TUPE or not TUPE?

01.01.06

TUPE or not TUPE?

The new Regulations aim to provide certainty to the parties involved in service change situations. From April TUPE will apply where services are outsourced, insourced or assigned to a new contractor ("service provision changes"), provided that there is an organised group of employees working on the services. TUPE will apply in all service provision change situations except where the contractor is only providing the services on a one off short-term basis.

This new clarity that TUPE will apply in service change provision situations is helpful and should avoid the need for detailed legal analysis and debate with the other contracting party. Also, as there will be clarity from the outset that TUPE applies, there will be a level playing field in tender situations and the parties will price accordingly.

Historically a problem which has often arisen in TUPE situations is the provision of employee information. From April the transferor must supply information about the transferring employees to the transferee at least 2 weeks prior to the transfer, including written details of the identities, ages and statements of terms and particulars of employment of the transferring employees and of any rights and liabilities relating to them ("employee liability information"). Failure to provide this information may result in a maximum fine of £75,000, and must be no less than £500 for each employee. Given the short timescale and the limited financial penalty, it will still be preferable in large transactions to provide for the exchange of employee information in the contract itself, both at the initial contracting-out stage and in respect of the retendering process.

The new Regulations are only partially extending the scope for making changes to terms and conditions of employment following a TUPE transfer. The new employer and employee will be able to agree a variation of the contract of employment if the sole or principal reason for the change is either an ETO reason ("an economic, technical or organisational reason entailing changes in the workforce" such as a change to the overall numbers or the functions of the employees) or for a reason unconnected with the transfer (for example a change in hours resulting from the unexpected loss of an order). Proposed changes to terms and conditions to produce harmonisation across the workforce will still be invalid where they are connected with the transfer, depriving the amendment of much of its force.

Consistent with the "rescue culture" being promoted by the Government the new Regulations will make it easier to vary contracts of employment following a transfer in the context of insolvency, provided changes are agreed with employee or union representatives. Also, some of the transferor's pre-existing debts to employees will not transfer to the transferee in an insolvency situation.

The 2006 Regulations provide that the transferor and transferee will be jointly and severally liable for any failure to inform and consult employees about the transfer. Although this is a welcome clarification, in reality the parties will continue to apportion liability in the commercial contract.

To speak with a member of our team please contact Julie Keir on 0131 656 0297 or at julie.keir@brodies.com or Emma Bell on 0131 656 0361 or at emma.bell@brodies.com.