 11 April 2013 and changes may be introduced as quickly as October this year. However, the Government accepts that as the proposals to repeal the regulations relating to "service provision changes" are significant, this would most certainly require a “lead-in period”.  The Government will therefore also consult on the length of this lead-in period, asking whether this should be less than a year, one to two years, three to five years or five years or more.

Clarkslegal Roundtable Discussions

Many of you may recall that in November last year, BIS called for evidence on the effectiveness of TUPE in light of concerns that TUPE went beyond what was required by European law, was overly bureaucratic and impractical. Following this, Clarkslegal held a roundtable discussion with various employers affected by TUPE to gather views and evidence on the questions raised by BIS. Based on this discussion, we submitted a response to the call for evidence and also shared our findings with the CBI with whom we have a long standing relationship.

BIS’ response to the call for evidence included many of the concerns and suggestions expressed at our roundtable discussion and we are very grateful to all those who contributed.  It seems clear that the key concerns identified by the participants have helped shape the current proposals for reform, which are the subject of this consultation – although it has to be said that very few could have anticipated a proposal which would envisage a complete repeal of the service provision changes!

Clarkslegal is once again looking to lead from the forefront and is proposing another roundtable discussion on 13 March 2013 to give its clients the opportunity to voice their thoughts and concerns.  We will then feed into the Consultation through the CBI.  If you are interested in attending, or simply wish to express a view, please do contact the marketing team by emailing marketing@clarkslegal.com or calling 0207 539 8000.

Possible implications of the proposed changes

Recent cases on service provision  change (SPC) over the last year have highlighted how uncertain it can be to decide whether TUPE applies where there has been a change of service provider for e.g.:

• In McCarrick –v- Hunter  the Court of Appeal ruled that there would only be a SPC where the client for whom the service is performed remained the same
• In Eddie Stobart Ltd v Moreman and others UKEAT 0223/11 the EAT held that an organised grouping cannot be evidenced by the fact that a group of employees worked mostly for a particular client. However the amount of time that employees spent working for a particular client was relevant to whether they were assigned to the organised grouping that was transferring. What this case establishes is that it is essential that it can be demonstrated that the employees are deliberately organised into an identifiable client grouping to satisfy the regulations i.e. employees must be organised by reference to the specific requirements of the client.
• In Seawell Ltd v Ceva Freight (UK) Ltd and another UKEATS/0034/11 the EAT  held that the fact that TUPE provides that a single employee can be an organised grouping does not mean that an employee who spends all of their time on work for a particular client is an organised grouping. On the facts of this case, the employee was not deliberately organised for the purposes of the client`s contract and did not carry out the "activities concerned" on his own. He worked as part of a team whose principal purpose was not the client`s contract.

Given the Government’s plans to reform the public sector, the number of transfers are likely to increase and as such so is the potential for further dispute and uncertainty. Accordingly some simplification of this area of TUPE could make it more attractive for companies to bid for public sector contracts.

The intended lead–in period would greatly benefit existing service providers who may be faced with unexpected redundancy costs at the end of their contract, when previously they would have assumed that TUPE would apply.  As such, many businesses may prefer as long a lead-in period as possible.

Practically, a business should begin thinking of protecting itself as far as possible now, irrespective of whether the proposed changes are in force at the point of contract termination.  The best way to do this would be to have tightly drafted indemnities and warranties in relation to exit provisions in the contract.

Also, the circumstances under which an employee can be dismissed following a transfer may be widened if the proposals to amend Regulation 7 so that it more closely reflects European statutory authority and case law are implemented. This would mean that dismissals would only be automatically unfair if the sole or principal reason was the transfer (and not connected with the transfer as is currently the case).

Issues not subject to Consultation

Pensions

The uncertainty as to how TUPE applies to occupational pensions and better guidance on the benefits that do transfer under TUPE, were some of the responses to the call for evidence last year. However, the government does not intend to consult on this issue but has stated that BIS will continue working with the DWP to identify ways to improve the information available to employers and scheme members.

Insolvency

Regulation 8(6) of TUPE provides that where the transferor is the subject of "relevant insolvency proceedings", the employees will automatically transfer to the transferee and receive unfair dismissal protection. However some of the transferor`s debts in respect of the employees will not transfer to the transferee, but will instead be taken on by the Secretary of State and paid out of the National Insurance Fund.

Regulation 8(7) provides that where the transferor is the subject of "bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor", the employees will not automatically transfer to the transferee, and dismissals by reason of the transfer will not be automatically unfair.

Responses to the call for evidence sought greater clarity in this area, as TUPE does not specify which insolvency proceedings apply to which category. However, the Government does not propose to make any changes in this area as it considers the current insolvency provisions in TUPE to be adequate  and points to the Court of Appeal’s decision in Key2Law (Surrey) LLP v De`Antiquis [2011] EWCA Civ 1567, which provides some guiding principles.

Agency workers: information and consultation

Regulation 13(2A) of TUPE requires that an employer, when informing and consulting their staff about a proposed transfer should include suitable information relating to the use of agency workers (if applicable). Regulation 13(2A)(b) sets out what "suitable information relating to the use of agency workers" means.

Some responses to the call for evidence suggested that this should not be required. However, the Government disagrees and has taken the view that it "is not minded" to change this as the same definition of suitable information is used in relation to almost all other requirements to inform and consult employees.

Joint and several liability for pre-transfer obligations

At present, almost all of the transferor`s liabilities in relation to employees before the transfer will pass to the transferee. Responses to the call for evidence queried whether liability for all pre-transfer obligations should pass to the transferee or whether both parties should be jointly and severally liable to encourage employers to take their commitment to employees seriously.

The Government has decided that the current position is adequate given that the use of indemnities in respect of pre-transfer employment obligations are widely used and where not, there is often a corresponding reduction in the price agreed.

Some may feel that the Government has stopped short of undertaking a full and through consultation on all issues of importance. However, given the sweeping changes already proposed, others may feel they have gone too far already!

We will update you following our roundtable discussion and inform you as soon as the Government announces the changes proposed following completion of the consultation process.