TUPE is changing with effect from 31 January 2014. The key changes are:-
Service Provision Changes
- For TUPE to apply to a service provision change, the activities carried on after the change must be “fundamentally the same” as those carried on before it. This confirms the current position under case law.
Providing Employee Information
- The transferor will be required to provide employee liability information to the transferee 28 days (rather than 14 days) before the transfer. There is a three month lead in period for this change, applicable only to transfers on or after 1 May 2014.
Collective Agreements
- Collective agreement terms can be renegotiated one year after the transfer (even where the reason for the change is the transfer), but only if overall the change is no less favourable to the employee.
- Tribunals will adopt a "static approach" to terms derived from collective agreements, where the transferee is not a party to the collective agreement or bargaining process. This means that only those terms in collective agreements in existence at the date of the transfer will be binding on the transferee – not subsequent changes negotiated by the original parties to the collective agreement.
Workforce Changes
- Changes in the location of the workforce following a transfer can now fall within the scope of the "economic, technical or organisational reasons entailing changes in the workforce" (ETO) defence. As a result, redundancies due to a change in location following a TUPE transfer will not be automatically unfair.
Pre-transfer consultation
- Pre-transfer consultation by the transferee can count for the purposes of complying with the collective redundancy rules, provided that the transferee notifies the transferor in writing and the transferor agrees.
Consultation in micro businesses
- Micro businesses (those with 10 or fewer employees) will be allowed to inform and consult directly with affected employees where there is no recognised trade union, nor existing appropriate representatives. The change will only apply to transfers taking place on or after 31 July 2014.
Background
Following responses to a call for evidence and a subsequent consultation on proposed changes to TUPE, the government decided to amend TUPE 2006. In so doing it wanted to increase the effectiveness of the labour market; establish fairness for employers and employees; and remove any unnecessary gold-plating of the TUPE Regulations.
The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (“the Amendment Regulations”) have now been published. The Amendment Regulations do not differ greatly from the draft published in October 2013. Other than as noted below, the changes all come into force on 31 January 2014.
The current guidance from the Department for Business, Innovation and Skills (BIS), “Employment rights on the transfer of an undertaking (June 2009)”, has been reviewed and a new version has been published (January 2014).
Service provision changes
Under TUPE, there is a relevant transfer where either:
- there is a transfer of a business, undertaking or part of a business or undertaking which is a transfer of an economic entity that retains its identity (a business transfer); or
- a client engages a contractor to do work on its behalf, engages a different contractor to do that work in place of the first contractor, or brings the work "in-house" (a service provision change).
The definition of a service provision change was introduced in 2006 and was intended to bring most service provision changes within the scope of TUPE. Case law then established that part of the test of whether a service provision change fell within TUPE is whether the activities carried on after the transfer are fundamentally or essentially the same as those carried on before. In order to reflect this case law, and to reduce any uncertainty over when TUPE applies to a change of service provider, the Amendment Regulations expressly define post-transfer activities as "activities which are fundamentally the same as the activities carried out by the person who has ceased to carry them out".
The government had originally proposed to repeal the regulations relating to service provision changes. However, it was accepted that this would only cause more uncertainty over which transfers are within the scope of TUPE.
Employee liability information
Regulation 11(2) of TUPE sets out information that must be provided by the transferor to the transferee prior to the transfer (“employee liability information”). The Amendment Regulations increase the deadline for notification of employee liability information from 14 to 28 days.
There is a three month lead in period for this change, applicable only to transfers on or after 1 May 2014. This allows businesses to factor the new time limit into transfers taking place shortly after 31 January.
The new time limit addresses the general view that the current 14 day limit does not meet the transferee’s need to have information at an early stage, especially on a change of service provider. However, the government has not addressed complaints about the inadequacy of the scope of the information to be provided (details of each employee’s age and identity; their section 1 written statement; any disciplinary action or grievances within the previous two years; collective agreements; and any previous (in the past two years) or potential legal action).
Restrictions on changes to terms and conditions
Subject to the general rules on making effective changes, a variation to a contract of employment will be permitted:
- when the reason for the variation is unconnected to the transfer (e.g. a sudden unexpected loss of an order);
- when the sole or principal reason for the variation is an economic, technical or organisational , entailing changes in the workforce (ETO reason) (from 31 January 2014 "changes in the workforce" can include a change of place of work);
- if the terms of the contract permit the employer to make such a variation (e.g. a mobility clause); or
- when the contract incorporates terms and conditions from a collective agreement, the renegotiation of terms derived from collective agreements will be allowed one year after the transfer (even where the reason for the change is the transfer), provided that overall the change is no less favourable to the employee. Employers with different sets of employees, some who have transferred on individually negotiated contracts and others who are on collectively agreed terms, will have to approach each group differently if seeking to achieve harmonisation across the workforce. The new rule also may lead to union v employer disputes over what is meant by 'no less favourable'.
