UK: TUPE Reforms To Be Implemented In January 2014

The Collective Redundancies and Transfer of Undertakings (Protection of Employment) Amendment Regulations 2014 ('2014 Regulations') come into force on 31 January 2014 and will implement the reforms to TUPE.

BIS has published a revised guide to TUPE to take account of the changes made by the 2014 Regulations. The guide now also covers service provision changes, transfers in the public sector and pension rights on a TUPE transfer.

The final 2014 Regulations

The reforms to be implemented under the 2014 Regulations will apply from 31 January 2014, with the following exceptions:

  • The changes for the deadline to provide employee liability information will only apply to transfers which take place on or after 1 May 2014
  • The ability for micro-businesses to inform and consult employees directly will only apply to transfers that take place on or after 31 July 2014

Whilst the changes are less far-reaching than originally envisaged, the reforms are generally good news for business. There are, however, certain changes that have been implemented which differ from those proposed under the draft regulations published in October 2013; namely:

  • When considering the similarity of the activities before and after the transfer, the 2014 Regulations define post-transfer "activities" carried out by another person for the purposes of the service provision change as "activities which are fundamentally the same as the activities carried out by the person who has ceased to carry them out". The draft regulations had referred to "activities which are fundamentally the same as the activities carried out previously", which was ambiguous and could have included activities carried out by previous contractors and not just the most recent departing contractor
  • The 2014 Regulations retain protection for employees where the "sole or principal reason" for the dismissal or variation of the employment contract is the transfer. This is slightly different to the previous draft which retained protection for employees "if the reason for the variation/dismissal is the transfer". The 2014 Regulations use the same terminology as currently used in TUPE and appears to have been reintroduced to avoid confusion about whether the transfer must be the only reason or main reason for the variation/dismissal
  • The new procedure for pre-transfer collective redundancy consultation has been slightly changed. Under the draft regulations, the transferee was entitled to cancel an election to consult and make a fresh election as many times as it wished. The 2014 Regulations provide that once an election is cancelled by the transferee, it cannot make any further elections in respect of the proposed dismissals

Changing terms and conditions and dismissals by reason of the transfer

Changing terms

It is virtually impossible to vary lawfully the terms and conditions of employment of transferring employees in the immediate aftermath of a transfer as under TUPE, most changes, even if favourable, will be void. The rules currently provide that a change in terms is void if the sole or principal reason for the change is:

  • The transfer itself
  • Or a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce ('ETO reason')

Under the new rules, transfer-connected reasons are removed from the restriction on variation, so that only a purported variation to a transferring employee's contract will be void if the "sole or principal reason" for the variation is the transfer. However, this will not prevent contractual variations if:

  • The sole and principal reason for the variation is an ETO reason, provided that the employer and the employee agree that variation
  • The contract of employment allows the employer to make the change

In practice, it is unlikely that anything has changed. Post transfer harmonisation of terms will always be risky unless there are other reasons for the change. Nevertheless, as the guidance points out, there is likely to come a time when the link with the transfer can be treated as no longer effective and this must be assessed in the light of all the circumstances of the case. The change in law may slightly decrease the legal risk with the current practice of waiting 6-12 months after the transfer to harmonise terms but until future case law works out the implications of removing "transfer-connected" reasons for the transfer, the boundary between what is "connected with the transfer" and what is "the sole or principal reason" remains unclear.

The Government recognises that the change will not solve all the existing problems. This is particularly the case in relation to the meaning of "ETO reasons" on which there is little useful case law guidance. Consequently, the Government promised in its response to the consultation on TUPE reform, to "engage with European partners to demonstrate the potential benefits of a harmonisation framework for individuals and the economy".

Protection from dismissal

In a similar way as it protects an employee's terms and conditions, TUPE also protects employees from dismissal by providing that a dismissal is automatically unfair if the sole or principal reason for the dismissal is the transfer itself, or for a reason connected to the transfer that is not an ETO reason.

As with changes to terms and conditions, the 2014 Regulations remove transfer–connected reasons from the restriction on dismissals. Under the new rules, the dismissal will be unfair if the sole or principal reason for the dismissal is the transfer. However, this will not apply if the sole or principal reason is an ETO reason (provided of course the employer meets the requirements of the general law on unfair dismissal such as following the right procedure).

Again, this change may diminish to some extent the legal risk of dismissing post transfer but we cannot be sure by how much until the Courts give more guidance on the meaning of "sole or principal reason". The new rules only apply to dismissals where notice is given on or after 31 January 2014 or, if no notice is given, termination takes effect on or after that date.

Change in location

One area where the reforms will make a great deal of practical difference is where the transferring employees are required to change their place of work following the transfer. A change of location is common where there is a change in service providers, and currently service providers have just had to accept a risk that employees who do not agree to the change in location could seek to bring claims for automatically unfair dismissal.

