This webinar is designed to help you master the fundamental concepts of TUPE. It is a perfect introduction if you don't regularly deal with TUPE or if you want a refresher on how TUPE works.
The webinar will cover the key issues that arise in a business sale or outsourcing, practical issues and how to avoid liability under TUPE. The issues we'll focus on are:
- When does TUPE apply?
- What is the effect of TUPE?
- What are the TUPE information and consultation obligations?
- How to mitigate TUPE risks and protect your organisation if TUPE may apply
Our speakers, Jane Fielding and Hannah Swindle, will help you understand the key principles of TUPE and answer as many questions as possible in the time available.
Transcript
Siobhan Bishop: Good morning everyone. I can see people are joining so welcome to our TUPE Club Webinar. This is the first one for this year and what we have got planned today is a Back to Basics session looking at all the key ingredients of TUPE.
So it is for those of you who have perhaps not come across TUPE before or if you have not had a refresher recently or if there is something coming down the tracks that you want to brush up your skills for. This should be an ideal session for you.
I am Siobhan Bishop, a principal associate at Gowling WLG and I am joined today by Jane Fielding who is a partner in our team and also Hannah Swindle, who is a principal associate in our team and you will see KJ is with us for technical support.
So both of our speakers today have a wealth of experience in everyday TUPE and extremely complicated TUPE so even though we have billed it as a Back to Basics, rest assured you will be getting some key tops and guidance on how to deal with the difficulties of TUPE on the ground and in certain situations to make sure that you are dealing with commercial realities and your TUPE transfer goes well.
So looking at the agenda today. The first thing we will look at is what is the effect of TUPE?
With the employees and the employer because there are implications on both sides with extra protections for the employees and also therefore extra risks for the employers.
Then we will move on to the When TUPE applies. Now this is the fundamental question of course and it is quite complicated in itself.
Then the next matter will be information on consultation which is one of the key practical things that you need to do in a TUPE scenario and you need to deal with that on the grounds and that can be quite difficult to apply the theory to the reality and the last section, we will bring it all together and we will look at mitigating the risks, so identifying those risks and potential ways of solving them and limiting any liability that we might face.
And at the end we will have time for questions so please do feel free to submit your questions on the Q&A button and we do not need to wait until the end, you can submit them at any time and we will pick them up as we go through so we will answer as many as we can at the end, but in the meantime, I think I will pass you over now to Jane Fielding to deal with the first topic.
Jane Fielding: So first of all what is TUPE? Well if you remember nothing else about this talk apart from the technical lapse which hopefully you will have forgotten by the end. The Transfer of Undertakings Protection of Employment Regulations, remember the bit in brackets because if you are faced with a TUPE situation and you are not quite sure how things will play out, remember it is about protecting employees, and it is about protecting employees in situations where either the business that they work in is sold as an asset transfer or where the services that they are working in are provided by a different provider going forwards so as an outsourcing or insourcing situation which Hannah will come on to look at.
So where does it come from? Well it comes from Europe which will be important as we will see in a minute and it was the Acquired Rights Directive in 1977 that brought it in. We first start grappling with in the UK in 1981 as you can see. It was overhauled in 2006 and again we had some changes in 2014, but the underlying regulations that we use are still the 2006 ones, and then of course on top of all of that we have got a plethora of case law both domestic and at European level that we have to deal with as an overlay to the Regulations.
Now although they are quite short, they are in fact quite fiddly because of all of that and we also as I mentioned they come from Europe so we need to think about well what is the situation now post Brexit so we will turn to that next if whoever is controlling the slides could click it on for me please. Thank you.
So currently this is position so you will all remember the withdrawal agreement the EU (Withdrawal) Act in 2018 set this implementation period for 31 December 2020 and what the effect of that was that we had this concept of retained EU law and everything that was in place as EU law prior to the implementation period completion date was frozen as part of our law and basically it gave EU law and decisions the same status as Supreme Court decisions in this country, and there is a right for certain courts to depart from those EU cases if they consider it right to do so, and those courts as the Supreme Court of course, but also the Court of Appeal and the Court of Session in Scotland. Below that, people still have to abide by it so for TUPE purposes, most cases because it does not generate quite as much case law as discrimination for example or unfair dismissal. Most cases only get to the Employment Appeal Tribunal which is the one below the Court of Appeal so they will have to follow European case law still.
Now we will have to wait and see how long it is before a court does depart from EU case law but in any event it might all be about to change anyway which I will come on to in a minute, but we could click on, I've just dealt with what happens in terms of law and case law that was already part of our domestic law derived from Europe before the implementation period. What about things currently that come in after that? Well our courts are not bound by any decisions of the European Court of Justice after the implementation period by the principles of the cases but they can have regard to them if it is appropriate for them to do so in their view, but and this is the perhaps more current bit, what next?
So the Government at the moment is grappling with this retained EU law revocation and reform bill which they are trying to get through at the moment and this is where they are working to the sunset date of 31 December this year and the effect of the bill if it is passed, is twofold so all EU derived secondary legislation and that retained direct EU law that we were just looking at, that direct legislation, that will expire automatically at the end of this year unless one of two things happens. The first is that it is expressly retained by a specific piece of legislation that is passed before then or a minister can extend that review period up to the end of 2026 just if they need more time to look at it and the second effect is that it will end the supremacy of EU law so courts will be able to depart from it if they see fit so it will introduce that level of uncertainty when we are getting challenges in the tribunal in the case of TUPE.
