TUPE – changes on the horizon

The Government has recently published its response to a consultation on proposed amendments to TUPE, including in relation to service provision changes. Graham Richardson considers the revised reforms.

At the start of the year, the Government commenced consultation in relation to a number of significant proposed reforms of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The most eye-catching of these was the proposed abolition of service provision changes as a category of TUPE transfer.

After a long wait, the Government has finally produced its response to the outcome of the consultation process. The Government has announced that it will be making a number of significant reforms to TUPE, but some of the more radical changes, including the proposed abolition of service provision changes, have been abandoned. In this article we set out the Government’s main announcements and analyse the likely implications for public sector employers.

Service provision changes

The original flagship reform of the Government’s package of proposed TUPE amendments was the abolition of service provision changes as a type of TUPE transfer. The Government had noted that the concept of a service provision change was not derived from EU law, and went further than EU requirements, being an example of the ‘gold plating’ of EU regulations by the previous Labour Government. The Government had therefore originally proposed to abolish service provision changes.

However, having consulted on the subject, the Government has had a change of heart. The Government noted that 67% of the respondents to the consultation were against repealing service provision changes, with only 28% supporting it, and that repeal would mean unexpected and potentially ruinous costs for contractors who had entered into contracts expecting there to be a TUPE transfer onto another employer at the end of the contract. The Government has noted that while the concept of service provision changes does have the effect of ‘gold plating’ EU requirements, it also has the benefit of providing some legal certainty to contractors as to where they stand in relation to TUPE. There was some concern that if service provision changes were repealed, this would take employers back to the situation that existed prior to the implementation of the 2006 TUPE Regulations situation where there was uncertainty as to whether a change in service provider triggered a TUPE transfer or not.

The Government has therefore decided to retain the current wording of TUPE in relation to service provision changes, except that it intends to make the more modest amendment of requiring a transferring service post-transfer to be fundamentally or essentially the same as it was pre-transfer in order for there to be a TUPE transfer. This is in effect a codification of the existing case law.

While the Government’s decision to remove its flagship reform from the package of changes to TUPE is perhaps surprising, on balance this is probably a sensible decision as had this change been made it would almost certainly have resulted in litigation to determine the parameters of when a change in service resulted in a TUPE transfer, and uncertainty for those involved in outsourcing transactions in the meantime.

Employee liability information

The Government’s approach to employee liability information following the consultation process is another example of the Government having decided to take an approach which is less radical than initially envisaged when it launched its consultation. As the law currently stands, the transferor must supply to the transferee specified employee liability information at least 14 days before the transfer. The Government had consulted about removing this requirement and replacing it with a requirement to provide such information as is necessary to enable the transferor and transferee to discharge their obligations to inform and consult under TUPE.

Again this was a proposal that was opposed by the majority of respondents to the consultation (with 75% opposing it and only 16% supporting it) and again the Government has decided not to go ahead with the proposed change.

The Government is now instead intending to extend the obligation to provide employee liability information so that it must be provided 28 days and not 14 days before the transfer. While this change is to be welcomed, the provision of employee liability information 28 days before the transfer will still be too late for transferees in large scale transfers such as major retendering exercises, and in such circumstances it would be necessary for authorities to ensure that contractors have a contractual obligation in any outsourcing agreement to supply necessary employee information earlier.

Harmonisation of terms and conditions

Broadly speaking, TUPE prevents transferees from changing terms and conditions of employment of transferring staff to harmonise them with their existing workforce, even where such changes are agreed with the employees in question. It seems that the Government would ideally like to amend TUPE to allow this flexibility, but recognises that to make such a change to TUPE would be likely to put UK legislation in breach of the EU Directive on which it is based, and as such considers this not to be a viable option.

The Government is therefore intending instead to make what limited changes it can in this area by amending the wording of TUPE so that it more closely tracks the wording of the Directive. The effect of this will be that contractual changes will be void where they are by reason of the transfer itself, rather than where they are connected with the transfer, as is currently the case. This arguably provides transferees with some extra scope to make contractual changes post-transfer, although this is likely to be very limited.

In practice it will probably be hard to distinguish whether a contractual change is by reason of the transfer, or whether the change is transfer-related but not by reason of the transfer. As such, it is likely that there will at least initially be some uncertainty as to where the boundaries lie as to what changes are permitted, and that case law will be necessary to determine the parameters.

Transfer related dismissals

The Government’s proposed changes in relation to transfer related dismissals are closely linked with those in respect of harmonising terms and conditions of employment. Currently any transfer related dismissal is automatically unfair (with limited exceptions). The Government takes the view that the Directive only requires automatic unfair dismissal protection to be provided where the reason for the dismissal is the transfer itself and considers that the current protection provided by TUPE in relation to dismissal for a reason connected with the transfer goes wider than this.

