The government has recently published its keenly awaited response to the consultation earlier this year on reforms to the Transfer of Undertakings (Protection of Employment) Regulations 2006, ("TUPE"). Although some of the detail is still to be worked out, and draft amended regulations are not included with the response, the government has nonetheless given a clear indication of the nature of the changes that we can expect in January 2014.

The key points from the response are as follows:

  1. Service provision change test to remain
  • From October 2006 TUPE has made specific provision for service provision changes ("SPC"), i.e. an outsourcing, a change of outsourced service provider, or an insourcing (where services provided by a third party contractor are brought back in house).  There is, however, no specific SPC provision in the Acquired Rights Directive ("ARD"), and the government had indicated that it wanted to repeal the SPC test in its entirety in order to remove perceived "gold plating" from TUPE.
  • However, the government acknowledges in the response that most respondents to the consultation were not in favour of this approach, largely on the basis that it would mark a return to pre-2006 uncertainty as to whether TUPE applies in the context of the change of a service provider. Accordingly, and somewhat surprisingly, the government has said that it is not going to repeal the SPC test.
  • However, the government has said that it intends to amend the test to specify that a transfer will only be an SPC where the activities carried on post-transfer are "fundamentally or essentially the same" as those carried on pre-transfer. This reflects the somewhat restrictive approach to the SPC test taken by UK courts in recent years, which has, in fact, meant that a number of  outsourcings have not met the SPC test.

Commentary

Most employers will welcome the retention of the SPC test as providing certainty in the context of outsourcings/insourcings. The change in wording simply reflects existing case law and so will not require employers to approach an SPC any differently, albeit that recent cases have suggested a more limited scope to the SPC test and a more technical approach to its application than was perhaps envisaged when the SPC provision was first introduced.

  1. Dismissals / changes to employees' terms and conditions only void if the reason is the transfer itself
  • Currently, any changes to employees' terms and conditions are void if the sole or principal reason for the change is the transfer or a reason connected with the transfer.  There is an exception to permit changes for a reason which is connected to the transfer which is an economic, technical or organisational reason entailing changes in the workforce, ("ETO reason"), but the scope of that exception has been narrowly interpreted by the courts, (although see further below at paragraph 3). Similarly, a dismissal is automatically unfair where the sole or principal reason for the dismissal is the transfer, or a reason connected with the transfer which isn't an ETO reason.
  • The government has said that it intends to amend the relevant provisions of TUPE to more closely reflect the language of the ARD and European case law, which prohibits dismissals/variations to terms and conditions where the reason is "the transfer itself". The government takes the view that the existing wording in TUPE which extends to a reason which is "connected with" the transfer is wider, and therefore goes further than either the ARD or EU case law requires.
  • The current exception where there is an ETO reason will be retained both for dismissals and changes to terms and conditions of employment.
  • The government has also confirmed that TUPE will be amended so as to make it clear that changes to terms and conditions will be permitted where they are effected pursuant to an existing contractual clause, eg a mobility clause, and where the change would have been permitted had there not been a transfer.

Commentary

Whilst acknowledging that both the ARD and EU case law limit what is possible, the government's clear intention is to make it easier for employers both to change terms and conditions and to dismiss employees in the context of a TUPE transfer. However, until the final wording of the amended regulations is published, it is difficult to assess the extent to which this has been achieved. It is highly unlikely, however, that a desire to harmonise terms and conditions of employment post transfer, without more, will be valid.

  1. ETO reasons to include changes to place of work
  • Under TUPE, dismissals that are connected to a transfer are automatically unfair unless the reason for dismissal is an economic, technical or organisational reason entailing changes in the workforce (an ETO reason). 
  • Some case law has suggested that an ETO reason must entail a change in numbers and functions of the workforce and that a change in workplace location alone does not constitute an ETO reason.  Therefore, dismissals due to a change in location of the workforce (at least where there is no reduction in the overall numbers of the workforce nor change in its functions) will be automatically unfair.  This contrasts with the position on redundancy dismissals under the Employment Rights Act 1996, under which place of work redundancies are potentially fair.
  • The government has confirmed that it will amend TUPE so as to clarify/extend the scope of ETO reasons to include changes to workplace location. This will mean that dismissals due to a change in workplace location will no longer be automatically unfair. 

Commentary

This is a welcome change for employers. Relocations are common in the context of TUPE transfers, particularly in respect of outsourcings, including where the activities post-transfer will be carried out overseas, such that the UK workforce will immediately become redundant. However, the usual unfair dismissal protections will continue to apply, and following a fair process when effecting any dismissals will therefore remain important.

The amendment should also allow valid changes to terms and conditions of employment in cases where there will be a change to a workplace location and it is intended that some of the transferring employees will relocate. The necessary change to their terms and conditions should be permitted under Regulation 4(5) (as amended) as being for an ETO reason.