So we do not know at the moment what the Government is planning to do around TUPE but clearly it has been up for discussion in the past several times even before Brexit and so the sort of likely areas if the Government was looking to weaken protection perhaps make us more competitive, make it cheaper to employ people easier and have more flexibility are the four that we have put on the slides so potentially they might make more strict the definition of who is caught by TUPE, change it from workers to pure employees, they might make consultation information a bit easier or relax the rules on harmonising terms and conditions after a TUPE transfer we will come on to see is quite tricky or around replicating benefits so the transferee happened to put on his place the same or substantially similar benefits to the transferor.
So we do not know yet but the Government will need to be a bit careful with this because there is this non-regression principle that is built into the trade and cooperation agreement between the UK and the EU which was part of leaving Europe and where UK, in this case, changes TUPE for example and that impacts or affects trader investment then there is a dispute resolution mechanism which the EU might trigger and because they would be saying you know well you have watered this down and it has given people a competitive advantage doing business in the UK compared to Europe. So it remains to be seen but for now obviously TUPE is as we are about to explain it but watch this space so if we move on to the effects of TUPE. The first one and remember it is all about protecting employees and particularly assigned employees who were assigned to the business or service that is transferring and Hannah is going to look at assignment in a bit more detail but in summary the three main sort of effects are that assigned employees move across with the work they are doing to the new employer. They do though have a right to object to that. So again protection of employment, it is a fundamental principle of TUPE and it is built in with the right to opt out, you cannot be forced to work for an organisation you do not want to work for. They move over on their existing terms and conditions and there are a couple of exceptions to this which we will come on but basically they move over as they are.
In terms of collective issues if you are dealing with a unionised workplace, if there are terms and conditions in the employment contracts that have flowed down from a collective agreement between the transferor and the union then the new employer will inherit those as at the point of transfer so as agreed at the point of the transfer. So if there is a three year pay deal agreed and you are in year one then the new employer will inherit the remaining period of that agreement so the next two years the pay increases they will have to honour.
And in terms of, if we could just go back a minute please, in terms of union recognition that can also transfer so as long as the bargaining unit retains a distinction identity in the transferee's organisation then that could transfer but it transfers on the same basis as the transferor had it. So if it is voluntary recognition then the transferee could derecognise albeit bearing in mind the industrial relations issues around that.
Claims also transfer that are alive at the point of the transfer so if somebody's got an unpaid wages claim, a harassment, grievance anything like that the transferee will step into the shoes of the transferor.
So if we move on I will just pick up those exceptions.
So unlike civil or tortious liabilities criminal liabilities do not transfer so the transferor retains those if they exist so in a TUPE context it could be something around immigration checks, could be criminal liabilities under tax but the more significant exception is the pension exception.
So if you have an occupational pension scheme or the transferor does then the old age benefits under that scheme do not transfer to the transferee however and that is where the BUT is in capital letters. Any early retirement or enhanced redundancy benefits under that pension scheme will transfer and those can be potentially very expensive and also hard to value and identify. So they are what's called the Beckman and Martin Rights which you may have heard of. Now if that comes up we have an excellent pensions team who we always call on in this scenario to help out because those, as I say, those liabilities can be very substantial and it is really important to know what they are and where they are going to fall. Private pensions also transfer so it the transferor has committed to make a contractual contribution of 10% of salary into a private pension then that will transfer as well under the TUPE and the transferee will have to fund it.
So looking at a few more effects of TUPE, as I explained earlier, people transfer on their existing terms and conditions and in a TUPE context it is more difficult than it would normally be to change those terms. Now there can be some flexibility in the contract which the transferee inherits but you always have to approach that with caution and even with consent of the employee in question in a TUPE transfer changing terms and conditions is very tricky and if it is not done validly then they are completely void. So that is a big topic in itself which we are not going to touch today but just to flag it is a tricky area to take advice on and look at at the time.
The second protection which is very important is unfair dismissal. So employees still need two year qualifying period for this but if they can show that the sole or principal reason for the dismissal was the transfer then it is an automatic unfair dismissal which means basically you can follow as good a process as you like in terms of consulting and explaining what you are doing but if they make out that link it is an automatic unfair dismissal. Now it can be saved from automatically unfair if you actually can show you had an economic, technical or organisational reason for the dismissal which involves a change in the workforce and that is either a change in the headcount so reduction in numbers or a geographical relocation. And if you have that it is not automatically unfair but you look back at unfair, normal unfair dismissal principles so that is a pretty valuable protection.
And then the last major protection that the staff have are information and consultation obligations. So there is an obligation around the transferor providing employee information to the transferee and then there are information and consultation obligations for potentially both the transferor and transferee to consult with representatives of effected employees and that area I am going to look at in a little bit more detail later but for now I will handover to Hannah who is going to talk about when TUPE applies.
Hannah Swindle: Thank you Jane. Okay, so I am going to look at the question of when does TUPE apply which is always the million dollar question. We spend a lot of time helping clients to identify the risks of TUPE applying but we are never going to get 100% certainty of that so sometimes we just have to take a new and proceed on the basis of whether it will or not. To be able to get to a certain a position as we can we need to look at the legal framework.
So on the slide, we have got the initial question there that we are going to be looking at. TUPE applies where there is a relevant transfer and there are two type of potential transfer.
First of all we have a business transfer and the classic example of that is where you have got an entire business being sold as a going concern. The other type is a service provision change which involves outsourcing and a change in the provider of services to a client. The two types of transfer overlap it can be both at the same time so we have always got to consider both of them when we are looking at this question.