Again, the Government is proposing to amend TUPE to track more closely the wording of the Directive, and it believes that this may reduce the circumstances in which dismissal in the context of a TUPE transfer will be automatically unfair. Again, in many cases it is not going to be easy to distinguish between a dismissal which is by reason of the transfer itself and a dismissal which is for a reason connected with the transfer but not by reason for the transfer. As such, it is likely that case law will be required to determine the parameters before we will have any certainty on the extent to which the law has been relaxed by the revised TUPE Regulations, once they come into force.

Collective agreements

The Government had consulted on whether after one year post-transfer employers could make changes to contractual terms derived from or incorporating collective agreements, so that such changes would no longer be null and void even if they are by reason of the transfer. The Government has now decided to amend TUPE to allow this. However, this is subject to the following important caveats:

• normal contractual principles will apply, which means that generally such changes to contractual terms will have to be agreed; and
• any change by reason of the transfer must be no less favourable overall in order for it to be valid.

Linked with this, the Government has announced its intention to amend TUPE to provide for a ‘static’ approach to collective agreements. This is in line with the recent decision of the CJEU in Parkwood Leisure v Alemo–Herron [see my previous article on this case in Local Government Lawyer]. In brief, the static approach provides that even where contractual terms refer to collective agreements as amended from time to time, TUPE will only apply automatically to incorporate changes made to such collective agreements up to the transfer date and not after the transfer, where the transferee is not a party to the collective agreement and was not involved in the bargaining process in relation to it.

Dismissals arising from a change in workplace location

As the law currently stands, where by reason of a TUPE transfer there is a post-transfer change in workplace location, any dismissal of employees in connection with that change in location will often be automatically unfair even where there is a genuine redundancy situation. This is because the change is for a transfer-related reason and due to current case law a change in location of the workforce is not in itself an ETO reason for dismissal.

The Government will change TUPE so that a dismissal post transfer due to a change in workplace location is not automatically unfair. This allows a transferee to go through a redundancy process with staff who have transferred over and allows the potential for a fair dismissal provided there is a genuine redundancy situation and a fair redundancy process is followed. This will be a welcome change for employers.

However, it is important to note that there is still a risk of claims against the transferee where there is a change in place of work following a TUPE transfer and there is no enforceable mobility clause in the contract to allow the transferee to require the change. In such circumstances the change in workplace may be a breach of contract entitling the employees to resign and claim constructive unfair dismissal.

It appears there will also still be the potential for employees to object to transferring and / or resign pre-transfer on the basis that the change in workplace is a change in their working conditions to their material detriment, and to claim constructive unfair dismissal. As such the risk for employers of legal claims arising out of a change in workplace will not been removed altogether by the Government’s proposed reforms.

Dismissals based on the future conduct of the transferee

As the law currently stands a transferor cannot rely on a transferee’s ETO reason for dismissal. The effect of this is that where there will be a potential redundancy situation following a transfer to the transferee, the transferor cannot lawfully make redundancies pre-transfer in anticipation of a redundancy situation post-transfer in the hands of the transferee. The transferor can only lawfully make redundancies if there is a redundancy situation pre-transfer in the hands of the transferor. The Government had initially proposed a change in the law to allow one party to a TUPE transfer to rely on the other party’s ETO reason for dismissal. However, having consulted on this it has decided not to proceed with this change.

As such, it will remain the case that transferors cannot lawfully make redundancies in anticipation of there being a redundancy situation in the hands of the transferee, if there is no redundancy situation pre-transfer.

Collective redundancy consultation

As the law currently stands, it is arguably unlawful for a transferor or transferee to commence collective redundancy consultation in respect of transferring staff pre-transfer when those redundancies will not take effect until after the transfer. In some circumstances this can hold up the implementation of redundancies after a TUPE transfer as the transferee must allow time for the statutory minimum collective redundancy consultation to take place.

The Government has decided to amend the legislation to allow the transferee to commence collective redundancy consultation pre-transfer even though it is not the employer of the transferring staff at the relevant time. However, the transferee will only be able to commence such consultation pre-transfer with the agreement of the transferor, and the consultation must be meaningful.

Miscellaneous

The Government is proposing a number of other technical changes to TUPE, including changes allowing certain exemptions for micro businesses – these are not addressed in this article.

At the time of writing the draft revised TUPE regulations have not yet been published by the Government – the Government has indicated that it intends to lay the new Regulations before Parliament in December. The Government has not yet announced when it anticipates the above changes to TUPE to come into force, although some commentators expect this to take place in January 2014.

Conclusion

While the changes to TUPE are not as radical as those first proposed by the Government, they are nonetheless significant. While many of the changes are fairly technical in nature, they are likely to have a real impact for organisations involved in TUPE transfers, and to provide a certain amount of additional flexibility which is likely to be beneficial to employers.

While we have not yet seen the new Regulations, there is likely to be a certain amount of ambiguity in some of their provisions, and litigation is to be expected before we know for certain where the parameters of the TUPE reforms really lie.

Graham Richardson is a Director at Bond Dickinson LLP. He can be contacted on 0844 984 1500 or by This email address is being protected from spambots. You need JavaScript enabled to view it..