The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) has always caused consternation amongst businesses because of the significant protections it affords to transferring staff and the blunt manner in which it operates. Essentially, if TUPE applies to a business transfer, all employees who are wholly or mainly assigned to that business must transfer to the employ of the new owner on the same terms and conditions, and with protection against dismissal and with the right to be informed and consulted via appropriate representatives. The new employer automatically “steps into the shoes” of the old employer in terms of all employee rights and liabilities from the point of transfer and is significantly hampered in its ability to make changes in relation to the workforce it inherits.

TUPE comes from an EU Directive which was transposed into UK law in 1981 and was last amended by the UK in 2006. It has always generated a significant amount of case law.

Following a significant public consultation, the current Government intends to implement changes to TUPE which are expected to come into force in January 2014.

The key changes will be as follows:-

1. Service Provision Change Transfers

There are two types of business transfer caught by TUPE – the conventional business transfer (e.g. sale of a factory) and service provision change (“SPC”) transfer (i.e. where a service changes hands – outsourcing, re-tendering and in-housing).

Initially, the government had contemplated abolishing SPC transfers. The significance of the SPC concept is that it makes TUPE more clear and certain. In the context of outsourcing, re-tendering and in-housing the SPC concept means it is often beyond doubt that TUPE does apply. The abolition of SPCs would mean a reversion to old TUPE and the old uncertainty as to whether TUPE applied at all to the transfer of labour intensive activities (eg the provision of IT services) when no assets transfer.

One amendment which is to be introduced is that the “activities” performed by the employees in question must remain “fundamentally or essentially the same” after the transfer. This is no great development given the Courts have already adopted this approach.

2. Employee Liability Information

This refers to the obligation upon a transferor to provide information to the transferee (eg regarding the terms and conditions and disciplinary and sickness records of the workforce). Such information must now be provided at least 28 days prior to the transfer rather than 14.

3. Collective Agreements with Trade Unions

After January 2014 a transferee will be permitted to re-negotiate collective agreements after 1 year from the transfer, although any overall changes to staff’ terms and conditions (“Ts&Cs”) must be no less favourable to employees. So, this allows employers a little room for manoeuvre.

Further, new TUPE will expressly adopt a “frozen” (as opposed to .”dynamic”) approach to collective agreements. That is, the transferee, whilst he will be bound by existing Ts&Cs under any collective agreement, will not be bound by future changes to Ts&Cs under those collective agreements.

4. TUPE Dismissals

The Government has decided to retain the carve out from automatic unfair dismissal where an employer dismisses for an “economic, technical or organisational reason entailing changes in the workforce” (this is known as the “ETO defence”).

So, no significant change here – although the Government will be amending the wording of the Regulations so that it is more closely aligned with the language of the EU Directive on which TUPE is based. The Regulations will no longer refer to dismissals being automatically unfair where they are made “in connection with” the transfer”, instead it will only refer to dismissals that are “by reason of” the transfer (subject to the ETO defence explained above). Arguably this makes it easier for employers to avoid automatic unfair dismissal liability under TUPE, however the weight of opinion is that this is only a semantic, not a substantive change in reality.
What will certainly not change is that any dismissal which is directly “by reason of” the transfer will remain automatically unfair. For instance, any pre transfer dismissals by the transferor made in an attempt to make the business more attractive to a purchaser will remain unfair. Similarly, any pre-transfer dismissals by the transferor at the transferee’s request will remain unfair.

Another change that will occur, again pro-employer, is the possibility to start collective redundancy consultation by the transferee before the TUPE transfer (see comment below).

5. Relocation

To date, TUPE has dealt harshly with transferees who require their new workforce to relocate. For example, if a London firm buys the business of a Birmingham firm and wishes to take the entire business in house (ie within its London’s premises) then, intuitively, one would consider the Birmingham workforce to be entitled to redundancy payments only and no more (unless they wished to locate to London and were unfairly refused). However, TUPE has always treated those Birmingham staff as automatically unfairly dismissed and therefore entitled to unfair dismissal compensation in addition to their redundancy entitlement. This is now to change. Adopting TUPE jargon, “relocation” will constitute an “ETO reason”, thereby preventing genuine place of work redundancies from being automatically unfair

Stephen Hopkins, Employment Partner at The Wilkes Partnership, comments: “The changes to TUPE are to be largely welcomed by employers. They are not a monumental change to the existing Regulations, but they do give more scope for transferee employers to make changes such as relocation post transfer and implementing changes to terms derived from collective agreements inherited under TUPE. The Government has also stated that it will amend the Trade Union and Labour Relations (Consolidation) Act 1992 so that collective redundancy consultation by the transferee can start pre TUPE transfer. This is a helpful development, as otherwise transferee employers have to wait to start the clock running on collective redundancy consultation with employee representatives until after the TUPE transfer takes place. Also, the ability to inform and consult directly with employees in micro businesses that employ 10 or fewer employees, is a sensible development. Overall, these changes are good news.”

Finally, the Government has also made noises that it would prefer to see greater flexibility for employers to harmonise terms and conditions post TUPE transfer and that it will “engage with European partners to demonstrate the potential benefits of a harmonisation framework for individuals and the economy”. Will this mean relaxation of TUPE to permit a form of post transfer harmonisation? Watch this space – although this will need the buy in of Europe, so it could be difficult and take a while.

If you would like to discuss any issue or query arising from this update please contact Stephen Hopkins or any member of the Employment team.

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