So if we move onto the next slide then. We will look first at the business transfer. It is often called an old style transfer because it has been with us since TUPE first came about in the UK in 1981 for this type of transfer we need to have a transfer of an economic entity or undertaking or part of one in the UK and it is transferring to another legal person or company. So as we can see from the diagram on the slide the transfer of employees will be from the seller or the transferor going to the buyer or the transferee. So if we look at this in a bit more detail and on the next slide please.
So first of all for TUPE to apply we need to have an undertaking or a business or part of an undertaking or business it is got to be in the UK and there has to be a transfer of the running of that business or part of one to another legal person it is usually another company. The economic entity or undertaking also needs to retain its identity, its got to keep its identity after the transfer and I will come onto that in a moment. Often in a business transfer there is going to be a written purchase or sale agreement or contract but importantly there is no need for a contract between the two parties for TUPE to apply. The important thing is to look at the start and end point of where the work or the business is moving to and from to identify whether you have actually got a transfer taking place. Just to add a note here TUPE does not apply to the sale of shares but confusingly there is the potential for it to apply before or after a share sale because if you have got any sort of intragroup reorganisation moving parts of the business around before or after that sale then it could apply then.
So looking at economic entity then what is that. According to the TUPE regulations it is an organised grouping of resources pursuing an economic activity it is absolutely clear. It does not matter whether that economic activity is central to the business or just ancillary or part of it but you need to be able to identify it. It is still quite confusing I think as to what this actually means in practice but what we do know is that it is not just a collection of assets. So when does it tip over then into something more than just a transfer of assets. Where you have got a whole division of a business being sold then I think it is quite clear really or even more obviously if you have got the sale of all the assets of an entire business to a single buyer. Where you have got more than one buyer for the assets of a company then I think it becomes more difficult to work out and you need to look at each split in detail. You need to ask the question of whether there is enough for what is being sold for it to be an economic entity and that might depend on what asset is included in the sale and it is importance based on the nature of the business. So what do I mean by that. Well, for example, in a software business the focus might be the IP the intellectual property rights, in a cleaning business the people carrying out the cleaning are usually the most important asset, the main asset so we would then ask where are the people going? For TUPE to apply that undertaking or economic entity has to keep its identity after the transfer for TUPE to apply. The test that is used to work this out is often called the going concern test. All relevant factors need to be looked at including what has actually transferred so that might include the goodwill of the business and what is included in terms of the assets. And as I've mentioned the transfer of certain assets is going to carry more weight and be more important for different types of businesses. You will also need to look at how similar the activities carried on by the business are before and after the transfer and whether there is also a transfer of employees and customers. And finally, we know from case law that an entity can retain its identity even if it is integrated into the transferee's business after the transfer and does not have its own sort of autonomous organisational structure going forward.
So if we move onto the second type of transfer then. The second test in TUPE the second relevant transfer is one that came about in 2006 and that was largely to address the fact that the old style test had started being applied through case law at outsourcing situations. So the service provision changed test was brought in to try to give a bit more certainty as to when it might apply in outsourcing situations and it is going to apply in three scenarios.
The first is where you have got an outsourcing of services by a client to contractor they do not want to do the services themselves anymore. They are carrying out the activities on their own behalf, they bring in a contractor to do those for them.
The second scenario is where a client has decided that it wants to switch to a different supplier or service provider and that is sometimes called a second generation outsourcing they are transferring activities or services from one contractor to another.
And then finally, it can apply to an insourcing. So activities or services that were previously provided by a contractor the client decides they not want to take that activity their services back in house and do them themselves.
So the next slide shows the typical model in an outsourcing service provision change situation. You have got the customer for the services at the top, then at the next level down we have got the service provider or the suppliers and they are going to be the outgoing and the incoming employers. Where there is a change in service provider the TUPE transfer of the employees goes directly from the outgoing supplier to the incoming supplier but there is no direct contract between these two suppliers and so TUPE works independently from the actual contracts which sit between the supplier and the customer and the customer itself is not a party to that TUPE transfer. This is really important because it impacts on how any indemnities contained in the contract how those protections work. We normally include indemnities in a contract where TUPE applies because we want to protect the incoming employer from inheriting employee liabilities which occur because of the actions of the outgoing employer because otherwise as Jane has mentioned because of that automatic transfer principle of TUPE all of those existing potential claims and liabilities transfer over automatically with the employees. So in a business sale we have contractual protections going directly between the outgoing and the incoming employer but here we do not have that direct contract so they will be between each supplier and the customer and the customer then needs to pass through those indemnity protections received from each supplier to the other under its existing and future contracts for services.
So if we move on and look at the conditions for a service provision change in a bit more detail then. So you need an organised grouping of employees situated in Great Britain so an organised group and their principal purpose needs to be the carrying out of activities on behalf of the client. They have got to be deliberately organised to carry out those tasks. It is not enough that you might have a group of employees who end up mainly working on activities for one client by happenstance a term we have had from case law such as, for example, because of the particular shifts they tend to work. It is also necessary that the client intends that fundamentally the same activities will continue after the transfer and whether those activities are fundamentally the same is a question of fact that ultimately would be decided by a tribunal if there was a dispute but looking at whether activities are going to be fundamentally the same the parties need to look at how the activities are carried out in practice but also what the contract says, how they are described under the contract. There are a couple of key exceptions to be aware of they have been written into the TUPE regulations.