  1. No change to "material detriment" dismissal provisions
  • The government has dropped its earlier proposal to amend regulation 4(9) of TUPE which permits employees to treat themselves as having been dismissed, (and potentially claim automatically unfair dismissal), where a transfer involves (or would involve) a substantial change in working conditions to their material detriment. Reg 4(10) currently provides that an employer is not liable to pay notice pay in circumstances where the employee does not then work during his or her notice period.
  • The proposal had been to amend these provisions so as to limit an employee's remedy to damages for wrongful dismissal, (ie notice pay), rather than compensation for unfair dismissal, in cases where the substantial change was not so serious as to amount to a repudiatory breach of contract, (which would entitle the employee to resign and claim constructive dismissal under normal principles).
  • Despite some support for this proposal, the government has decided not to make any changes to regulation 4(9) or (10). One of the government's main reasons for so doing is that both case law and the consultation responses suggest that the situation which is most commonly of concern to employers is a change in the employees' place of work. The government's view is that the amendments to the provisions on ETO reasons should mean that an automatically unfair dismissal claim will not necessarily arise in any event in relation to a dismissal arising out of a workplace relocation, (see paragraph 3 above) .
  1. Pre-transfer consultation to be relied on by the transferee
  • The government will amend the Trade Union and Labour Relations (Consolidation) Act 1992 to make it clear that a transferee may begin collective consultation on potential redundancies  pre-transfer, and that this will count for the purposes of complying with the rules on  collective consultation in the context of redundancy. This is only where both transferor and transferee agree, and is subject to the transferee's consultation being "meaningful". The government recognises that this will not be appropriate in every case, for example in some circumstances the transferor may have good reason not to want to give the transferee access to its employees before the transfer takes place.

Commentary

Essentially, this will be welcome news for employers. While in practice it has been common for the transferor and transferee to consult jointly in relation to collective redundancies, this approach has never been tested in the courts.

However, a number of unanswered questions remain, including whether full consultation could be completed pre-transfer, and whether notices of dismissal may be issued either immediately on, or even before, the date of the transfer. The government has indicated that it will give further thought to these issues, including the point pre-transfer at which collective consultation may begin. The government also stresses in the response that the collective redundancy consultation must be "meaningful", and that this may not be possible where there are unresolved issues in relation to the transfer itself.

  1. Employment Liability Information
  • The government has decided to retain the rules in regulation 11 of TUPE relating to the provision of employment liability information by the transferor pre-transfer. However, and addressing concerns of many respondents to the consultation who felt that the current deadline of 14 days prior to a transfer is too late in the process, the government will extend this deadline to 28 days prior to the transfer.
  1. Pre-transfer dismissals
  • During the consultation process, responses showed that it was hoped that the government would amend TUPE to provide that a transferor could rely on a transferee's ETO reason for dismissal when making dismissals pre-transfer, for example where the transferee had a genuine need to make redundancies as result of the transfer.
  • The government's view however is that any change to TUPE to this effect could result in increased unfairness towards employees, for example where a potential pool for redundancies is restricted to the transferring employees. The government also takes the view that it would be contrary both to EU case law and the "spirit" of the ARD to make this change.
  • The government has therefore confirmed that there will be no change to TUPE to enable a transferor to rely on a transferee's ETO reason in respect of pre-transfer dismissals.
  1.  Terms derived from collective agreements
  • The government has confirmed that it will amend TUPE so that after one year post-transfer, variations to contracts will be permitted in respect of terms which are derived from, or which incorporate, provisions in collective agreements, provided that any such variations, (which are by reason of the transfer and not for an unconnected reason), are "no less favourable overall".
  • This change will not, however, give employers the power to unilaterally change terms and conditions. Any variation will still be subject to the general law on changing terms and conditions of employment.
  • The government has also confirmed that the "static" approach will apply in respect of the transfer of terms which derive from a collective agreement. This is consistent with the recent decision of the ECJ in Alemo-Herron v Parkwood Leisure. This means that terms which derive from a collective agreement, which are in existence at the date of the transfer, will be binding on the transferee, but not any terms which are collectively agreed post-transfer, to the extent that the transferee is not a party to any subsequent collective agreement or collective bargaining process.
  1. Business with 10 or fewer employees can inform and consult directly
  • A new exemption will be introduced for "micro businesses" (those with 10 or fewer employees) to permit them to inform and consult directly with affected employees, instead of having to arrange the election of employee representatives, (whether they are transferor or transferee). The exemption will not apply however where an independent trade union is recognised in respect of the relevant employees.
  • This is a welcome relaxation of the requirements of TUPE, and reflects the practice of many employers (both large and small) on smaller transfers.  However, its application is limited, and the government felt that the ARD prevented it from allowing larger businesses to consult directly with employees on smaller transfers.
  1. Guidance
  • The government has indicated that it will produce detailed guidance on TUPE which takes into account the amendments proposed in the consultation response.

Conclusion

Overall, the changes to TUPE should be welcome news for employers. In particular, the addition of a change in workplace location as an ETO reason, and the ability for transferees to collectively consult on redundancies pre-transfer, should assist employers. However, as with any change to legislation, the devil will be in the detail. We will report again when amended regulations have been published, which the government has indicated will be in December.

Please click HERE for a link to the government's response.