The Government’s response to its consultation on the proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") came out today and it makes for some interesting reading. Overall, it is likely to be regarded as good news for employers. The big story is that the service provision change rules under TUPE are here to stay (the exact opposite to the original proposals). The Response runs for 61 pages, but we note below the main highlights for employers.

Service provision changes

The Government had proposed to completely remove the service provision change rules. This was unpopular with respondents to the consultation (70% being against a repeal) and so, somewhat surprisingly, the Government has confirmed the current service provision change rules will now remain. This will retain certainty for employers when dealing with TUPE in situations where services are being re-tendered, in-sourced or outsourced.

The Government will, however, make an amendment to TUPE to make clear that the activities carried on or after the change in service provision must be "fundamentally or essentially the same" as those carried on before it. This follows existing case law.

Employee liability information

Currently certain information must be given to the transferee so that it can understand its obligations towards employees transferring to it. The original proposals were to completely repeal this requirement. However, the majority of respondents did not support such a repeal (75% were against it). The Government has therefore decided not to repeal the requirement but instead to increase the deadline so that the information must be provided not less than 28 days before the transfer takes place, rather than the current 14 days.

The repeal of the employer liability information provision would have seemed a backward step and so this reverse of the Government’s position is positive too. It makes sense that the information be given earlier than 14 days before the transfer takes place as this will give the transferee more time to understand its employee liabilities. This may also assist where, in TUPE situations, the transferor is reluctant to give information too early due to data protection concerns.

Restrictions on changes to terms and conditions

This is a difficult area for employers, and the response to the consultation from respondents made it clear that the inability to harmonise employment contracts after a TUPE transfer was considered a significant burden. Unfortunately for employers, on the basis of existing EU case law, the Government felt that any change allowing parties to vary terms and conditions for the purpose of harmonising terms after transfer would likely be incompatible with the EU directive. The Government has suggested that it amend TUPE so it more closely reflects the wording of the directive and EU case law in this area. This is unlikely to provide much assistance to employers in this area, but we will wait to see what drafting is suggested.

TUPE and collective agreements

TUPE will be amended to provide that a static approach to terms derived from collective agreements should be taken. This follows recent case law and will mean employers will not be bound by changing terms resulting from a collective agreement after the transfer has taken place. Furthermore, TUPE will be amended to allow re-negotiation of terms derived from collective agreements one year after the transfer, even though the reason for seeking to change them is the transfer, provided that, overall, the change is no less favourable to employees.

For those employers having to deal with collective agreements, the changes reflect significant improvements to the current position. The fact that only those terms in existence at the date of the transfer will be binding on the transferee will be a great relief.

Dismissals arising from a change of location

A change in location of the workforce following a transfer will now be considered an economic, technical or organisational ("ETO") reason entailing changes in the workforce. This will prevent location-related redundancies from being automatically unfair and will allow valid changes to contracts where an employee’s workplace changes. The usual protections against unfair dismissal in respect of redundancy will apply to employees who are made redundant where there is a workplace change, but this should be easier to deal with for employers.

The inclusion of a change in workplace being an ETO reason is a definite positive step for employers as this is a common scenario.

Collective redundancy consultation

The Trade Union and Labour Relations (Consultation) Act 1992 is to be amended to make it clear that consultation by the transferee which begins pre-transfer can count for the purposes of complying with the collective redundancy rules, provided that the transferor and transferee agree, and the transferee has carried out meaningful consultation too. We understand that the accompanying guidance to the TUPE changes will cover this point in more detail. Employers have often taken this approach already, but it is useful to have it confirmed within the legislation.

Micro businesses

Micro businesses (those with 10 or fewer employees) will be allowed to inform and consult directly with affected employees where there is no recognised independent union or existing employee representatives.

Improved TUPE guidance

The Government was not persuaded that an ACAS Code of Practice on TUPE is required, as was suggested during the consultation, but it will provide clearer guidance on some areas of TUPE. This will include guidance on what is meant by "reasonable time" for the election of employee representatives.

Possibility of relying on transferee’s reasons for pre-transfer dismissals

No changes are being made to enable a transferor to rely on a transferee’s ETO reasons for pre-transfer dismissals of employees. The Government felt that allowing pre-transfer dismissals would be potentially unfair for individuals being dismissed as the potential pool of redundancies would be restricted only to those employees being transferred, and would not necessarily involve related workforce in the transferee. It also felt that any rule change could be exploited by unscrupulous employers who could look to dismiss staff prior to a transfer to achieve an inflated price for their business. It means that post-transfer redundancy dismissals will continue to be the safest option.

Final thoughts

Overall, the outcome of the Government’s response is likely to be considered positively by employers. There would have been a big shift in the law if service provision change rules had been repealed, and it would have created significant uncertainty for employers involved in outsourcing, in-sourcing and re-tendering of services. It would no doubt have led to significant satellite litigation too. Many employers will be disappointed that there is no change in respect of harmonisation of terms, but this not a big surprise based on EU case law.

Draft legislation to enact the proposed changes is to be laid before Parliament in December 2013, with the intention that the changes will come into force in January 2014. Since the service provision change rules are not to be repealed, there is unlikely to be a lengthy lead-in time for the new legislation.