A service provision change does not apply to contracts wholly or mainly for the supply of goods for the client's own use. So we have had some guidance from the government on what that means and they give the example of a contract to supply sandwiches for a client to sell to staff in its canteen. That is going to be covered by the exemption so TUPE will not apply if they change that contract or retender it but you can contrast that with a contract to run the staff canteen where the activities are not going to be wholly or mainly for the supply of goods. It is a service to TUPE would potentially apply there.
The second exemption is that it will not apply to contracts for a single specific task or event of short term duration. Case law has confirmed for us that the two terms should be read together so we are actually referring to a single specific event of short term duration. So again looking at the government guidance as to what they mean by that they have given us an example which is the supply of security services at the Olympic Games. Working out whether this exemption would apply with any degree of certainty is very difficult in practice. What would be considered short term is always a question of fact and degree and you also need to look at what the client's intention immediately before the transfer that is also really important. What is clear is that you cannot use the exemption to get round TUPE just by entering into a succession of one day cleaning contracts for example because there the client really intends the service to continue on a longer term basis but I think it is fair to say because of all the certainty around this will, around this exemption when it will apply. Quite often we do not rely on it in practice.
So moving on now to the question of assignment. So we have worked out that we do have a TUPE transfer situation. So next we need to consider who is it going to apply to. TUPE regulations state that TUPE applies to all employees assigned to the organised grouping and/or undertaking that is transferring. They helpfully do not define assignment in the regulations. All they state is its other than on a temporary basis. So assignment is really going to be a question of fact in any one case and to try and work out what assignment means we are looking to case law and that has confirmed that it is important to look at the number of different factors to try and work this out. None of the factors which were set out on the slide, none of them are determinative in and of themselves you have got to look at them altogether try and get that big picture. At the top of the slide there we have got time, we are often asked whether someone will be assigned for TUPE purposes if they work more than 50% in the business or on particular services is a useful starting point, a good rule of thumb to identify the people who are most likely to be in scope but importantly it is not simply just a question of how much time they spend on that particular business or service. It is a factor but it is not determinative. We also need to look at things like the nature of the work, what do they do in practice, what does it say in their employment contract about the task and duties they are contracted to do, and also importantly what are their actual day to day responsibilities. Allocation of costs could also be relevant where you have got the provision of services, is the cost of an employee allocated to a particular client or customer contract for example. We also need to look at the value of that individual for the service or the business in question. But what we do know is that someone has got to be assigned other than on a temporary basis. So to put some colour on that TUPE is not going to apply to a temporary secondee into a service or part of the business but it would apply to someone who has made a permanent transfer even if that has been carried out relatively recently. The trickier areas often come about where employees work on more than one contract or for more than one client, for example, you might have an employee such as a project manager or possibly in a shared service team such as HR or IT which supports many parts of the business. In those cases it is really important to look at all those factors including the type of job the project manager is not going to be necessary assigned to a contract just because they are spending all of their time on that contract in the lead up to the transfer because they are carry out some troubleshooting. It can also be the case eventually that employees are not actually assigned to any particular contract. Thank you I will pass you back to Jane now.
Jane: Thanks Hannah. So I am going to pick up on information in consultation now. So I mentioned earlier there are the two aspects of it.
There is the information the transferor gives to the transferee to help them understand who and what they are inheriting so that is the employee liability information and we have summarised on the screen there the detail of that which is in Regulation 11 obviously there is a bit more detail in Regulation 11 and if you need to pull this information together you need to be having a look at that. I am not going to go through it because you can see, see what it is there but what you can see at a glance is particularly if you got a lot of people in scope 2 transfer then there is going to be a degree of organisation and coordination needed at the transferor's end to pull that altogether. So you need to be geared up to do that and in our experience HR teams who are very experienced at this have quite a slick system others struggle a bit more to get the information together in time.
So if we move on. What does the transferor do with that information once gathered, well they have to provide it to the transferee at least 28 days before the transfer or the date when they expect the transfer to happen. Now if you do that in compliance with Regulation 11 you do not have to worry about anonymising it because complying with that statutory regulation gives you your defence under Data Protection Law to revealing the identity of individuals. If you do not do that as transferor you are potentially on the hook for compensation to the transferee if they claim in the employment tribunal and that is a minimum of £500 per employee for whom you do not provide the information although point 4 on the slide there does indicate that if there is a contract in place around provision of information and there are indemnities in there then the tribunal will have regard to where the parties wanted that apportionment to go. So they will have regard to that if there is a contract where there are indemnities in it.
The point I really to focus on here is point 3 and why I say this is too little too late getting it 28 days before the transfer. So why is it too little, well if you look at Regulation 11 and the previous slide and when you get a moment you will see that there are some key things missing from there that you would probably want to know about if you were a transferee so, for example, if you were looking at a headcount reduction after the transfer you would want to know if there were any enhanced redundancy entitlements that you were going to be inheriting and that is not part of Regulation 11. If in a business sale situation in particular you might be concerned about restricted covenants from a business protection perspective and Regulation 11 would not give you that either. So we often see in an outsourcing situation these information provisions supplemented by contractual provisions where the customer is built into the contract a requirement that the outgoing service provider or potential outgoing servicer provider in a tender situation has to provide information that is more useful so that can help the people shape their bids and price for the contract. Those sorts of provisions will also usually address the second point about why it is too late. They will usually require that information to be given on request or certainly earlier in the process than 28 days so that again that can help shape the transfer and the bids that people are putting in in response to their tender.
