The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) has been in the spotlight as part of the UK Government’s Employment Law Review. TUPE implements the EU Acquired Rights Directive (“ARD”) in the United Kingdom. Where TUPE applies, there is an automatic transfer of the employee’s employment – for the affected employees it is as if their employment contracts had originally been made with the new employer, with their continuity of service and, subject to a few exceptions, other employment rights all preserved.
TUPE is complex and is viewed by many as overly bureaucratic, leaving little room for new employers to make post-transfer changes to an employee’s contract or to dismiss them fairly. It protects employees' terms and conditions of employment when a business is transferred from one owner to another or in an outsourcing context, where there is a service provision change (“SPC”). A SPC will usually occur where there is a change of service provider or a contracting in or out of services. Critics say the SPC provisions, which were introduced in 2006, went beyond the requirements of the ARD – so called “gold plating.” The impact of TUPE, may constrain the incoming employer’s/contractor’s ability to restructure the inherited work practices, thereby impeding innovation and cost reduction. TUPE has also spawned complex indemnity and post-contract verification provisions in outsourcing agreements, reflecting the additional complexity associated with personnel transfers.
Previously, we highlighted the UK Government’s proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) to simplify TUPE and to provide greater flexibility in making changes to terms and conditions of employment post transfer. The UK Government has now finalised these changes, resulting in the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (“Amended TUPE Regulations”). The Department for Business, Innovation and Skills (BIS) also published useful guidance which helps to explain the changes made to TUPE 2006. Generally speaking, the Amended TUPE Regulations brought into effect the changes which will apply to business transfers or service provision changes taking place on or after 31 January 2014. There are two exceptions to this implementation date. The first relates to the provision of Employee Liability Information; the second to information and consultation obligations for micro businesses. These are discussed in “The Key Amendments” below.
The Key Amendments
- Definition of Service Provision Change
The Amended TUPE Regulations has clarified that a “service provision change” occurs where the services provided post-transfer are “fundamentally the same” as the services provided previously.
- Change in Workplace Location
A dismissal on the grounds of a change in workplace location will be an “economically, technical or organisational” (ETO) reason making such dismissal potentially fair, subject to complying with the usual rules of fairness when dismissing an employee.
- Changes to Terms and Condition of Employment
The provision in TUPE 2006 that changes to terms and conditions of employment that are made in connection with a TUPE transfer are unlawful has been removed. Changes made to terms and condition of employment where the “sole or principal reason” is the transfer itself will still be void unless there is an ETO reason. Agreed changes to terms and condition of employment where the employment contract permits the variation (for example mobility clauses) or the change is unrelated to the transfer are permissible.
- Pre-Transfer Collective Redundancy Consultation
If the transferee employer/contractor will be making any redundancies post-transfer, the transferee can make one election to undertake pre-transfer collective redundancy consultation obligations pre-transfer with the transferor’s written agreement.
- Collective Bargaining Agreements
There will be a “static” approach to collective bargaining agreements so that any changes that are made post-transfer where the transferee has not been involved in the negotiations will not be binding on the transferee. From one year following the transfer, the transferee can make agreed changes to the collective bargaining agreement provided the new terms are “no less favourable” to the employees when considered together.
- Employee Liability Information
From 31 May 2014, the transferor must provide the Employee Liability Information1 at least 28 days before the transfer.
- Micro Businesses
On or after 31 July 2014, micro businesses with fewer than 10 employees can conduct consultation with the employees directly rather than with employee or trade union representatives.
Practical Steps to Consider
The Amended TUPE Regulations mean that there may be more scope to argue whether TUPE applies particularly in an outsourcing situation, which may or may not be helpful depending on the particular circumstances. Disputing whether TUPE applies can be time-consuming during negotiations and could escalate costs and increase the risks of claims being made by an employee who claims TUPE did apply. Where there is a dispute as to whether TUPE applies the parties will need to consider recent case law on this area. Existing outsourcing agreements should also be reviewed to ensure that they comply with the Amended TUPE Regulations particularly in relation to the provision of Employee Liability Information. The Amended TUPE Regulations provide some flexibility for the new employer to make some changes to terms and condition of employment and collective bargaining agreements provided it has the employee’s agreement and the reason for change is not the transfer but this still remains a difficult area and legal advice should be sought on the risks of making any such change. If redundancies are being contemplated post-transfer then consideration should be given as to whether pre-transfer collective redundancy consultation will be helpful, and if so it may make sense to include the election and the terms of the arrangements in the applicable agreement.