UK: It's Not Quite "All Change" For TUPE - Service Provision Change Provisions Will Not Be Repealed After All

Since 2011, the Government has been considering proposals to amend the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE"). Following an initial call for evidence and subsequent consultation, the Government yesterday confirmed the amendments it intends to make to TUPE.

One of the most controversial proposals was the suggested removal of the 'service provision change' provisions within TUPE. These changes were hotly disputed by many businesses and employment lawyers who saw a return to the uncertain position pre-2006 (when the provisions were first included in TUPE). It was felt that this in turn could only lead to increased litigation and disputes. In a surprise, but much appreciated, about-turn by the Government, these amendments will not now be implemented.

We discuss this about-turn in more detail below, and also consider what proposed changes to TUPE should still be coming into force.

Change of direction for the Government - service provision changes remain in TUPE

'Service provision changes' (or "SPCs") generally apply where a service is being outsourced or being taken back in house, or where the service provider for an already outsourced service is changed. For example, a client might ask a company to provide cleaning services, or might decide to take an IT service back in house after using an external IT service provider for some time. 

Under TUPE, such situations would generally be 'relevant transfers', and would (generally speaking) result in the automatic transfer of the employment of employees who are wholly or mainly assigned to the organised grouping providing the services. The Government was concerned that this went above and beyond the requirements of the EU law (from which TUPE stems), and also that it put small and medium-sized businesses at a particular disadvantage. It therefore wished to remove all provisions relating to SPCs from TUPE.  

The response to the consultation indicated otherwise, however. 67% of respondents were against the proposals to remove the SPC provisions from TUPE, concerned that their removal would simply lead to enormous uncertainty as to whether TUPE applied in any given situation. This uncertainty, it was felt, was more onerous than the SPC provisions themselves, which provide clarity, a level playing field for contractors, and increased staff continuity (often beneficial for businesses, especially in care sectors etc.). Repeal of the provisions would lead to more costly transactions and greater litigation, the responses suggested.

The Government listened to those views and has decided not to repeal the SPC provisions in TUPE.   

When contracting out services, taking services back in house, or submitting a bid to carry out services for another entity, employers must therefore continue to refer to the wording of (and the case law surrounding) the SPC provisions in TUPE, and make an informed assessment on each occasion as to whether TUPE will apply and, if so, whether any employees will transfer.

Changes still in store for TUPE

Many of the changes proposed by the Government are still expected to come in force, however:

1. Slight amendment to the drafting of the SPC provisions 

The Government intends to clarify the drafting of TUPE so that it is expressly clear that there will only be a SPC if the services are "fundamentally or essentially the same" before and after transfer. This reflects the wording in Metropolitan Resources Ltd v Churchill Dulwich (discussed in a previous blog) and so there will be no change to the legal position – it will still always be a question of fact as to whether TUPE applies. It will no doubt be helpful to have such a provision included into the legal drafting, however.

2. Employee liability information

The Government also wished to repeal the TUPE provisions regarding the provision of employee liability information. At the moment, TUPE provides for specified information about the employees transferring under TUPE to be provided to the transferee at least 14 days before the transfer. The Government instead intended that the provision of such information would be left to the discretion (and agreement) of the parties.

Again, there was an overwhelming rejection of this proposal by respondents to the consultation. It is clear from the responses that businesses really believe that the sharing of this information is a significant and vital part of the TUPE process, and is commercially very important. It was also felt that leaving it to the discretion of the parties to the transaction would leave many transferees without the information they require to assess their future liabilities and plan for the successful continuation of their business post-transfer, especially in SPC situations where the relationship between the transferor and transferee is often strained.

The Government has therefore decided to retain the TUPE provisions, but instead to require the information to be provided 28 days in advance of the transfer, instead of 14. 

Transferor employers must be careful to ensure they are able to comply with this new deadline when it comes into force, and transferee employers should continue to consider whether they also need to contractually require the transferor to provide more information than is required under TUPE.