So if we move onto the second aspect of information and consultation and this is the one that sort of most obviously helps or more obviously helps the staff who are affected and this is the obligation to inform and consult with them but it is via appropriate representatives. So before we get onto what that means I just wanted to flag that information and consultation are two separate obligations. The obligation to inform will be present in every TUPE situation but under TUPE the obligation to consult is a mandatory step it is only present if they employer envisages measures and we will come onto look at what measures mean shortly but even if there are no measures then what case law has told us building on TUPE is that you have to leave time in the timetable of the deal for voluntary consultation so staff and their reps have an opportunity to ask questions and see what is going on.
So there are two key points here. Firstly, this obligation to inform and consult does not just apply to the in scope staff it applies to anyone affected by the transfer so it could be that the transferor once it loses the people are going to go over to the transferee does not need as many head office staff cause there are not as many other staff to support they might therefore be affected because they are going to be put through redundancy process. So it is wider and if you missed that point then you risk not fully complying and there is a penalty for that which we will come onto look at.
So looking at who are appropriate representatives, well if you have got a trade union that is recognised in respect of the whole workforce, the whole affected employees, then they are the appropriate representatives and you have to consult with them. If you do not have a union at all or you do have one but it does not, the recognition does not cover all of the people who are affected then you as the employer have to look at putting different employee representatives in place as the appropriate representative and you have a choice there potentially. If you have a pre-elected staff forum and the remit of that forum is sufficient to cover TUPE then you might choose to use that forum or you could invite the affected staff to elect representatives specifically for the particular TUPE transfer and we usually see people prefer to do that latter because it avoids any question about whether the staff body that you are going use the pre-existing staff body has the right remit overall and whether individual members of that body are still within their term of office or whether there might be a problem there but if you are going to invite an election then obviously you need to factor time for that into the timetable which can affect how long it all takes. So what do you have to tell them when you inform them.
If we move onto the next slide we have set that out basically it is telling them the staff, you know, what is going to happen to them, why and giving them information about the measures that the transferor or transferee envisage and if there are no measures, confirmation of that. So you have to give this in writing but otherwise it is sort of fairly unprescriptive about how you do under TUPE but it is the what is going to happen, why and who is it going to happen to.
I wanted to look more closely at the last two things on this slide so measures because that is really critical and it is measures envisaged in the case of the transferor staff by the transferor and the transferee and it also begs the question of course, what do we mean by measures. Now we have already had a couple of phrases come up and say well TUPE does not have a definition of that and again TUPE is unhelpful in not having a definition but what case law tells us is it is any positive act or omission by the employer in question and it is also been borne out many times in case law that that is a pretty low threshold, indeed a very low threshold. So in one case there was a change in the payroll date which meant peoples' deductions were very slightly affected, you know, to the matter of pence in some case and in some cases the change was to their benefit not their detriment, that was still found to be a measure. So it is a low threshold. Not in terms of agency workers this is slightly odd in a TUPE context but part of the information has to be how many agency workers are employed in the whole business not just the little bit that is transferring if it is a partial transfer, what they do and which parts of the business they are in. So there is a parallel obligation in the collective redundancy legislation which kind of makes more sense because in that case the representatives might be saying, well before you look to reduce employee headcount why do you not terminate the agency workers first does not really fit that well with TUPE but it is there and there are cases where people have been subject to a penalty where they have not provided that.
So if we move on to the duty to consult, again all TUPE says is you have to do it long enough before the transfer to enable meaningful consultation to take place which really translates into saying you have got to do it in good time for it to be an effective process and that is obviously going depend on how many people you have got involved and the extent of the measures that you are proposing. Now there is a slight oddity I wanted to flag here on measures. Under TUPE itself there is not an obligation on the transferor to consult with its employees so the ones that are, including the ones that are going to moving across not just all the affected ones on the transferee's measure so the transferee has to tell the transferor what measures it is proposing or if there are not any that there are not any but the transferor is not then under an obligation to do more than pass that on to the appropriate representatives. In practice, what happens because generally people want to try and make it as smooth a process as possible they will do that or they will invite the transferee in to talk to the staff directly in their presence but it is not actually an obligation under the TUPE and of course the flip side as well is sometimes where the transferee's staff are affected by all these new staff coming in that bit of consultation is forgotten as well if the transferees are potentially going to have to make redundancies sometimes consulting with their existing staff can be overlooked.
So in terms of the penalty it is 13 weeks gross pay per employer affected by whatever the level of default is, the failing to do this properly. So a good shorthand for that which we often use to get the attention of the finance director, for example, it is a quarter of the annual wage bill of the staff affected. Not that is the maximum and that is what you going to face if you do nothing but if you can do something and you do do something then you have the opportunity to argue that penalty down to something in certain cases considerably lower if it is a really sort of minor or technical breach. Now we quite often get asked, well is there a defence to that we are getting, you know, a lot of pressure from our parent company abroad who do not understand TUPE or are in an insolvency situation, do we really have to do this and our advice generally is while there is a special circumstances defence but it is almost never applicable so really try and do whatever you can in the time available with whatever information you have got as a way to mitigate the risk of that quite heavy penalty potentially. So that is a good point to handover to Hannah who is going to talk more about mitigating risks.
Hannah: Thanks Jane. So, yes, the automatic transfer principle of TUPE and the additional obligations that it places on both the outgoing and incoming employer can result in some potentially significant addition risk and costs.
