In what has proved an extremely busy day for developments in employment law, in addition to revealing changes to compromise agreements (now “settlement” agreements), unfair dismissal compensation, along with proposals for early-conciliation and sickness absence reform, the Government has published a consultation paper for reform of UK TUPE law today. (Whilst a UK-wide consultation exercise any proposed would require approval of the Northern Irish Executive and Assembly before implementation in Northern Ireland).

The consultation exercise follows a Call for Evidence issued in November 2011, seeking views on “the effectiveness of the Transfer of Undertakings (Protection of Employment) Regulations 2006 and how they might be improved, if at all”. As proved apparent from the outcome of that exercise, published in September 2012, improvement of the current situation was indeed considered necessary. Few working with the “TUPE” Regulations in practice will be surprised by that. Importantly, however, today’s formal consultation paper now identifies the options the Government is contemplating by way of reform. The consultation will close on 11 April 2013, with a view to introducing change in October 2013.

Proposals for change

The Call for Evidence had already highlighted a number of common issues of concern regarding the TUPE Regulations, from uncertainty over their application in certain circumstances to allegations of gold-plating in other respects. Today’s announcement confirms it is upon these areas that the Government has directed its policy review in the intervening months leading to this latest consultation exercise. Key proposals to emerge from the consultation include:

  • Repeal of the “service provision change” provisions

For sometime, criticism has been raised that certain aspects of the TUPE Regulations “gold-plate” European law, exceeding requirements. Most notable amongst these is the way the Regulations are applied when there is a change of service providers which, it is argued, places unnecessary burden on business. It would appear from the consultation paper that the Government is similarly persuaded to this point of view and is proposing repeal of these provisions. A lead-in period of between 3 to 5 years seems likely.

  • Removing Employee Liability Information requirement

Although recognising that the provision of appropriate information is essential to aid business planning and protect the interests of affected employees, it is also widely acknowledged that the statutory requirements in the form of “employee liability information” provisions have failed to improve this process. All too often information is not passed on until the last minute, the reasons for this being many and varied. The minimum period stipulated of 14 days before transfer is in any event proving too short.

As a result the Government is proposing the repeal these provisions in favour of clear guidance and a general duty of disclosure where it is necessary for both parties to carry out their respective obligations. Removal, at first glance seems drastic but, bearing in mind this appears to a particular problem in the case of service provision change situations (which are to be abandoned) and is to be replaced by guidance, practice may prove less so.       

  • Relaxation of restrictions on post-transfer harmonisation

Another aspect of current regulation which causes issues for employers time and again is the restriction on the ability to harmonise employment contracts post-transfer – even by agreement. Employers can be left with groups of employees on quite different terms and conditions, leading to friction amongst staff and management difficulties, neither of which are capable of resolution by effluxion of time alone.

Despite these issues, in its consultation, the Government recognises the severe restriction on change permitted under European law. It has accordingly rejected any change to the Regulations which would conflict with European case law, instead opting for slightly tighter wording to clarify that changes are allowed, for example if an ETO reason is present. This development will come as a disappointment to many employers, along with the apparent dropping of any proposal to limit the period for which contractual terms are preserved, post transfer (save in respect of collective agreements –see below).

  • Dealing with the Abellio anomaly

One of the most significant case law developments of last year concerning TUPE was that of Abellio London Limited v Musse & Others EAT/0283/12 where a change in location on transfer was found to result in automatically unfair dismissal, leaving transferee employers in a seemingly indefensible position. The Government is considering amending the Regulations so that a change on location falls within an ETO, aligning it with redundancy situations.

  • Insolvency and TUPE

The Government has decided not to act in relation to TUPE and insolvencies. Case law (which is subject to appeal this summer) has clarified how TUPE applies when a business is sold after administration proceedings are instituted. It decided that employees transfer to the new owner of the business, and are protected from transfer-related dismissals. This contrasts with insolvency proceedings undertaken with a view to liquidation, in that neither the employees nor their liabilities, such as claims for unfair dismissal, transfer to a buyer. The Government has decided that the decision has provided sufficient clarity and it is not necessary to amend TUPE as a result.

  • Permitting Transferors to rely on post-transfer ETO reasons

To avoid automatically unfair dismissals (due to the operation of the ETO reasons defence) it is not uncommon for employees to transfer to a transferee, only to be dismissed immediately in circumstances that were anticipated. This is because case law does not permit transferors to dismiss fairly in advance of transfer. Clearly a sensitive area, it is nonetheless one where EU law permits both transferor and transferee employers to rely on legitimate ETO reasons. The Government therefore proposes to consider allowing such interpretation under the Regulations.

  • Collective redundancy law and TUPE

Problems arise in practice where the requirement to inform and/or consult workplace representatives in relation to a transfer is triggered under both TUPE and the collective redundancy requirements in TULRCA , for example, where the transferee intends to make transfer-related redundancies, after the transfer, involving 20 or more employees at one establishment within a period of 90 days or less.  Questions arise as to whether redundancy consultation by the transferee can commence prior to the transfer, given that the transferee is not actually the employer at that point, or whether it can be done by the transferor, on behalf of the transferee. A practical approach is for both to jointly inform and consult before the transfer, however, this approach is untested legally and is subject to risk.

In response, the Government is proposing a legislative amendment to ensure that consultation by the transferee, before the transfer, with representatives of transferring employees counts for the purposes of collective redundancy consultation – although there would be no requirement as such for this to take place.

Comment

It is perhaps ironic that, in the last 12 months, the law surrounding business transfers has undergone its most substantial change since 2006, to a large extent clarifying meaning and giving rise to narrower interpretation. Statutory codes prescribing the terms of public sector transfers were withdrawn at the end of 2011 and a series of significant court decisions from both European and our national courts have altered a number of fundamental preconceptions. 

Even so, businesses will no doubt welcome further opportunity for review of the most problematic aspects of TUPE, including a remedy to the legal position left over from Abellio. 

If the service provision change rules are repealed, that will not mean that an outsourcing can never give rise to a TUPE transfer.  Rather, we will be back to how things worked pre-2006, when there was often quite extensive legal debate regarding whether a transaction satisfied the multi-factorial test used to determine whether the transfer of an economic entity which retained its identity had occurred- ie a “type 1 transfer”.  The withdrawal of this most litigated aspect of TUPE is therefore by no means a panacea and is unlikely to bring an early end to disputes. What the Government surely hopes it will achieve, however, is a reduction in costs on the change of contractors, generating greater competition and influence of market forces.