Having already highlighted some areas of concern in its Call for Evidence last Autumn, on 17 January 2013, the Government published its consultation paper proposing some key reforms to the TUPE regulations.  Its intention is to make the regulations simpler and to help develop business growth while still maintaining protection for employees involved in business transfers.

Proposal to remove service provision change regulation from TUPE

The headline proposal is to repeal the regulation which brings ‘service provision changes’ into the scope of TUPE.  This covers:

  • out-sourcing activities to a contractor (‘first generation outsourcing’); or
  • re-tenders for such activities (‘second generation outsourcing’); or
  • bringing activities back in-house (‘insourcing’).

If this regulation is repealed, it will not necessarily mean that these activities will no longer amount to TUPE transfers.  Employers will have to consider whether or not the activity would come under the ‘business transfer test’ used to determine whether the activities amounted to the transfer of an economic entity which retains its identity.  Whilst the insourcing or outsourcing of services associated with large projects or entire functions may be more likely to be in-scope under the business transfer test, the position may be less clear where the services are provided on a smaller scale or as part of a complex structure.

The Government recognises that existing service providers have entered into arrangements on the assumption that TUPE will apply when the service contract is terminated.  Such service providers may become liable for unplanned redundancy costs if the proposed changes are brought in during the life of such contracts.  Accordingly, the Government proposes that a lead in period would apply to allow those providing services and the recipients of them, to plan for the change in the law.  The appropriate length of this lead in period forms part of the consultation.

Other key proposed changes to TUPE

Further proposals put forward in the consultation include:

  • Removing the requirement for Employee Liability Information to be provided.  Transferors would still be required to disclose information to the transferee, where this is necessary for information and consultation to take place.  The provision of information would be left to the parties to agree, supported by guidance and potentially model terms for contract renewals;
  • Subject to our European law obligations, more closely aligning the wording restricting the harmonisation of terms and conditions with the wording found in the Acquired Rights Directive, and where relevant, CJEU case law to try to make it a little easier to make post transfer changes.  The changes being considered are a simplification of the current wording, and in particular an extension of the meaning of ‘entailing changes in the workforce’  to cover changes in location of the workforce; 
  • In circumstances where the Buyer is proposing to make redundancies post transfer, to permit pre-transfer consultation on collective redundancies to count towards compliance with the Buyer’s obligation, which is not the case just now;
  • Allowing micro businesses to inform and consult employees directly regarding transfers in cases where there is neither a recognised union nor existing representatives;

The consultation also asks for views on:

  • Whether terms and conditions derived from collective agreements should only continue to apply for one year post-transfer; and
  • Whether a transferor should be able to rely upon the transferee’s economic, technical or organisational reason entailing changes in the workforce in respect of pre-transfer dismissals, which is not currently permitted.

Impact for employers

The deadline for submitting responses to the consultation is 11 April 2013, with an intention for any proposed amendments to be introduced in October 2013 (with the possible exemption of the service provision changes, which as commented above may be brought in at a later date). 

In the meantime, service providers are likely to be closely following the developments in this area and may wish to contribute to the consultation.  For service contracts currently under negotiation, consideration should be given to how any liabilities are to be allocated if TUPE does not apply upon termination of the contract.

A copy of the consultation paper can be found at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/68735/13-533-tupe-regulations-2006-consultation-on-proposed-changes-to-the-regulations2.pdf