UK: The transfer of undertakings (protection of employment) regulations 2006

Last Updated: 17 February 2006
Article by Simon Jeffreys and Anthony Fincham

The long-awaited new TUPE regulations, along with the Government’s guidance on them and response to the public consultation, have now been published by the DTI. As expected, they come into force for transfers on or after 6 April 2006, so there is not much time to prepare.

There are five key areas of change:

  • The new provisions governing changes of service provision (i.e. outsourcing and insourcing) and which employees transfer as part of that process.
  • The creation of a stand alone constructive unfair dismissal claim where there are substantial adverse changes in working conditions.
  • Freedom to negotiate changes to terms and conditions of employment where the seller is in administration and the exclusion from transfer of liabilities within the insolvency guarantee.
  • The duty to notify specified "employee liability information" to the transferee 14 days before the transfer on pain of a legal claim by the transferee for compensation of £500 per employee.
  • Joint and several liability between transferor and transferee for failure to inform and consult.

Among other things, the obligation on the transferor to provide "employee liability information" is new and, having been floated in the consultation, is clarified in guidance accompanying the regulations. It will not be possible to contract out of the requirements.

Under transitional provisions, the duty to provide employee liability information will not apply in the case of a relevant transfer that takes place on or before 19 April 2006.

You can access the hot topics section of the DTI website which contains links to the regulations, guidance and other relevant information by clicking here.


Full Article

The long-awaited new TUPE Regulations, along with the Government’s guidance on them and response to the public consultation, have now been published by the DTI along with new guidance. As expected, they come into force for transfers on or after 6 April 2006, so there is not much time to prepare.

The revised legislation is intended to improve and simplify the operation of transfers without prejudicing employees and to take advantage of some additional flexibilities afforded by the revised version of the Acquired Rights Directive. The reform of TUPE is long overdue but it remains to be seen whether these revised regulations will improve matters.

The scope of the regulations

Regulation 3 defines a "relevant transfer" for the purposes of TUPE. This definition includes a so-called "service provision change" (in other words, outsourcing and insourcing) and the word "activities" is used as a broad term to cover the nature of the service provision. There is no requirement, or implied requirement, for those activities to be carried out by the transferee in an identical manner, although other (non-service provision change) transfers still need to retain their identity to fall within TUPE’s scope.

The regulations have introduced a new "code" in relation to service provision transfers for deciding which employees transfer. This concept arguably ousts existing case law.

The consultation invited views on whether professional business services should be carved-out, but the Government decided against making an exception.

The impact on contracts of employment

Regulation 4 sets out what happens to contracts on a transfer. These continue in the same way under the transferee employer as they operated under the transferor employer. Regulation 4 clarifies that any alteration of the terms of an employment contract because of the transfer itself will be void, although changes may lawfully be made for an economic, technical or organisational ("ETO") reason entailing changes in the workforce which is transfer connected. Emphasis of course remains on the reference to "entailing changes in the workforce", where existing extensive case law retains full force.

Many responses to the consultation tried to persuade the Government to allow agreed changes to terms and conditions to be valid (provided the employee was left no worse off overall). However, the Government has concluded that this would be incompatible with the Acquired Rights Directive (as interpreted by the European Court of Justice). Instead, it intends to pursue this policy objective by pressing for the Acquired Rights Directive to be amended to permit this.

Dismissals and redundancies

The regulations create a new right for employees who suffer a substantial change in working conditions to their material detriment as a result of the transfer to claim constructive unfair dismissal (but not pay in lieu of notice). This is a potentially far reaching change, even though there is no presumption of automatic unfairness in such a case. "Working conditions" have not been defined. The only example given in the accompanying guidance is a workplace relocation or loss of academic tenure. The former of course will be a redundancy in any event and the latter is most rare. This seems an ill considered change.

Regulation 7 covers the situation where employees may be dismissed because of a transfer, or for a reason connected with a transfer. It provides for a dismissal to be automatically unfair where it was made by either the transferor or the transferee employer because of the transfer itself, or for a reason connected with the transfer which was not an ETO reason entailing changes in the workforce. Dismissals could be fair where the reason for the dismissal was unconnected with the transfer or was an ETO reason connected with the transfer entailing changes to the workforce. There is little change to the 2005 draft regulations here, although the Government has provided some advice to assist understanding the reasons for a dismissal in the guidance (page 19).

