As part of the UK Government's Employment Law Review and Red Tape Challenge, it carried out a review of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") which implement the Acquired Rights Directive ("ARD") in the UK.  In its consultation, the Government referred to concerns that TUPE is "gold-plated" and overly bureaucratic.  The Government has now published its draft amending Regulations to TUPE and to the Trade Unions and Labour Relations (Consolidation) Act 1992 ("TULRCA") setting out its proposed approach to simplifying and improving TUPE  (the "Amending Regulations").  

It is expected that the Amending Regulations will be laid before Parliament in December 2013, and come into force in January 2014. 

The key changes are as follows:

  1. Service provision change test to apply where activities post transfer are "fundamentally the same" as those pre transfer.

The Government has confirmed that, contrary to earlier indications, the service provision change ("SPC") test will not be repealed.  However, a new qualification to the SPC test has been introduced, which provides that a transfer will only be an SPC where the activities carried on post transfer are fundamentally the same as the activities carried out previously.  This change in wording in fact reflects existing case law and so will not require employers to approach a SPC any differently, albeit that recent cases have suggested a more limited scope to the SPC test and a more technical approach to its application than was perhaps envisaged when the SPC provision was first introduced, which may pave the way for more disputes about whether TUPE applies in an outsourcing context.

  1. Dismissals / changes to employees' terms and conditions only void if the reason is the transfer itself

Currently, any dismissals and/or changes to employees' terms and conditions are void if the sole or principal reason for the change is: (a) the transfer itself, or (b) a reason connected with the transfer.  Where the reason is (b) above, there is an exception to permit dismissals / changes to terms and conditions where the reason is an economic, technical or organizational reason entailing changes to the workforce ("ETO reason"). 

The Amending Regulations now provide that dismissals / changes to terms and conditions will only be void if the reason for the dismissal / change is "the transfer" which reflects the wording in the ARD.  The current exception where there is an ETO reason has been retained.  It is unclear what the difference is, in practice, between the reason being the transfer (which is void) and the reason being connected to the transfer (the wording of which has been removed from the Amending Regulations such that the reason would not be void.)  The Government has indicated that it will issue further guidance on this, and it will be interesting to see how the UK Tribunals interpret the new test.

There is also a new exception permitting changes to terms and conditions where the change is effected pursuant to an existing contractual clause e.g. a mobility clause.  However, this new exception  is arguably incompatible with the decision of Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S, in which the ECJ held that any variation to the contract is ineffective if the transfer itself is the reason for the variation.  In practice, therefore, the new exception may be quite limited in application.

  1. ETO reason to include changes to work location

Current case law provides that an ETO reason must entail a change in the numbers or functions of the workforce.  This means that a dismissal / change to terms and conditions pursuant to a change in work place location alone is, currently void where there is no change to the numbers or functions of the employees.  The Amending Regulations now expressly provide that change to a workplace location will constitute an ETO reason, which will mean that dismissals / changes to terms and conditions due to a change in work location will potentially be lawful provided that the employer complies with the "usual" requirements of following a fair process when dismissing / making changes to terms and conditions.  Given how common relocations are in the context of TUPE transfers, and outsourcing in particular, the clarification on this point is very helpful to employers. 

  1. Pre-transfer consultation may be relied on by a transferee

The Amending Regulations make a number of changes to the UK legislation dealing with collective redundancy consultation (the Trade Union and Labour Relations (Consolidation) Act 1992 "TULCRA").  The Amending Regulations clarify that where the transferor and transferee agree, the transferee may begin collective consultation on potential redundancies pre-transfer, which will count for the purposes of complying with the rules on collective consultation in the context of redundancy.  The provisions relating to pre-transfer consultation will apply where:

  1. There is, or is likely to be, a TUPE transfer;
  2. The transferee is proposing to dismiss 20 or more employees within 90 days at one establishment; and
  3. One or more of the transferring (or likely to be transferred) employees is included in (2) above or may be affected by the proposal at (2) above.

Where the above is satisfied, the transferee may elect, by written notice to the transferor, to start redundancy consultation with representatives of the affected employees if the transferor agrees.  

