UK: Government Consultation On The Transfer Of Undertakings (Protection Of Employment) Regulations 2006 ("TUPE") - Does It Go Far Enough?

Last Updated: 9 January 2013
Article by Daniel L. Peyton

Our US clients find a great deal of UK employment law frustrating because it seems so heavily weighted in favour of employees. We share a rich common law tradition with the US, but this most enduring of our legal exports is ever diminishing in the face of the relentless march of statutory regulation of the employment relationship. TUPE, along with its European parent, the Acquired Rights Directive, is often ranked amongst the worst offenders. TUPE also adds cost and complexity to business transfers and a need for advice from employment lawyers.

The complexity of TUPE prompted the government's call for evidence on the effectiveness of TUPE between November 2011 and January 2012. Its response was published in September last year, covering the following main areas of concern:

  1. Extend the deadline for the provision of employee liability information beyond the current deadline of 14 days prior to the transfer;
  2. Review the prohibition on effective post-transfer harmonisation of terms and conditions of employment;
  3. Consider excluding service provision changes from the scope of TUPE;
  4. Consider further clarification on treatment of pensions and related benefits under TUPE;
  5. Provide greater clarity regarding when and how TUPE applies in insolvency situations; and
  6. Consider clarification and broadening of the concept of "economic, technical or organisational reason... entailing changes in the workforce".

We await with interest the government's publication of its proposals for changes to TUPE. What we can predict is that although there may be some changes to the way TUPE operates, given TUPE's origins under EU law, the fundamental question of whether we should retain TUPE at all will not be the subject of consultation. Doing away with TUPE sounds like a radical thought, but many jurisdictions outside Europe do not have a TUPE equivalent. For example, in the US, there is very little employment law regulation of business. To the extent that there is regulation, it is mainly limited to obligations to give employees, unions and local and state authorities notice of the transaction and its effects.

The key difference between the UK and US is that in asset purchases in the US it is for the purchaser to choose whether it wishes to take any employees from the seller. If not, the employees are terminated and do not transfer. Share purchases operate largely as they do under English law; the employing entity does not change and subject to the purchase agreement providing otherwise, liabilities pass to the purchaser with ownership of the shares in the target company.

There are some obligations arising in limited circumstances in the US to give notice and engage in collective bargaining in connection with the transfer of a business. A seller or purchaser may be obliged to give written notice to employees, trade unions and local and state government under the Worker Adjustment and Retraining Notification Act ("WARN Act") in the event of large numbers of lay-offs or business closure. The Consolidated Omnibus Budget Reconciliation Act ("COBRA"), requires notice to be given to employees to be terminated, providing them with an opportunity to obtain a temporary continuation of their group healthcare benefits following termination of employment. In practice, these obligations affect asset purchases rather than share purchases, because in the latter it is less common to terminate large numbers of the target's employees. Further, in asset sales, the purchaser inherits collective bargaining agreements from the seller only if it agrees to employ sufficient numbers of the seller's employees. Further, the National Labor Relations Act ("NLRA") requires the seller to negotiate in good faith with a recognised trade union over the effects of the sale, although there is no obligation to reach agreement. Additional obligations may be imposed under various state laws.

What these US provisions show, beyond raising policy questions about the need for TUPE at all, is whether the emphasis of TUPE should be much more on issues of process (its information and consultation provisions, perhaps emphasising more the substance of this exercise, rather than form) and less on TUPE's interference with the substance of the employment relationship (i.e. change of terms and dismissal). This seems a particularly pertinent question given the full range of employment protections available to UK employees under other legislation.

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.

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