So first of all then. The parties need to know who is going to transfer. If you are the incoming employer it is important to try to obtain information about who you are going to inherit. You may need to know that you are going to have enough staff and also any key employees with the correct knowledge to be up and running with the services from day one. If you do not inherit the correct employees that could impact on your ability to meet service requirements for your customer. You also need to be aware if anyone is temporarily out the business, for example, on sick leave or family leave because they are still assigned, they will still transfer. If you are the outgoing employer you also need to know what your remaining workforce is going to look like after the transfer. It is less of a problem if you have got an entire service being outsourced or moved to another provider and it is clear which employees work their services and so are going to transfer with it and the same for a business sale. But it is more difficult where you have only got part of the service or business transferring but you have got employees working across the entire service or business. You also need to check whether you are going to lose any key employees yourself. If you are, and you want to make sure they are going to be retained you will need to think about ways to do that in good time. So, for example, you might want to move them into other parts of the business before the transfer to take them out of the scope of it.
The next point on the slide is more of a problem for the incoming employer. We have heard the employees transfer across with all of their pre-existing rights and liabilities with a few exceptions. The incoming employer has got to work out how to replicate the benefits that employees are entitled to, can often be a problem especially where you have got insurance type benefits or where those benefits are linked to the outgoing employer's business such as access to a share option scheme for example. There might also be some pre-existing issues in the transferring workforce that you are going to have to deal with. There might be some long term sickness absence or ongoing disciplinary issues.
The next point is information and consultation that Jane has just talked about. As we have heard the potential maximum liability is a quarter of the wage bill, 13 weeks gross pay if you get it wrong. So it is very important to build in sufficient time to make sure you do a proper process. And then there might be some deal specific risks because of the particular transaction so, for example, the transferring employees may have generous pension benefits some of these Beckmann and Martin liabilities we have heard about. Or there might be the need for a lot of redundancies at the start to right size the service and I will come onto how we might deal with those in a moment.
So other examples of this so we move onto the next slide please. Other examples of this that might arise are where the incoming employer wants to make some changes to terms and conditions of employment, or working conditions, they might need the incoming workforce to fit in with existing shift patterns for example. It is important to remember that any proposed change is going to be a measure for the purposes of that information and consultation process and all measures need to be consulted about even if they do not consist of a contractual change. Jane mentioned the additional protections that TUPE gives employees around changing terms and conditions there might be issues ensuring that any contractual changes put in place are valid as Jane mentioned this is quite a tricky situation it needs to be considered and thought about carefully. We often have redundancy situations arising in connection with a transfer that we have touched on. It might be the case that the incoming employer has got too many employees after the transfer because of that automatic transfer principle. They may also operate from a different location and they might not be able to make the staff relocate because of the terms of the contract or the staff just may not want to. The outgoing employer might also have a potential redundancy situation in its retained population because it does not need as many staff after losing the contracts that the employees worked across for example. So all of those cases wherever the redundancy situation arises any dismissals have got to be carried out fairly or you have got the risk of claims but again if you have got post-transfer redundancies they are going to be a measure that need to be introduced as part of the consultation process. Where there is an outsourcing situation we have got an added level of complexity. I have talked about there is going to be three parties involved but you have only got the transfer taking place between the outgoing and incoming suppliers and where you have got that transfer happening at that level but only one of them is going to party to the contract with the customer at any one time. So outsourcing brings its own challenges because of that tripartite nature of the arrangement and where you have a change in provider the incoming employer does not have any direct indemnity protection from the outgoing employer as you might have in a business sale. So that means all indemnities have to flowed through the customer as the customer enters into a new contract with the incoming supplier it needs to think about what indemnity protection rights it currently has under its existing contract with the outgoing supplier to know what it has to be able to pass on. It is most likely going to be the case that the incoming supplier is going to ask for that indemnity protection from the customer. They want indemnities to cover pre-transfer liabilities connected with those transferring employees and if the customer does not have suitable protections in its existing contract with the outgoing provider it is going to be left exposed if it then gives them in its incoming contract. The incoming supplier has got to account for the risk of any problems it inherits automatically under TUPE so it if does not get those indemnity protections it might then have to increase its charges or protections to factor those in. So these are all issues that a customer will have to consider.
So some further points on outsourcing then. The customer has got to flow through to a new supplier any obligations it might be subject to under its existing contract with the outgoing supplier that might relate to those transferring employees. The customer is going to have to make sure that the new supplier as the incoming employer complies with them because otherwise the customer is left on the hook to the outgoing supplier and could be responsible for any potential liabilities that the incoming employer causes. It is important not to forget about subcontractors if a supplier is using them to supply the services then this needs to be taken into account when you are drafting any contract for services. You might be placing obligations on the supplier, you might give them rights or ask for protections in respect of all the staff working on the contract not just their own employees. So if there is anything that is going to apply to the workforce as a whole all of those rights and obligations need to be flowed down into the subcontract. The customer has also got to think about how employees are going to be managed during the contract. It is usually going to want to place some controls on the supplier. In particular it is thinking about whether there may be a transfer on exit to a new supplier coming in so it is going to want to stop the supplier being able to do anything which might cause a problem for that new supplier because of the automatic transfer principle of TUPE. So for example they might want to prevent a supplier moving well performing staff off the contract and moving poor performers on when we are coming up to the termination or maybe materially changing terms and conditions to the employees benefit and these types of provisions are often called antisabotage controls for obvious reasons. The customer also needs to include the right to ask for information at an appropriate time, it needs to be able to complete its retendering processes effectively and know who might be in scope to transfer. Jane talked about ELI information, employee liability information but that is very limited in terms of content often provided too late. So under the contract you can use that to require the supplier to provide more employee information and at an earlier stage.