Insolvency

Regulations 8 and 9 are intended to encourage the rescue culture. They deal with the situation where a relevant transfer occurs while the transferor employer is in administration.

Regulation 8 concerns the pre-existing debts owed by the transferor to those employees who transfer. It ensures that those debts do not pass to the transferee to the extent those employees are entitled to receive payments from the Secretary of State under the insolvency guarantee (namely 8 weeks’ arrears of pay up to £2,320 and 6 weeks’ holiday pay up to £1,740 per employee). Debts in excess still pass over to the transferee.

Regulation 9 provides for the transferor, administrator or transferee to agree permitted variations to terms and conditions with collective representatives of the employees only – not individually – and only where the change(s) is designed to safeguard employment by ensuring the survival of the transferred undertaking.

Both these changes are useful.

Notification of employee liability information

Regulation 11 establishes a new duty on the transferor to provide information in writing to the transferee in advance of the transfer about certain rights, powers, duties and liabilities under the contracts of those employees who are due to transfer.

The prime purpose of the duty is to enable the transferee employer to plan for the arrival of the new employees and fully to assess the liabilities and obligations he will inherit. It is not designed to assist in any tender process, and the Government has therefore required the information to be supplied to the transferee only, rather than to trade unions or to all contractors who tender for the contract.

The regulations identify the categories of information that must be supplied. These are:

  • the identity and age of the employee;
  • those particulars of employment that an employer is obliged to give to an employee pursuant to section 1 of the Employment Rights Act 1996;
  • information about disciplinary or grievance procedures taken within the previous two years in circumstances where the Employment Act 2002 statutory dispute resolution procedures apply;
  • information about any court or tribunal case, or any claim or action, brought by an employee against the transferor within the previous two years, or relevant information where the transferor has reasonable grounds to believe that an employee might bring any such action against the transferee;
  • information about any collective agreement which will have effect after the transfer.

The parties cannot contract out of this list of obligations but indemnification for the underlying transferred obligations is still, of course, possible.

Although the requirement to identify employees and provide detailed personal information may seem to conflict with the guidance in the Employment Practices Data Protection Code (which, for example, advocates anonymised information), the fact that these requirements are set out on the face of the regulations should ensure that complying with them cannot be a breach of the Data Protection Act 1998, according to the DTI.

The regulations require the information to be given not less than 14 days before the relevant transfer unless "special circumstances" make this not reasonably practicable (in which case the information must be given as soon as reasonably practicable) and it can’t be more than 14 days out of date. The guidance gives, as examples of special circumstances, when the transfer takes place at very short notice or where the transferor does not know the identity of the transferee until very late in the process (a real possibility bearing in mind the extension of scope to service provision changes). No attempt is made to define when a "transfer" takes place, and this is now made crucial. The decision in the case of Astley v Celtec Ltd due for hearing in the House of Lords on about 4 April will be critical to this understanding. This aspect may be tricky.

Most significantly, the transferee can claim for compensation in the Employment Tribunal where the transferor is in default, and will be entitled to not less than £500 from the transferor for each employee for whom the information was not provided. However, the Employment Tribunal will have discretion to award a smaller sum where it thinks it "just and equitable" to do so – for example, for a trivial or unwitting breach, according to the guidance.

Under transitional provisions, the duty to provide employee liability information will not apply in the case of a relevant transfer that takes place on or before 19 April 2006, so allowing 14 days "grace".

It remains to be seen whether this duty will materially add to the burdens on a transferor, given that so much information is required to be disclosed in practice in many transactions.

Informing and Consulting Representatives

Regulations 13-15 now deal with the duties on both the transferor and the transferee to inform representatives of their respective affected employees about the transfer and to consult with those representatives about matters relating to the transfer in the same terms as before.

The Government has provided for joint and several liability in respect of any award made by the employment tribunal if the transferor fails to inform and consult. This ensures that both the transferor and the transferee should have a clear incentive to comply. The Tribunal can therefore apportion liability between the parties according to fault under the Civil Liability (Contribution) Act 1978. This is a worthwhile change, reversing the unfortunate effect of Kerry Foods v Creber and Alamo Group v Tucker, which held all this liability was for the transferee’s account even though the duty to inform the transferring workforce fell on the transferor.

Under transitional provisions, regulations 13-15 do not apply in the case of a service provision change that is not also a transfer of an undertaking, business or part of an undertaking or business that takes place on or before 4 May 2006.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 16.02.2006.

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