The reason for this is because the Courts have confined the meaning of an ETO reason "entailing changes in the workforce" to changes in the numbers and functions of the workforce. This does not align with UK redundancy law, which recognises changes in the place of work as a redundancy situation. Consequently, if the employer changes location on a TUPE transfer with the same staff overall, the conventional interpretation of the case law is that dismissals as a result of the change of location will, as a matter of law, be automatically unfair.

The Government has recognised the legal difficulties encountered on change of location in relation to dismissals and has amended TUPE so that changes to an employee's place of work following a transfer can amount to ETO reason.

Hence, on a change of location, a transferee can fairly dismiss as redundant those employees who do not wish to move to the new location. This does not mean employees can be forced to move and will not affect the employer's contractual rights where the contract contains a mobility clause.

The new rules also provide in relation to changing terms and conditions (which are permitted if the sole or principal reason for the change is an ETO reason entailing changes in the workforce and the parties agree to the change) that "changes in the workforce" includes a change in place of work.

This means that where there is no mobility clause to rely on, an agreed change in terms resulting from the change in workplace after the transfer will be enforceable, and not void. Again, the change does not mean that the employees can be forced to move – this will depend on the terms of their contracts.

Terms derived from collective agreements

A further relaxation of the rules on changing terms and conditions relates to terms in an employment contract which are derived from collective agreements.

Under the new rules, the restriction on varying contacts will not apply to variation of terms derived from collective agreements provided:

  • They are varied one year after the transfer
  • After the change, the contract terms overall, are no less favourable to the employee than before the change

This gives transferees some more flexibility than at present to agree with employees mutually beneficial improvements in terms.

The new rules also deal with the problem often encountered in public sector outsourcing whereby the new employer, who no longer recognises the trade union for collective bargaining purposes, is still bound by terms (such as pay and hours of work) negotiated between the union and the previous employer.

The new rules deal provide that a transferee will not be bound by any terms negotiated as part of a collective bargaining process after the relevant transfer where the transferee is neither a party to those subsequent collective agreements nor to the bargaining process for them.

This reflects EU law and is good news for transferees.

Nature of a service provision change

In TUPE 2006, the Government introduced the concept of "service provision change" as an addition to the traditional concept of a transfer of an undertaking. This was to clarify that outsourcing, insourcings and other changes of service providers would be caught by TUPE. This move has been criticised for taking TUPE beyond the requirements of EU law, so it was widely thought that it would be scrapped. However, because it seems so many respondents to the consultation wanted to keep it, the Government changed its mind and just decided to add a further provision to clarify what it actually means.

The new rules clarify the meaning of a TUPE service provision change (SPC) by providing that, for there to be a SPC, the activities carried on after the SPC must be "fundamentally the same as the activities carried out by the person who has ceased to carry them out".

This reflects recent case law on this point so is not a change in the law. The Government hopes that making this more widely known will mean the service provision change provisions are not perceived as being a barrier to doing business, with more contracts changing hands as a result.

Micro business

The new rules allow employers with fewer than 10 employees to inform and consult with their employees directly where there is no recognised independent union or existing appropriate representatives.

This change applies to TUPE transfers which take place on or after 31 July 2014.

Employee liability information

TUPE requires the transferor to provide the transferee with certain information before the transfer to help transferees in their future planning.

Under the new rules the transferor must provide employee liability information to the transferee 28 days before the transfer, rather than 14 days before the transfer at present.

On a practical note, outsourcing contracts generally contain much more detailed requirements regarding provision of information with much longer timelines in order to allow for retendering. This change applies to TUPE transfers which take place on or after 1 May 2014.

Collective redundancies

Currently if the transferee wishes to make redundancies after the transfer, any consultation with transferring employees about their redundancies will not count towards discharging the transferee's obligations to consult collectively on their redundancies.

The new rules will assist transferees as they will allow consultation by the transferee on collective redundancies to start before the transfer.

The new rules do not deal with the individual redundancy consultation. We consider that there is nothing to stop the transferee conducting pre-transfer individual consultation if the transferor allows sufficient access to its employees. However, it will remain necessary to complete individual consultation and serve notice of dismissal after the transfer, as the transferee will need to be able to rely on its own ETO reason for the dismissal.

According to the 2014 Regulations, the new regime works as follows:

  • The transferee needs to "elect" to consult representatives of affected employees, including transferring employees, "about the proposed dismissals"
  • The election must be in writing and the transferor must agree to it
  • The transferee is then effectively treated as if it were the transferring employees' employer for the purposes of the employer's obligations to consult collectively with the employees and their representatives
  • The transferor can help the transferee by providing information or other assistance but there does not appear to be an obligation to do so – and the transferee will not be able to use any failure by the transferor to do so as an excuse for not having complied with its obligations
  • The transferee can give notice at any time to cancel the election but must notify as soon as reasonably practicable, the employees, representatives or Secretary of State as applicable; it may not make another election to carry out pre-transfer consultion in relation to the proposed dismissals

The implications of these new rules will have to be taken into account when negotiating the terms of any sale/purchase or outsourcing agreement involving a TUPE transfer.

New Government guide to TUPE:

2014 Regulations:

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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