Finally, parties in negotiations often concentrate on the stat of a contract they want to get things up and running but forget to think about exit. It is really important to try and think about what might happen at the end, do we expect TUPE to apply if we do we are going to need the usual indemnity protections and if you are a supplier, what are you going to do is TUPE does not apply, would you be looking to ask the customer to cover any redundancy costs for example. This might be more of an issue if you have taken on a lot of people at the start of a contract so you do not want to be left carrying the costs for them at the end and even if the parties do not expect TUPE to apply at the outset of a contract the customer needs to make sure that it has got adequate indemnity protections in place because the supplier could change how it organises those services and uses its employees during the term which could mean that TUPE applies at the end after all.
So a few reminders then. Where there are people carrying out services or working in a business you have always got to consider TUPE even if you do not think it is going to apply. Sorry can we move onto the next slide KJ? Thank you. It is much better to address any potential issues at the start rather than being tied into a position later during contract negotiation. It is really, really important to carry out due diligence to look at who is working in connection with the business or services. Do not forget subcontractors as I have said other they could be subcontractors working on the services as well. Are there any risks or liabilities connected with them, is there anyone on long term sick, any potential claims lurking around. Ideally, you want to know about these issues before the transfer even though it is not going to stop the individuals themselves transferring. In some cases you might be able to agree that the seller or the customer will take responsibility for any potential liabilities or to ensure that the outgoing employer actually agrees to cooperate with any ongoing disciplinary issue for example.
Workforce planning is really important for both the incoming and outgoing employer. Who are you going to inherit, who are you going to be left with, who is still going to have the key employees that you need.
So moving onto the next slide then. To do that workforce planning you need to factor in enough time, carry out the due diligence and the planning processes. You need to consider TUPE at an early enough stage so they can be dealt with. If you are going to run an information and consultation process properly that needs time, you might need to elect reps and to allow some time to do that. If one party does not want to carry out that full process, for example, because of confidentiality in a deal maybe consider whether they should be bearing financial risk of not doing so also keep the document trail of any communications to staff and minutes from meetings these will help if there is any later dispute. You might need redundancies to make the business or services the right size, who is going to pay. If you are doing them for a customer they may carry the cost. The timing is important. Often the parties want to do the redundancies pretransfer especially where there is a relocation to a different site because it saves time and cost post transfer but because of the increased protections around TUPE there are greater risks of doing that beforehand. So you have to weigh up the risk of doing the redundancies sooner with the increased financial risk it might be better to wait until afterwards. Sometimes you can use a settlement agreement to compromise any unfair dismissal claims that will have their own costs because the employees need to take legal advice and you have to pay the employees and ex-gratia amount but it might be worth it if you need those dismissals to take place without risk on the day of the transfer.
So finally then, another way of mitigating risks. I've spoken about all the way along, sorry next slide please KJ. Is to get the contractual protection. This is really key when you are entering into any sort of agreement for services. The customer needs to be able to require the supplier to provide employee information at an early stage and you can use warranties to ensure that the outgoing employer stands behind the accuracy and the completeness of that information provided. Indemnities are really key in the context of a TUPE transfer. You use them as standard market practice to apportion various liabilities before and after the transfer and deal with any costs that might come up because parties do not, for example, comply with their obligations to inform and consult. You could also use and covering specific risks long term sickness absence or any ongoing claim that might exist there. Importantly, if there is any significant pension liabilities you really need to consider that indemnity protection and that might be more likely where you have had employees coming originally from the public sector.
So the final point I just want to get everyone to take away today is that the commercial drivers are always key. Employee risks might not be the most important factor if you have got the need for a particular deal to be happen really quickly then the employment aspects may be secondary but if the employee issues are considered early then you can take a decision how to progress and take things forward taking into account the costs of any employee risks.
So I know I have come up to time. I do not know whether we have got some time to take any questions. Whether we can deal with those afterwards.
Siobhan: So if you need to leave please feel free to do so but we will take some questions as we promised to do so. So we have had quite a few in. Thanks to Hannah, thanks to Jane. I thank you for those who have some submitted the questions. I will move straight to the first question to Jane. So this is a question about someone who is a supplier and how can I contract out of TUPE as much as possible?
Jane: Okay. Well you cannot agree to contract out of TUPE as between the contractor and the customer or as between two businesses if you are in a business sale transfer. What you have to do is all things that Hannah was just talking about which is to make sure that you understand where everybody has agreed the liabilities should lie and make sure the contract reflects that. So, for example, if in a business sale the timetable is being driven by the buyer and they want to do it all in a hurry and there is not time to do a proper information and consultation exercise then the seller should be in a reasonably strong commercial position all other things being equal to say, well then if there is a penalty for that then you should bear the cost of that because you are the one pushing for it. So it is about apportioning the liabilities in the contract rather than contracting out per se.
Siobhan: Okay thanks. Hannah. We have got two quick questions for you so the first one is about TUPE applying whether as a transfer of the entire assets of a company instead of the shares. Is that a case where TUPE would apply?
