Changes to TUPE Coming Into Force in the UK

by Dechert LLP

The long awaited and much debated changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) have now been finalised in the snappily titled Collective Redundancies and Transfer of Undertakings (Amendment) Regulations 2014. This update reports briefly on the changes now being introduced. 

The changes made to TUPE are intended to make the legislation more “user friendly” and, in particular, to provide more flexibility for employers around their consultation obligations and their ability to vary the contracts of the transferring employees. Save in relation to the timing change to the obligation to provide employee liability information, the changes made by the 2014 regulations are to take effect on 31 January 2014.

Dismissal protections potentially narrower in scope

Dismissals will only now be automatically unfair if they are “by reason of” the transfer. It will no longer be sufficient to show that the dismissal is connected with the transfer. This change in theory narrows the scope of the protection provided by TUPE and may make it more difficult to establish that a transfer-related dismissal is automatically unfair - but only time will tell if that actually will be the case in practice as these issues are intensely fact specific.

Relocation now an ETO reason

TUPE will now provide that a relocation of the undertaking or activities in question as part of the transfer process can constitute an “ETO reason” i.e. an “economic, technical or organisational reason entailing changes in the workforce”. If there is an ETO reason for a dismissal which is related to the transfer, then the dismissal is not automatically unfair but is tested for its fairness on the usual principles (whether there is fair reason for dismissal, a fair process etc). To date, relocation has not been accepted in the caselaw as capable of constituting an ETO reason. This change seeks to make it easier for a relocation entailing redundancies to be implemented as part of a transfer process.

Service provision change definition updated

TUPE applies to a “service provision change” – broadly speaking, where on an outsourcing, retendering or inhousing a new provider takes over, on an ongoing basis, the conduct of services previously conducted by an “organised grouping of employees” principally dedicated to the provision of the services in question. The 2014 amendments further clarify the operation of the service provision change provisions - there will only be a TUPE transfer by way of a “service provision change” where the activities in question remain “fundamentally” the same as those carried out by the person conducting them before the transfer. This change reflects the caselaw to date on service provision changes and highlights that changes to the nature of the services and/or the method of their delivery may mean that a contract award falls outside the concept of a service provision change and therefore outside the scope of TUPE.

ELI timetable tightened up

In relation to TUPE transfers taking place on or after 1 May 2014, the obligation imposed on the transferor to provide the specified “employee liability information” to the transferee – details of employees, certain terms of employment, disciplinary and grievance history for the past 2 years, likely claims, etc. – will need to be complied with by no later than 28 days before transfer rather than the current 14. This will assist transferees in being able to access useful information about the transferring employees in good time before transfer but will be no substitute, where commercially and practicably feasible, for fuller due diligence as part of a contractual negotiation process.

Contract changes facilitated

TUPE and its underlying Directive have been interpreted as rendering invalid any change made to an employee’s terms and conditions of employment which is transfer-related – in the sense of being by reason of or connected with the transfer. This is the case even if the employee agrees to the change. This makes harmonisation of terms across the transferring employees and the transferee’s existing workforce difficult.

TUPE already sought to permit consensual contractual changes for which there was an ETO reason although this provision was rarely relied on for two reasons. Firstly, the TUPE provision was of questionable validity in EU law terms. Second, there would need to be “changes in the workforce” (e.g. dismissals) associated with the contract change for it to fall within the ETO definition - which might not always be the case.

The amended regulations seek further to facilitate transfer-related changes to the contracts of employment of the transferring employees. Changes will now only be invalidated if they are by reason of the transfer and not if connected with it – again potentially narrowing the scope of the protection in the same way as with the change to TUPE’s dismissal protections described above.

A variation to an employee’s terms made under an existing power which the employer has under the employee’s contract will also be valid.

Also, since relocation will constitute an ETO reason, an employer may find it easier to agree amended terms at a new location (which might be appropriate for market or geographical reasons) on the basis that there is an ETO reason for the change which avoids it being invalid.

These provisions do not remove the need to consider how contract changes are to be introduced, how consent can be obtained and the general constructive and unfair dismissal risks that can arise when seeking to introduce wholesale contract changes across a workforce or specific group of transferring employees.

Collective agreements curtailed

Two changes are made to TUPE intended to increase an employer’s flexibility in relation to any terms of employment of the transferring employees which are derived from collective bargaining. Firstly, consistent with a recent ECJ decision, if employees’ terms are determined pre-transfer by a collective agreement process, and post-transfer the new employer is not involved in that collective bargaining process, the new employer is not bound by any changes made under the collective agreement after transfer. The collective agreement is effectively “frozen” at the point of transfer so far as the new employer is concerned.

Second, if a term of an employee’s contract is incorporated from a collective agreement, then a contract change is permitted as long as it takes effect more than one year after the transfer and that the employee’s overall terms post transfer are no less favourable than beforehand.

Pre-transfer consultation can count for collective redundancy purposes

An employer acquiring a business or part of a business may wish to make redundancies as part of the transfer process. If this involves 20 or more dismissals at one establishment in a 90 day period, such a redundancy exercise will trigger the collective redundancy consultation requirements of 30 days’ prior consultation if 20 or more employees are affected and 45 days’ prior consultation if 100 or more employees are affected. The 2014 changes mean the new employer will be able to start this collective redundancy consultation before the transfer. The transferor needs to agree to this but is not obliged either to consent or to provide any assistance or information should the transferee wish to take up this option.

“Micro businesses” given consultation flexibility

An employer that employs fewer than ten employees and does not have existing employee representatives in place (by way of a recognised trade union or other elected or appointed representatives) will now be excused from the obligation to invite the employees affected by a TUPE transfer to elect representatives for the purposes of the collective information and consultation process required by TUPE. The employer can satisfy its obligations simply by dealing direct with the employees. This does not relieve the employer of the obligation to provide the relevant information – fact, timing of and reason for the transfer, its legal, economic and social implications, details of any proposed measures etc. – or to conduct consultation if “measures” – such as dismissals or changes to terms and conditions of employment - are planned.

New guidance on TUPE

The Department for Business Innovation and Skills has issued updated guidance on TUPE.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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