Click here to view video.

Introduction

My name is Paul Griffin and I’m Head of the Norton Rose Fulbright Employment team in London.

In today’s video we’ll be looking at the recent reforms to the Transfer of Undertaking Regulations (better known as TUPE), which come into force on 31 January 2014.

Background

The TUPE regulations 2006 protect employees when their business or undertaking for which they work transfers to a new employer. They have been criticised for unnecessarily gold plating the European Directive which they implement. The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2013, aim to improve TUPE’s effectiveness and align it more closely with European Law. In this video we’ll look at the proposed changes and consider the practical impact on employers and employees.

Service Provision Changes

Service provision changes were introduced in 2006 to extend TUPE to most changes of service provider when there is an outsourcing, in-sourcing or retendering to another contractor.

For a service provision change to be recognised there must be an organised group of employees; and the employees must be assigned to this organised group. There has been significant case law in this area including clarifying that the activities in a service provision change must be fundamentally or essentially the same after the transfer as those carried out before.

After much speculation, the Government has decided not to repeal service provision changes from TUPE. The only change is that the legislation will formally adopt the wording of current case law – by specifying that any activities carried on after the transfer must be fundamentally the same as those carried out before. As this principle already reflects current case law, this change are likely to have little practical implication for employers.

Changing terms of employment

Currently, under TUPE, it is virtually impossible to change the terms of the employment contracts immediately following a transfer.

This is because any change will be void if the sole or principal reason for the change is the transfer or a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce, (commonly called an ETO reason).

Under the new rules, any variation to the contract will be “void if the sole or principal reason for the variation is the transfer” only – the wording “connected with the transfer” will be removed.

This will not apply if there is a valid ETO reason (and the parties agree the variation); or the contract permits the employer to make such a variation (for example using an existing mobility clause); or the terms are incorporated from a collective agreement, as long as one year has passed since the transfer and the terms are no less favourable (for the employees “considered as a whole”). The purpose of these reforms is to allow greater flexibility for employers in achieving some level of post-transfer harmonisation. However, we will wait to see how in practice the courts determine the words “by reason of the transfer” as opposed to “connected with the transfer” and whether practically there is flexibility for change.

It should also be noted that the exceptions in the new regulations do not affect the employee’s right to bring a claim under regulation 4(9) TUPE where the transfer involves a substantial change in working conditions to the material detriment of an employee who is transferring. Therefore in an employer did seek to rely upon a mobility clause, the employee might be able to treat the contract as having been terminated.

Dismissals and TUPE

The current TUPE regulations protect employees from dismissals in the same way as changes to terms. Any dismissal made where the transfer or a reason connected with it (which is not an ETO reason entailing changes in the workforce) is the reason or principal reason for the dismissal is automatically unfair.

A dismissal may be potentially fair where there is an “ETO” reason.

As with changes to terms and conditions the new regulations remove transfer connected dismissals so that any dismissal will be automatically unfair if the sole or principal reason for the dismissal is the transfer itself. Any dismissal justified by an ETO reason will now be “potentially unfair”. It is not clear whether this will make a significant difference to the ability to dismiss employees and again will depend on the interpretation by the courts.

Economic, technical or organisational reasons

I have spoken already about ETO reasons. The 2006 Regulations require an ETO reason to include a reduction in the number of employees. For example, redundancy would amount to an ETO reason where there was a closure of a business with no alternative employment available. However, a change of location previously did not apply as there is no reduction in the workforce required, despite the fact that such a change may be common where there is a change of service provider.

The Government has recognised this difficulty and geographical relocation will now be a valid ETO reason. This means changes in the location of the workforce following a transfer will be expressly included within the scope of ETO reasons, thereby preventing genuine place of work redundancies from being automatically unfair. This will be welcome news to employers, especially in the context of outsourcing deals.

Employee liability information

Currently TUPE imposes an obligation on the transferor to provide key information to the transferee, known as employee liability information.

Such information must be given at least 14 days before the transfer.

The Government accepted that the requirement to provide employee liability information should be retained because it provides greater certainty to employers on their obligations to transferring employees. However the information will have to be given 28 days before the transfer, rather than the current 14 days to attempt to ensure that this information is not given at the last minute. This will only apply to transfers which take place on or after 1 May 2014. On a practical note, most parties to a transfer will, in any event, ensure that the contract contains more detailed requirements regarding employee information.

Collective Agreements

Under TUPE, all the transferor's rights, powers, duties and liabilities regarding the affected employees are transferred to the transferee. Confusion arose in relation to terms collectively agreed with a trade union where the new employer no longer recognised the trade union. Should the new employer be bound by post-transfer collectively agreed terms which it had not negotiated or only those collective terms that applied as at the point of transfer? The new rules confirm that the transferee won’t be bound by a collectively agreed provision where the provision is agreed and comes into force after the transfer, if the transferee was not a participant when the collective agreement was negotiated.

Information and Consultation

TUPE obliges an employer to inform “appropriate representatives” of “affected employees” long enough before the relevant transfer to enable consultation with the “appropriate representative” to take place of various matters in relation to the transfer.

The obligation to consult only arises if the seller or the buyer envisages that he will take measures in relation to any of the affected employees. So for example, if there are likely to be redundancies following the transfer an obligation to consult will arise.

Difficulties arose in that not only would the transferor and transferee be consulting in relation to the transfer, but would also often have an obligation to consult about collective redundancies which would take place after the transfer. Unfortunately, as the transferee is likely to be the employer with responsibility for making the redundancies this consultation should not take place until after the transfer.

The new rules will amend the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) to clarify that consultation which begins before the transfer can count for the purposes of complying with the collective redundancy rules, provided that the transferor and transferee agree and that the transferee has carried out meaningful consultation. This is already a common practice despite not complying strictly with the legislation. However, the parties have run the risk of a claim for failure to consult. Therefore this reform will be a welcome relief to many employers. One change which has occurred in the final draft of the regulations is that although the transferee can cancel the election to start pre transfer consultation it cannot then make another election.

Also micro-businesses (businesses with fewer than ten staff) will be allowed to inform and consult affected employees directly when there isn’t a recognised independent union, or any existing appropriate representatives. This change will come into force for transfers which occur on or after 31 July 2014.

Conclusion

This video is intended to give you a summary of the upcoming reforms to TUPE, but if you would like any further information or have any questions on any aspects of today’s topic, then please don’t hesitate to contact us.  Also, if you haven’t signed up to our breakfast seminar on 25 February when we will be discussing this topic and other employment law changes coming up, then please do so. We look forward to seeing many of you there.

Thank you.