Hannah: Yes, absolutely. So we are saying that TUPE does not apply to share sales they can be connected transfers if you have got reorganisation of the business before or after that share sale but TUPE does not apply but where you are, you have a situation where the entire business of a company is being bought then yes that is a classic situation where you would have a business transfer type TUPE transfer.
Siobhan: Okay, and what about where the transfer is going to take place so do transfers have to be from a UK company to another UK company?
Hannah: This is slightly more of a tricky situation that would need to be considered how you are going to deal with it at the time but in essence just because you have an incoming employer that is not based in the UK does not mean that you would not necessarily have, or the recipe or the condition satisfied for TUPE in the outgoing employer. So as I mentioned at the start for TUPE to apply you do have to have an undertaking that where you have got a business sale situation in the UK and for a service provision change you need that organised grouping of employees in Great Britain but where the business or most likely services are being transferred out of the UK you can have a situation when TUPE still applies but it is going to be very unlikely that you would actually have that practical transfer of employees to outside of the UK and in those situations in essence you would end up facing a redundancy situation but it does need another consideration about how to deal with that properly and manage all the risks that can arise.
Siobhan: Okay thanks. Jane. I will ask you, well I will combine two questions we have had on this on a similar topic which is about second generation outsourcing. So would TUPE apply ie. would there be a second generation outsourcing when the original procurement was not an outsourcing in itself but it was because the customer had to obtain services that they did not have or could not perform in house?
Jane: So TUPE can apply in an outsourcing situation whether it is the customer no longer doing what it did in house contracting out so that is the first generation outsourcing. It can apply where that customer decides to change service providers that a second generation outsourcing and it can apply if the customer decides to bring those services back in house that could also be TUPE. What will not be TUPE perhaps I am understanding it, hopefully I understand the question right. What will not be TUPE is if the customer decides to procure something neither it does nor another service provider does for it already. So a completely fresh set of services that, then TUPE does not apply because there is nothing to transfer it is completely new, starting from scratch.
Siobhan: and then if there is a change of that provision further down the line. So there is a new provider of that service that is where we can start seeing TUPE applying at that stage?
Jane: Yeah. So that would be what we would call a second generation outsourcing so there is an existing provider in place and provided all the other factors that you need for TUPE transfers are fundamentally the same services etc as long as that is the case then if a new provider comes in the TUPE can apply.
Siobhan: Okay thanks. Hannah just looking at the sub-contractor issue again so they obviously are risk provider and they subcontract some of the services or all of the services to one of their own subcontractors so at the end of the contract if the contract is lost where there is a new provider coming in. What happens to the those people working at the subcontractor especially if there is a group of workers that spend most of their time supporting that customer?
Hannah: Well TUPE specifically says in a services provision change that it is also going to include subcontractors of service providers. So provided the subcontractor is, there has been a flow through of the services from the first tier supply down to the subcontractor and the subcontractor is continuing to provide the services for the ultimate client the TUPE can apply if you have got that organised grouping of employees and you have got workers or employees who are assigned to that organised grouping. So the transfer then would go from the subcontractor to the incoming provider of services and that could be a supplier at either, who is directly engaged by the client or it could be a stepdown. If the supplier themselves decide to change who it is using as a subcontractor then there would be a TUPE transfer across from subcontractor to subcontractor. So yes, we do need to consider subcontractors absolutely and it is important to consider how those services have been flowed down.
Siobhan: Okay. I think we will wrap up with a few questions about ELI because it is always a bit tricky particularly start considering Data Protection and we have had several questions on this topic. So perhaps Jane. I will summarise them for you and you can provide the answer hopefully my summary will make sense. So the first point is if you send the ELI which is Employee Liability Information earlier than the 28 days do you need to anonymise it? Secondly how does it work with the consent of the employees do you need the consent of the employees and think the last question probably that we have got time for is does the transferee have to request the ELI in writing or they just have to provide it?
Jane: Yeah, okay. So in terms of the first one if you are not within the 28 days and therefore you are not within the complying with the statutory obligation under TUPE then you do need to very mindful of your GDPR Data Protection Obligations and we would recommend anonymising, pseudonymising that information because you are going to need to have a, if you were not going to do that you would need to have a reason to rely on and it is difficult to see what it would be you cannot rely save in very, very specific sets of circumstances on consent in an employment context to allow data to be shared because of the inequality of the bargaining position between employees and employers. So consent is not going to help you in the situation if you were going to share before 28 days you would need some other GDPR protection exemption to rely on and it is generally much safer to do it on an anonymised basis cause that exemption is hard to fine. The transferee does not have to request it the transferor it is an obligation that is fairly and squarely on them under TUPE so they have to take the initiative to provide it of course in practice sometimes it is asked for but the transferee does not have to ask for it to get it.
Siobhan: And the transferee they want extra information over and above the ELI of course as well. Thank you I think we will have to call it a day at this point. Thank you for everyone who has submitted their questions. We hope you have found the session useful. We have not managed to reach everybody's questions but if we have not reached your question we will get in contact after the Webinar. The Webinar will be on the website shortly and I just want to flag a couple of housekeeping points. Please if you would have time to fill in the feedback questionnaire we would find that very valuable to help us plan for future sessions and what we have got coming down the tracks so far is in June we have a session on Public Sector and TUPE so if that is something that you or your colleagues are interested in what out for the invite for that and then in Autumn about November we are going to have a session on Pensions and TUPE and that is always a really particularly interesting topic and difficult topic and one that we get a lot of people wanting to hear about. So please watch out for that as well. So thanks again and please get in touch with us if you have got any more queries.
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