For transfers before 31 January 2014, the applicable test distinguishes between cases where the sole or principal reason for the purported variation is the transfer (such variations would be void) and those where it is for a reason connected with the transfer (such variations would be void unless there was an ETO reason). The new test introduced by the Amendment Regulations does not refer to variations for “reasons connected with the transfer”, only to variations “by reason of the transfer”.
This change is intended to make it easier for employers to make contractual changes following a TUPE transfer (“connected with” having a wider meaning than “by reason of”) and brings the wording in line with the Acquired Rights Directive and European Court of Justice case law. However, it is unclear what the practical difference will be and the 2014 BIS guidance does not provide any examples. Taking an example from the 2009 BIS guidance, however, a change to harmonise terms and conditions would be “by reason of the transfer” while a change prompted by a knock-on effect of the transfer (e.g. to requalify staff to use new equipment) would be “connected with the transfer”.
Incorporation of collectively agreed terms
After 31 January 2014, the TUPE Regulations will expressly provide for a "static approach" to the transfer of terms derived from collective agreements, where the transferee is not a party to the collective agreement or bargaining process. This will mean that only those terms in collective agreements in existence at the date of the transfer will be binding on such a transferee. Transferred employees will not benefit from any terms agreed at a later date as part of the pre-transfer collective bargaining arrangements.
This is consistent with the European Court of Justice decision in the case of Alemo-Herron v Parkwood Leisure Ltd, and is welcome news for private sector businesses on the receiving end of TUPE transfers from the public sector, who would otherwise be bound by collectively agreed terms that were negotiated and adopted without their involvement.
Protection against dismissal
Currently dismissals are automatically unfair where they are by reason of the transfer, or for a reason connected with the transfer that is not an ETO reason entailing changes in the workforce. The Amendment Regulations change this to provide that the dismissal will be automatically unfair where the sole or principal reason for the dismissal is the transfer itself, unless there is an ETO reason entailing changes in the workforce. A dismissal which takes place for an ETO reason will be potentially fair on grounds of redundancy or some other substantial reason.
The distinction between dismissals that are by reason of a transfer and those which are for a transfer-connected reason is not a straightforward one. The government does not provide any examples in its guidance and has acknowledged that there might be “some short term uncertainty” adjusting to this change.
"Changes in the workforce" for the purposes of the ETO defence now expressly includes a change of place of work. Providing that relocation can be an ETO reason is a welcome amendment for employers, meaning that redundancy dismissals as a result of a change in location will not be automatically unfair.
Pre-transfer consultation
Where redundancies take place after a TUPE transfer, there may be overlapping obligations to inform and consult under TUPE and in respect of collective redundancies. Although consultation about transfer-related dismissals often starts pre-transfer (being a measure connected with the transfer), the courts had never been asked to rule on whether this amounted to valid collective redundancy consultation.
The Amendment Regulations expressly permit pre-transfer consultation. Where there is a relevant transfer and the transferee is proposing to dismiss at least 20 employees within 90 days, a transferee can decide to consult with representatives of affected transferring individuals about the proposed dismissals before the transfer – provided that the transferee notifies the transferor in writing and the transferor agrees.
The transferor may provide information or assistance to the transferee but is not obliged to do so (and any failure to do so will not be a “special circumstance” to relieve the transferee from its consultation obligations). The transferee may choose to cancel an election to carry out pre-transfer consultation (e.g. if it considers that the transferor is not co-operating or that the consultation is not meaningful).
This is a welcome clarification given that in practice, particularly in the public sector, transferors and transferees often jointly consult with transferring employees before the transfer date about any proposed redundancies.
Micro-businesses
Micro-businesses (those with 10 or fewer employees) will be allowed to inform and consult directly with affected employees where there is no recognised trade union, nor existing appropriate representatives. This change will only apply to transfers taking place on or after 31 July 2014.
Comment
At the consultation stage, there had been some discussion of transitional arrangements but ultimately these have been restricted to the provisions on employee liability information and micro-businesses. This is because the changes to TUPE will have much less impact in practice than had been anticipated at one stage, particularly when repealing the service provision change regulations had been on the cards.
In practice
The amendments to TUPE 2006 should not have a significant impact on future transfers. However, they serve as a reminder that TUPE may be amended from time to time. It is worth ensuring that contracts are flexible enough to cope with these changes to ensure that any advantages of the changes are not lost because contractually agreed wording applies even where the TUPE Regulations do not.
