TUPE UPDATE: UK Government publishes its Response to the Consultation

The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") is in the spotlight as part of the UK Government's Employment Law Review. Launched in 2011, the purpose of the review is to reform employment law in order to achieve a fair, effective and flexible labour market in the UK[1]. The Government says that these reforms will support better relationships between workers and employers and are aimed at making evolutionary improvements to the labour market which will retain flexibility and dynamism and benefit individuals, employers and the economy.

TUPE implements the EU Acquired Rights Directive ("ARD") in the United Kingdom.  It protects employees' terms and conditions of employment when a business is transferred from one owner to another. Where TUPE applies, there is an automatic transfer - for the affected employees it is as if their employment contracts had originally been made with the new employer, with their continuity of service and, subject to a few exceptions, other employment rights all preserved.

In an outsourcing context, TUPE will often apply because of the service provision change ("SPC") rules. A SPC will usually occur where there is a change of service providers or a contracting in or out of services. TUPE is complex and is viewed by many as overly bureaucratic, leaving little room for new employers to make post-transfer changes to an employee's contract or to dismiss them fairly. Critics say the SPC provisions, which were introduced in 2006, went beyond the requirements of the ARD- so called "gold plating."  Taken in the round, the impact of TUPE, in its current formulation, may constrain the incoming service provider's ability to restructure the inherited work practices, thereby impeding innovation and cost reduction. TUPE has also spawned complex indemnity and post-contract verification provisions in outsourcing agreements, reflecting the additional complexity associated with personnel transfers. 

In previous posts [TUPE: Service Provision Change - Do we need this provision?, The UK Government consults on proposed changes to the TUPE Regulations] we discussed the Government's proposals to simplify TUPE.  One of the Government's key proposals was to repeal the SPC rules entirely. This proposal was opposed by 67% of the respondents to the Government's Consultation who believe the SPC rules brought much needed clarity on the application of TUPE and reduced the number of TUPE claims to the Employment Tribunal. The Communication Workers' Union[2] strongly opposed the proposed repeal. In its response the Union said: "The government's proposals are bad for business. They will lead to greater uncertainty. Many SPCs - the impact assessment estimates 65% based on 2006 analysis - will remain subject to TUPE following any repeal of the 2006 legislation; however, which transfers are subject to TUPE will become very unclear. This ambiguity will necessarily lead to more legal challenges, increasing the burden on business and workers. The government's priority of reducing the burden on business will not be met; instead the burden will fall disproportionately on those embroiled in legal challenges over the application of TUPE."

The Government also proposed to provide greater flexibility in making changes to terms and conditions of employment post transfer, which was welcome by employers who would like to harmonise terms and conditions of employment across their workforce.

On 5 September 2013, the Government published its response to the Consultation (the "Response") detailing its intended reforms, which do not go as far as originally planned. Clearly, the Government is attempting to find the balance between competing interests.

 Changes of Substance:

1. Dismissal on the grounds that there is a change of workplace location will fall within the scope of an economical, technical or organisational ("ETO") reason entailing changes in the workforce. Under current law, terminations resulting from relocations of work are a dismissal for a reason connected with a transfer and will be automatically unfair unless there is an ETO reason justifying the dismissal. Relocation of work does not fall within the current ETO definition of "entailing changes in the workforce" because the relocation alone does not involve a reduction in the number of employees employed or changes to their job functions. This amendment to the ETO definition means that a dismissal due to a change of location would not be automatically unfair but will still be subject to the usual unfair dismissal rules.
2. The transferee will be permitted to renegotiate terms in a collective agreement beginning one year after the transfer, provided that the new terms are no less favourable to the employee.
3. Micro businesses (those with 10 or less employees) will be allowed to inform and consult directly with the employees where there is no recognised trade union or existing employee representatives.
4. Collective consultation on redundancies can take place before the transfer provided that this is agreed by the transferor and transferee and the consultation is meaningful.

Other Changes of Note:

1. Terms negotiated as part of a collective bargaining process after the relevant transfer will not be binding on the transferee unless the transferee is either a party to those subsequent collective agreements or participates in the bargaining process. The effect of post transfer variations to collective agreements by the transferor becoming binding on the transferee has been subject to legal challenge in the UK with conflicting outcomes. This change effectively codifies the approach adopted by the Court of Justice of the European Union (CJEU) judgment in Parkwood Leisure v Alemo-Herron (C-426/11)[3] [insert case link].
2. The obligations on the transferor service provider to provide Employee Liability Information will remain but this must now be provided to the transferee at least 28 days before the transfer rather than 14 days. This is unlikely to have any significant impact as the commercial agreement will usually contain a timescale for disclosure of such information and in our experience the provision of such information is usually commercially required to be given at least 28 days before the transfer if not sooner.
3. Regulation 4, which restricts changes to terms and conditions of employment and dismissing employees because of the transfer, will be amended to accord more closely with the wording of the Acquired Rights Directive so that changes made because of the "transfer itself" (as opposed to "connected with the transfer") will be void. The new test is unlikely to make much difference in practice.

What has not changed?

1. The Government has backtracked from its earlier proposal to repeal the SPC rules and has accepted that the rules provide much needed clarity on the application of TUPE in outsourcing/insourcing situations. The SPC provisions will remain but will be amended to reflect the current case law  which is that, for TUPE to apply to a SPC, the activities carried on after the change must be "fundamentally or essentially the same" as those carried on before it. Therefore, if the services are provided in a different way post transfer, TUPE may not apply. The proposed amendment to codify current case law is practical as the SPC rules have recently come under scrutiny by the Courts, as highlighted in our previous post [insert link to post -July 26, 2012], and there is now quite detailed guidance from the Courts on when a SPC falls within the scope of TUPE.
2. The Government has decided not to allow the transferor to rely on the transferee's ETO reasons for pre-transfer dismissals. This means that any pre-transfer dismissals by the transferor related to the transfer will be automatically unfair unless the transferor has its own ETO reason.
3. Harmonising terms and conditions of employment post-transfer are still prohibited. However, the Response indicates that the Government does recognise the business need for this and will engage with its European Partners on the issue.

Enactment

On the whole the changes as currently drafted are sensible and do benefit employers, particularly with regards to codifying current case law, permitting genuine place of work redundancies, reducing the impact of collective bargaining agreements and allowing for collective consultation to take place during a TUPE transfer. The retention of the SPC rules will be a welcome relief to many businesses.

The Government previously proposed to implement the TUPE reforms in October 2013. However, the amended TUPE Regulations are still being drafted and are expected to be laid before Parliament in December 2013 with the reforms expected to come into force in January 2014 subject to any transitional provisions.

[3] http://www.bailii.org/eu/cases/EUECJ/2013/C42611.html