3. Dismissals and changes to terms and conditions

 Currently under TUPE, dismissals will be unlawful, and changes to terms and conditions will be void, if they are by reason of the transfer, or if they are for a reason connected the transfer but are not for an "economical, technical or organisational reason entailing changes in the workforce" (an "ETO reason"). 

Following consultation the Government has decided to amend the relevant provisions of TUPE so that they reflect the wording of EU law  more closely (it is likely that the wording will refer to "the transfer itself" being the "reason for" the variation or dismissal). Again, the idea is to ensure that TUPE does not go further than EU law requires, and also to provide clarity as to when dismissals and variations are permitted.

4. "ETO" reasons

In addition, the definition of an ETO reason will be amended. Currently, 'entailing changes in the workforce' is limited to the changes in the numbers or functions of the workforce. It does not include a situation, therefore, where the transferee has to impose a change in location of the workforce and therefore makes dismissals (or changes terms and conditions) at a specific location to achieve this. If the overall number of employees remains the same, such dismissals/variations would not be for an ETO reason under the current interpretation of TUPE. This leads to the difficult situation, therefore, where such dismissals might constitute potentially fair redundancies under the Employment Rights Act 1996, but would be automatically unfair under TUPE.

This will now be changed, and 'entailing changes in the workforce' will include changes to the location of the workforce. This will hopefully lead to increased certainty for employers carrying out redundancy proposals.   

5. Collective agreements

 Currently under TUPE, amending terms and conditions which are derived from collective agreements (such as pay grades and reviews, for example) is treated in the same way as any other amendments (as set out above).   This makes it very difficult for transferee employers to harmonise terms and conditions. 

The new proposal by the Government is that terms and conditions deriving from collective agreements can be changed, for whatever reason (even if there is no ETO or even if it the changes are because of the transfer itself), provided that any change takes place at least one year after the transfer, and that the new terms are overall no less favourable to the employee. There is currently no guidance on what 'overall no less favourable' might mean, which we think might well lead to disputes for employers who wish to rely on this provision. 

Another change regarding collective agreements effectively implements decision in the Alemo-Herron case, which we reported on recently. TUPE will now be amended so that there is an express 'static' interpretation of collective agreements – i.e. so that only those terms which are negotiated prior to the transfer are binding on a transferee who does not have any input in subsequent negotiations. 

We hope that both these changes will in general lead to greater clarity, and will leave transferees who seek to harmonise terms and conditions after transfer open to fewer challenges.

6. TUPE and collective redundancy consultation

In many cases, the transferee will be carrying out redundancies post-transfer on which it will need to collectively consult. Ideally, the transferee will want to start such consultation well before the transfer takes place, so that it can make the dismissals as soon as possible after the transfer without having contravened any minimum periods of consultation under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULRCA").

Currently under TUPE and TULRCA, however, the transferee cannot insist on being permitted to consult directly before the transfer with the transferring employees (who are still employed by the transferor). Under proposed changes (to be made to TULRCA), the transferee will now be allowed (though not obliged) to carry out "section 188" consultation of the transferor's employees, even before the transfer takes place. 

This can only be good news for transferee employers in terms of saving time and costs on redundancy programmes, and it should also ease the uncertainty employees face on transfer when they are aware of the redundancies in the pipeline but consultation has not yet started.

Transferor employers will still need to be careful however – the employees are still 'their' employees, and transferors should ensure they are aware of what consultation is taking place, ensuring that no representations are being made which could lead to resignations and potential constructive unfair dismissal claims.

7. Micro-businesses

The Government has decided that micro-businesses (those with 10 or fewer employees) will be exempt from the obligation to consult elected representatives on TUPE proposals. Such businesses will instead be able to consult with the employees directly, provided there are no suitable representatives already in place.

The Government did consider further possible exemptions for micro-businesses, but these will not now be put into place. 

Next steps

The above changes to TUPE will need to be put before Parliament before they can come into force. Having originally anticipated that the changes might come into force this autumn, the Government has now confirmed that they will not be put before Parliament for approval until December 2013. 

We therefore look set to have the "new and improved" TUPE in force at the beginning on 2014 – watch this space!

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