The transferring employees are then deemed to be already employed at the transferee's establishment and the transferee deemed to be their employer for the purposes of electing the employee representatives and conducting collective redundancy consultation.  Note however that there is no obligation on the transferor to provide any assistance or information to the transferee to help it comply with its obligations.  This results in some areas of difficulty / uncertainty, as follows:

  • Protective awards: If the transferor refuses to assist, there is a risk that the transferee will find themselves facing potential protective award claims for failure to properly inform and consult from the transferring employees, and there is no defense to the transferor's failure to assist.  It appears that the Government has anticipated the practical difficulty that this may cause as the transferee has a right to cancel the election to carry out pre-transfer consultation by giving written notice to the transferor (and any representative, transferring employee or the Secretary of State, where applicable) at any time. 
  • Who to consult with? There is also a question as to whom the transferee should be consulting with, particularly where the transferor has an existing recognition agreement with a trade union, and the different variations available make it possible that the TUPE and collective redundancy consultations need to be carried out with different employee representatives. 
  • Issuing notice pre-transfer? It is not clear whether the pre-transfer consultation provisions enable a transferor to give notice of termination pre-transfer on behalf of the transferee, which would expire post-transfer.  The safest approach is for the transferee to issue notice of termination post transfer. 

In principle, the ability to carry out pre-transfer consultation is welcome news for employers.  However, as set out above, there are some uncertainties and complexities with this process, which transferees and transferors will have to carefully consider when deciding whether to elect to carry out pre-transfer consultation / accept the election to do so.  It would be advisable for the parties to document their agreement to any pre-transfer consultation in writing. 

  1. Employee Liability Information

The Amending Regulations have extended the deadline by which transferors must provide prescribed Employee Liability Information ("ELI") to transferees from 14 days to 28 days prior to the transfer.  This change reflects the majority view of the respondents to the TUPE consultation, which considered that the current time frame of 14 days is inadequate.  No changes have been made to the categories / detail of ELI which includes matters such as the identity and age of the transferring employees, their employment start date, hours of work, salary details, notice period and holiday and sickness pay entitlements.

  1.  Terms derived from collective agreements

The Amending Regulations make two important changes relating to contractual terms that derive from collective agreements:

(1) A new right for employers to change employees' terms and conditions which have been incorporated from a collective agreement provided that the change takes effect, at the earliest, one year after the TUPE transfer, and provided that the change is "no less favorable" to the employee.

This mirrors the wording of the ARD and gives transferees greater flexibility to amend contractual terms that derive from collective agreements.  Employers should note however that this is not a "carte blanche" to making changes to employees terms and conditions - any change will still be subject to the general law on changing terms and conditions.  In addition, the greater flexibility given to transferees to amend collectively agreed terms may give rise to a two-tier system, for example, where some of the transferring employees have collectively agreed terms incorporated into their contracts, and the others don't.  In this situation, the changes may only be legally enforceable in the former, (although if the latter employees consent to the change, the practical risk of challenge is likely to be low).

(2) Confirmation that the "static" approach will apply in respect of the transfer of terms which derive from a collective agreement, which reflects existing case law.  Where such a term is in force at the transfer date, it will be binding on the transferee.  However, if a term is agreed and comes into force after the date of the transfer, and the transferee is not a party to that subsequent collective agreement or collective bargaining process, it will not be bound by that term.

  1. Businesses with 10 or fewer employees can inform and consult directly

The final key change is a new exemption for micro-businesses (employers with 9 or fewer employees) from the requirement to elect and consult with employee representatives - instead the employer can discharge its obligations by informing and consulting with the employees directly.  The exemption will apply where there are no appropriate representatives already in place and the employer has not invited any of the affected employees to elect employee representatives.  The burden of proof rests with the employer to show that it qualifies for the exemption.

This is a welcome relaxation of the requirements of TUPE and reflects the existing practice of many employers on smaller transfers.  However, its application is limited as it only applies to employers with 9 or fewer employers.  It would not apply in a situation where the employer has more than 9 employees but the transfer itself is small.  Whilst technically in breach of the TUPE requirements, larger employees carrying out smaller transfers may wish to continue to inform and consult with the affected employees directly.  To reduce the legal risk of challenge, employers should offer the affected employees the opportunity to elect employee representatives if they prefer.

Conclusion

Overall, the changes to TUPE will be welcome news for employers.  However, the changes to TUPE are actually much more "watered down" than originally envisaged with several key proposals, including the proposal to remove the SPC test, having been abandoned.  As with any change to legislation, there is likely to be a period of uncertainty, particularly in relation to the pre-transfer consultation obligations set out above.  Employers would be well advised to seek legal advice before making use of the new flexibility resulting from the changes.