Be aware of key changes to TUPE
Be aware of key changes to TUPE
Elizabeth Wallace and Sophie Basso are employment law solicitors, Leeds and Bradford-based law firm Gordons LLP.
For those who bury their heads in the sand at the mere mention of Transfer of Undertakings (Protection of Employment) Regulations (TUPE), you had better beware. It has rather far-reaching tentacles and cannot be shied away from. The implications of not complying with the TUPE regulations may prove to be expensive and a public relations disaster.
By way of background, TUPE may apply in the following situations:
Mergers.
Sales of a business by sale of assets.
A change of licensee or franchisee.
The gift of a business through the execution of a will.
Contracting out of services.
Changing contractors.
Where all or part of a sole trader’s business or partnership is sold or otherwise transferred.
These examples are referred to as a “relevant transfer of an undertaking” and TUPE operates to transfer the employees (together with their contracts of employment, rights and liabilities) to the buyer. This introduced three concepts into UK employment law:
- 1.
protection against dismissal for employees in connection with a TUPE transfer;
- 2.
the automatic transfer principle: the buyer inherits all rights, liabilities and obligations in relation to the transferring employees; and
- 3.
obligation to inform and consult with representatives of the affected employees.
The Transfer of Undertakings (Protection of Employment) 2006 came into force on 6 April 2006. TUPE 2006 replaces the Transfer of Undertakings(Protection of Employment) 1981, in its entirety. This article will examine the key changes that have been made.
Scope of TUPE extended
The new TUPE regulations create a new second category of relevant transfer where there is a “service provision change” – where activities carried out by a person (a client) are carried out instead by a contractor. It covers contracts which are outsourced to a contractor, reassigned to a contractor or brought back in-house. The focus is on the activities carried out by the client or contractor and the fact that they are to be continued by another person, rather than their exact nature or delivery, post service provider change.
This means that any innovative bids by contractors to avoid TUPE, who argue that the undertaking has not retained its identity, will diminish. The onus will be on the new contractor to take on staff and deal with retraining and education if the activities are to be carried out in a new way. The burden will be very much on the transferee to consider what economic, technical or organizational reason entailing changes in the workforce it may plead in its defence to any subsequent changes to terms and conditions or dismissals.
New obligation on transferor
TUPE has always imposed a duty on the transferor (old employer) and the transferee (new employer) to inform and consult with representatives of the workforce before a transfer takes place. The new TUPE regulations however, also impose a further duty on the transferor to provide information about transferring employees to the transferee before the transfer occurs.
The specific information required is as follows:
the identity and age of the employees;
information contained in the statutory written particulars;
information of any statutory disciplinary or grievance procedure taken by or against the employee within the previous two years;
information about any legal action brought by an employee against the transferor within the previous two years and any potential legal action which the transferor has reasonable grounds to believe may be brought by an employee;and
information relating to any collective agreement that will have effect after the transfer.
The information must be provided not less than 14 days before the relevant transfer. The transferee has a legal remedy for any failure to comply with this requirement. It may apply to the employment tribunal for compensation from the transferor.
The amount of compensation shall be just and equitable in all the circumstances however, it shall be no less than £500 for each employee for whom information was not provided or was defective.
Terms and conditions
Under the “automatic transfer principle”, as set out above,employers are prevented from agreeing any changes to the terms and conditions of transferring employees, if the reason for the change is due to the TUPE transfer. This is known as the Daddy’s Dance Hall rule[1]. In practice this has caused problems for employers as it has prevented the harmonization of terms and conditions.
New TUPE has attempted to lessen this restriction by permitting transferors and transferees to agree contractual variations with employees in the context of a transfer. Whether a variation is effective or void depends on the sole or principal reason for the variation. If the reason for the variation is the transfer itself or is connected to the transfer that is not an economic,technical or organizational reason[2] (ETO) then the variation will be void. However, if the reason for the variation is unconnected with the transfer or is connected but there is an ETO reason then potentially the variation is effective.
The ability to change the contractual terms is a key development. However,varying contractual terms will continue to present practical difficulties under new TUPE.
Constructive dismissal
The old TUPE regulations meant that employees could resign claiming constructive dismissal (a fundamental breach of contract which allows the employee to treat themselves as dismissed) only where they could show that there had been a repudiatory breach of their contracts of employment.
The new TUPE regulations reverse this as employees are now able to claim constructive dismissal in connection with TUPE where there is a substantial change in their working conditions to their material detriment: there no longer has to be a breach of contract.
This is likely to cause problems for employers who may try to introduce operational or even remuneration changes which they thought were already permitted by the employment contract. Note that the new TUPE regulations do not appear to provide a time limit after which employees must be treated as having waived their rights.
Share sales
In the recent case of Millam v. The Print Factory (London) 1991 Limited[3], the Court of Appeal held that a share sale amounted to a TUPE transfer when a purchaser took control of the acquired subsidiary’s business. This decision was a surprising conclusion because share sales have always been excluded. It was hoped that the Court of Appeal’s decision would provide guidelines of when TUPE applies to share sales but instead it has created more uncertainty. The general view, however, is that TUPE will continue to not apply to share sales other than in specific cases.
This article merely skims the surface in an attempt to provide a brief overview of the key changes. Although simplification of the 1981 TUPE regulations was no doubt the Government’s initial intention with the new regulations, TUPE remains a complex area of law.
On a practical level, it is advisable in all circumstances where there is a potential relevant transfer, for both parties to seek legal advice in the initial stages of a transaction. Negotiations between parties may result in an indemnity which can provide comfort in the event of any claims made by employees.
Notes
- 1.
Foreningen af Arbejdsledere I Danmark v. Daddy’s Dance Hall[1988] IRLR 315.
- 2.
There is no statutory definition of an “economic, technical or organisational reason”. DTI guidance suggests that the term is likely to include: a) a reason relating to the profitability or market performance of the transferee’s business (economic); b) a reason relating to the nature of the equipment or production processes which the transferee operates (technical); or c) a reason relating to the management or organisational structure of the transferee’s business (organisational). (Paragraph 8015, FL Memo Employment 2007, Law and Practice Human Resources.)
- 3.
Millam v. The London Print Factory (London) 1991 Ltd [2007]EWCA Civ 322.
