Sticking tape

Red tape 2 iStock 000004886962XSmall 146x219The Government's proposed overhaul of TUPE as part of its red tape challenge raises some concerns for the Employment Lawyers Association. Adam Leith reports.

The Department for Business, Innovation and Skills (BIS) consulted on reforming the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) aiming to simplify the regulations, and to ensure they did not go further than the Acquired Rights Directive (the Directive) as part of the Government’s Red Tape Challenge.

The Employment Lawyers Association (ELA) response to the consultation and the key proposals affecting local government are set out below.

Service provision changes (SPCs)

The SPC rules were introduced in 2006, with the aim of providing greater certainty in outsourcing transactions [1]. There are no equivalent provisions in the Directive. The consultation proposed removing the SPC rules from TUPE. The effect of this would be that outsourcing transactions would be considered under the same multi-factoral and fact-specific test as business transfers, with the focus being on the destination of the transferor’s assets (including staff).

Removing the SPC rules would result in TUPE applying to fewer outsourcing transactions. It would also lead to comprehensive legal advice being required at an early stage when outsourcing, as the application of TUPE would be considerably less clear-cut.

ELA's view was that both employers and employees are comfortable with the SPC rules. While they do gold-plate the Directive to a degree, they provide a simple process which benefits both employers and employees.

The proposed changes would bring back into play pre-2006 case law on outsourcing, including ECM Vehicle Services v Cox [1999] IRLR 559 (CA). ECM suggested that the transferee’s motive in refusing to take the transferor’s staff would be a relevant factor in determining whether TUPE applied. ELA suggested that some clarity on the application of ECM would be helpful.

Employee liability information (ELI)

Currently the transferor has to provide specified information about the transferring employees no later than 14 days prior to the transfer date. The consultation proposed removing the provisions relating to ELI entirely on the basis that ELI-related issues arise most commonly in second-generation outsourcings (where there is no contractual nexus between transferor and transferee), so repealing the SPC rules renders the ELI provisions unnecessary.

This logic is not entirely convincing; not least because even without the SPC rules there would still be a significant number of outsourcing transactions to which TUPE would apply.

If the ELI provisions were removed, the main challenge for the public sector would be to ensure that all contracts contain robust due diligence provisions, particularly on termination. It would also throw into sharper focus the need to strike an appropriate balance between organisations’ responsibilities under data protection legislation, and the need to provide comprehensive information to potential transferees to achieve the best price when outsourcing services.

ELA's view was that removing the ELI provisions would leave second (and subsequent) generation service providers without a remedy to require the outgoing service provider to provide information about the transferring employees. ELA suggested instead that the provisions be retained, but modified to require ELI to be provided two months before the transfer date, or as soon as reasonably practicable thereafter. ELA noted that 14 days is inadequate in most transfers.

Changing terms and conditions

Currently variations to terms and conditions are void if they are by reason of the transfer itself, or for a reason connected with the transfer which is not an economic, technical or organisational reason entailing changes in the workforce (ETO reason). The consultation proposed that agreed variations would be permitted in all circumstances except where the reason was the transfer itself, and was not an ETO reason.

The consultation further proposed limiting the future applicability of terms and conditions derived from collective agreements to one year from the transfer, following which variations by reason of the transfer would be possible provided that overall the change was no less favourable to the employee.

ELA said that only allowing agreed changes may exclude, for example, a change made under an existing mobility clause. ELA noted allowing variations where the reason is the transfer itself but is also an ETO reason may not comply with the Directive, which appears to prohibit any variation by reason of the transfer. Also the “no less favourable overall” test may lead to litigation.

The Government was clear in the consultation document that it considered that a static approach should apply to collective agreements, and that it may make amendments to TUPE once the outcome of the long-running case of Parkwood v Alemo-Herron is known.

Protection against dismissal

Currently a dismissal is automatically unfair if the sole or principal reason for it is the transfer or a reason connected with the transfer that is not an ETO reason. The consultation proposed that the words “or a reason connected with the transfer” be removed, so that a dismissal would only be automatically unfair if the sole or principal reason for it was the transfer itself and not an ETO reason.

ELA agreed that this would align TUPE with the Directive thus reducing the number of situations in which employees could claim automatically unfair dismissal.

Substantial change to material detriment

Currently where a transfer involves a substantial change in working conditions to the material detriment of the employee, they may treat themselves as having been dismissed by their employer. This gives rise to unfair dismissal rights. The consultation proposed bringing the relevant provision in line with the Directive, which uses the word “termination” rather than “dismissal”. The stated intention of this was that where an employee relies upon a change which would not ordinarily give rise to a constructive dismissal claim, they could claim wrongful dismissal but not unfair dismissal.

The proposed wording leaves some uncertainty. ELA supported the intended outcome proposed, but suggested that to achieve this it would be necessary to specify that such a termination would not constitute an automatically unfair dismissal, and to expressly clarify what rights would be triggered.

Entailing changes in the workforce

As noted earlier, an ETO reason must entail changes in the workforce, which case law has defined as meaning a change in numbers or functions of employees. The consultation proposed extending the ambit of the phrase “entailing changes in the workforce” to include changes in location, so that it would broadly mirror the definition of redundancy in the Employment Rights Act 1996.

Currently a place of work redundancy is not an ETO reason, so an employee dismissed (actually or constructively) by reason of a transfer-related workplace relocation will be automatically unfairly dismissed. The proposal would therefore make it easier to relocate services following a TUPE transfer, which could remove a potential barrier to outsourcing services which would be carried out from the service provider’s own site.

Pre-transfer dismissals and consultation

Two measures were proposed which would make it easier to restructure before or shortly after a transfer. The first was to allow the transferor to rely on the transferee's ETO reason to make pre-transfer dismissals. Currently each party can only rely on its own ETO reason. The second was to allow the transferee to start collective consultation under section 188 of the TULR(C)A 1992 before the transfer.

The first proposal would make it easier to restructure pre-transfer. This would be particularly helpful in the context of divestments to, for example, wholly-owned entities or employee-owned social enterprises where management remains the same post-transfer, as it would no longer be necessary to wait (artificially) until the transferring entity has transferred into its “new” ownership before restructuring. In such situations it could also work in favour of the employees, who may have more chance of being redeployed within a large public sector organisation than they would within a smaller divested organisation post-transfer.

Similarly, allowing the transferee to start consulting pre-transfer would enable them to move to a new structure or operating model shortly after the transfer, and could additionally save the employees from being put through two different consultation processes in quick succession (TUPE and redundancy). However, transferors should be wary of the possible detrimental effect on staff morale, and consequently service delivery, of employees being put through a potentially demotivating consultation process over which the transferor may have limited control.

ELA broadly supported the proposals; although some members believed the proposal relating to consultation would be unworkable in practice.

Conclusion

The Government is expected to publish its response to the consultation by July and introduce any changes to the regulations in October 2013. It remains to be seen whether the practical concerns raised by ELA are taken on board. Watch this space...

Adam Leith is a solicitor with Suffolk Legal. He was a member of the ELA working party which responded to the TUPE consultation.


The term “outsourcing” is used within this article to cover both first- and subsequent-generation outsourcing as well as in-housing.