Introduction

The Government's response to the BIS call for evidence regarding TUPE reform was published on 14 September. Following this a consultation paper on proposals for amendment to TUPE is promised later this year.

The headline points

The document refers to a number of "common concerns" from business as follows:

  • a need for employee liability information ("ELI") to be provided earlier than 14 days before transfer;
  • the absence of provision for post transfer harmonisation of terms and conditions;
  • that the provision for service provision change transfer ("SPC transfer") is"goldplating";
  • uncertainty regarding pensions;
  • a lack of clarity on which insolvency proceedings TUPE applies to;
  • the approach to economic, technical or organisational reasons ("ETO's") in the context of TUPE dismissals and changes to terms and conditions.

Where change seems likely?

It seems likely that there will in due course be the following changes:

  • a requirement to provide ELI earlier;
  • guidance on TUPE and insolvency;
  • guidance on assignment;
  • guidance on TUPE and pensions.

The major issues

SPC transfers

Whilst the document refers to business concerns with "goldplating", there is also reference to 38% of respondents believing that SPC transfers increase transparency, reducing the burden on business. 55% of respondents feel that overall the 2006 Regulations, (the most significant change in which, is the SPC transfer) provide greater clarity.

Will, therefore, the SPC transfer survive? Whilst there seems to be an instinctive dislike of goldplating, there is also some evidence the SPC transfer has provided some level of certainty.

What is interesting, however is that arguably some of that certainty has been taken away by case law on the SPC transfer over the last 18 months – 2 years (see "current trends – service provision change transfers what happened to the certainty?", June TUPE Update.)

Harmonisation terms and conditions

There is no doubt BIS has received significant feedback from business to confirm that this is a real problem. It seems inevitable, therefore, that the Government will seek to do something. The question is what, given that, as is acknowledged within the response:

"the room for any amendments to TUPE is inevitably limited by the fact they implement the Acquired Rights Directive ("ARD")."

Possible solutions flagged within the document include provision whereby changes after a defined period should not be viewed as changes "by reason of transfer", and provision allowing harmonisation where agreed with employees and where the contract is overall "no less favourable" to employees.

It is far from clear however, that either change can be made given the obligation to ensure compliance with the ARD.

A more radical amendment might be to entirely remove the reference to ETO reasons from the provision within TUPE for changes to terms and conditions. It did not appear in the 1981 TUPE Regulations and, arguably, the "entailing a change in the workforce" requirement in relation to an ETO reason, made the position regarding changes to terms and conditions more difficult when the 2006 Regulations were introduced.

Change of place of work on transfer

In practice, this is a major issue on transfer as a result of the impact of Regulation 4(9) as interpreted by case law.

In brief, where there is a change of place of work, employees may be able to argue that this amounts to a substantial change to their working conditions to their material detriment, entitling them to regard themselves as dismissed under regulation 4(9) TUPE, their dismissal being potentially automatically unfair on the basis of being connected to the transfer and an ETO defence not being available as the "entailing a change in the workforce" requirement will not be met.

This issue frequently leads to debate as to how this risk should be allocated within the contract between client and service provider on a stage 1 outsourcing and on exit (See June TUPE Update - Indemnity spotlight).

The document indicates that the Government will in due course consult on whether amendment would be possible to ensure that a change in location does not necessarily lead to automatic unfair dismissal; i.e. so that the change is capable of constituting a fair ETO reason.

Again, however, providing for this may not be straightforward given the need to ensure compliance with the ARD and existing case law.

Other interesting points

Some of the more radical thoughts include:

  • commissioners to have power to compel provision of full and accurate ELI;
  • considering the exclusion of professional services from SPC transfer. The document indicates this was particularly pushed for by the advertising sector. Interestingly there was significant debate as to whether there should be a professional services exclusion in advance of the introduction of the 2006 TUPE regulations;
  • provision for joint and several liability of transferor and transferee in relation to pretransfer obligations to staff (in line with the implementation of the ARD in some other EU member states);
  • the introduction of a rule requiring, or at least allowing, redundancy consultation to take place before transfer.

Interestingly, there seems to be support for this from both business and trade unions. Businesses of course are keen to initiate redundancy consultation as soon as possible to reduce costs. Trade Union support no doubt reflects a desire to provide certainty to members in a potential redundancy situation as soon as possible, as well as a hope that earlier dialogue with those buying a business or taking on a service, might reduce the level of redundancy.

Impact on Indemnities

The likelihood of amendment to TUPE and, particularly, the possible repeal of the SPC transfer is a factor which should be considered when allocating TUPE risk through indemnities.

In particular, service providers inheriting work forces under TUPE on entry because of the current provision for SPC transfer, need to factor in the possibility that, on exit, the SPC transfer provision will no longer be in place, increasing the risk that they may not be able to transfer on staff on exit and, therefore, that they may be left with redundancy cost.

Service providers should therefore seek an indemnity covering this risk on exit.

The Consultation

We will notify you of the consultation when the paper is published and seek your views. We anticipate putting in a submission highlighting clients' major concerns.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.