TUPE - the Transfer of Undertakings (Protection of Employment) Regulations 2006 - is seen as one of the most complex, difficult and unpredictable areas for businesses to deal with when conducting business sales, outsourcings and retenderings. The Government has been conducting an extensive consultation process about potential reform of TUPE and the Department for Business Innovation and Skills has today published the Government's response to that consultation. This OnPoint reports on the Government’s conclusions.

By way of an overview, the changes that the Government now plans to introduce are less dramatic than those floated in the consultation. Most significantly, the Government has listened to the consultation responses it received and will not be dumping service provision changes. The changes that will be made should make TUPE easier to work with – for example, by requiring earlier provision of information about the transferring employees to the new employer, providing that dismissal on a relocation will not be automatically unfair, and providing that consultation prior to transfer will count towards any obligation to conduct collective redundancy consultation. No formal date for the introduction of the changes to TUPE has yet been confirmed but it is understood that this is planned for January 2014.

The main points to note are as follows:

  • Service provision changes will be retained.

Some businesses don’t like service provision changes as they make it much more likely that TUPE will apply to switches of contractor – but much of business prefers the certainty they provide compared with the previous uncertainty in the case law. TUPE applies not only to transfers of undertakings – in the sense of the traditional business sale – but also to “service provision changes” – outsourcing, retendering and in-housing of services – where there is a transfer of activities conducted by an organised grouping of employees. The consultation had considered the removal of service provision changes from TUPE on the basis that they constitute “gold plating” of the EU legislation which TUPE implements into domestic law and impede competition by transferring to incoming contractors the employees of a contractor with whom the client no longer wishes to deal. The retention of service provision changes is something of a surprise, but this decision will be a considerable relief to those who were concerned that the abolition of service provision changes would have created enormous uncertainty about the application of TUPE to outsourcing and other transfers of service contracts. Whilst the service provision change regime has been criticised in some quarters for creating inflexibility, the greater certainty which it produces is of assistance to commercial parties in their contract negotiations. There will be a slight tweak to the service provision change legislation to clarify, consistent with the most recent case law, that for there to be a service provision change, the activities in question must be “fundamentally or essentially the same post transfer”. Material changes in the nature of the service and the method of delivery may take a switch of contractor outside the scope of the service provision change regime.

  • The requirement on transferors to supply employee liability information is to be retained and will need to be complied with by no later than 28 days before transfer rather than 14.

The abolition of the obligation to provide employee liability information – a specified set of information about the transferring employees, such as their basic terms of employment, names, recent disciplinary and grievance record, etc. – had also been considered. The decision to retain this obligation and to require transferors to provide the information earlier will please incoming contractors. This is particularly helpful for contractors who do not have the benefit of detailed contractual arrangements upon which they can rely with regard to the details of the transferring employees. That said, some will still argue that 28 days before transfer is still not early enough.

  • Amendments will be made to the provisions concerning transfer related dismissals and contract changes.

The provisions of TUPE relating to when dismissals are automatically unfair and when contract changes are invalid will be amended. It appears likely that these prohibitions will be amended so that the relevant action is only prohibited when “by reason of” the transfer. Currently these protective provisions bite when the relevant action is by reason of, or connected with, the transfer. This change will effectively tidy up TUPE to ensure that its wording matches more closely that of the EU law which it implements, and may allow employers greater scope to argue that dismissals and contract changes are not prohibited by TUPE if made for other reasons. Amendments will also be made to clarify that unilateral changes permitted by the employee’s contract which could have been made in the absence of a transfer are allowed.

  • Relocation will be an ETO reason.

A dismissal which is connected with a transfer is automatically unfair unless it can be justified by an “ETO reason”, in which case the dismissal is assessed for its fairness on the normal principles of unfair dismissal law. An ETO reason is an “economic, technical or organisational reason entailing a change in the workforce”. Historically, relocation of a business does not qualify as an ETO reason – dismissal on a relocation, which might otherwise look like a (geographical) redundancy, would therefore be automatically unfair. This change will mean that dismissals when there is a TUPE transfer which entails a move of location will not be automatically unfair. However, they will still need to be handled carefully to avoid unfair dismissal claims.

  • Pre-transfer consultation by the transferee will count for collective redundancy consultation purposes.

This change will be welcomed as it will make it easier for transferors and transferees to conduct redundancy exercises in relation to business sales, for example on a relocation or downsizing, where collective consultation is required. Collective consultation is required with recognised unions or elected employee representatives in relation to redundancy exercises affecting 20 or more employees under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992. This entails 30 or 45 days' minimum consultation depending on the number of staff affected. This change will mean that any TUPE consultation conducted before the transfer which leads to the redundancies will count towards compliance with the collective redundancy consultation obligation.

  • Terms and conditions derived from collective agreements can be renegotiated after one year from the transfer, provided that overall the change is no less favourable.

Employers who acquire businesses where the employees’ terms are determined by a collective agreement will welcome the (albeit limited) flexibility which this change provides.

  • Micro businesses will be able to consult staff directly about TUPE where there is no recognised union or existing employee representatives.

Whilst the Government has rejected the suggestion that micro businesses with fewer than 10 employees should be exempted from any of the changes being introduced, this change will reduce the administrative burden on micro-businesses of consultation about TUPE transfers.

  • Terms derived from collective agreements will be “frozen” at transfer.

Consistent with the recent Court of Justice of the European Union decision in Alemo-Herron, transferring employees whose employment is derived from collective agreements will transfer on those terms – the transferee will not be bound by any changes to a collective agreement or pay negotiation arrangement to which it is not a party post transfer.