Government reforms (1): TUPE changes

We updated you in our September 2013 Newsletter Government reforms (1): TUPE changes that the Government had published its Response to its Consultation on changes to the TUPE regulations, including proposals for future amendments.  The Government has now published draft regulations (the Amending Regulations) to implement those proposed amendments. The Amending Regulations can be accessed here.

The Amending Regulations are expected to be laid before Parliament in December 2013 and come into force in January 2014 and make the following changes:

‘Service provision change’ (SPC):  The TUPE definition of what amounts to a service provision change is being amended to clarify that the activities carried out by the incoming service provider or those being brought in-house must be “fundamentally the same” as the activities carried out previously. This amendment simply mirrors recent case law and should not lead to a dramatic change in approach to when a service provision change is found to give rise to a TUPE transfer.

When?: This amendment only applies to transfers which take place on or after the commencement date of the final regulations (anticipated to be in January 2014).

Implications: Carry on as usual, always taking care to consider TUPE and the SPC.  When contracting out services, taking services back in-house, changing contractors for an outsourced activity or submitting a bid to carry out services for another organisation, employers should continue to refer to the wording of (and the case law surrounding) the SPC provisions in TUPE.  Employers should make an informed assessment on each occasion as to whether TUPE will apply and, if so, whether any employees will transfer.

Employee liability information: The transferor will be obliged to provide the transferee with its employee liability information not less than 28 days prior to the transfer, instead of the current 14 day time-frame.

When?: This amendment will only apply to transfers which take place on or after three months after the commencement date of the Amending Regulations (anticipated to be in January 2014).

Implications:  Transferor employers must be careful to ensure they are able to comply with this new deadline for future transfers which are affected by the change. Transferee employers should in any event continue to consider whether they also need to contractually require the transferor to provide more information than is required under TUPE.

Collective agreements (1):  Changes to terms in collective agreements will not be void if made at least one year after the date of the transfer and if, overall, the employees’ terms and conditions are no less favourable to those which applied before the variation.

When?: These amendments will only apply where the transfer takes place on or after the commencement date of the final regulations (anticipated to be in January 2014) and the variations are also agreed on or after that date.

Implications:  This is a welcome measure of flexibility for employers.  However, identifying with certainty those terms which are collectively derived, and the added requirement for the change to be no less favourable overall for the employees, will inevitably be problematic in practice.  Also, there is currently no guidance on what ‘no less favourable overall’ might mean.  This may well lead to disputes for employers who wish to rely on this provision.

Collective agreements (2):   When it comes to terms and conditions contained within a collective agreement, only the terms in existence at the date of the transfer will be binding on the transferee, and not any post-transfer changes to those terms.

When?: This amendment will only apply to transfers which take place on or after the commencement date (anticipated to be in January 2014).

Implications:  This amendment ‘freezes’ the terms of employment provided by the collective agreement as at the date of the transfer and implements current case law.  It is very relevant in a transfer out of the public sector into the private sector, where the public sector collective agreement may go on to evolve considerably, but those who transferred under TUPE into a private company will remain with the old terms.  (This would not apply, of course, if the new employer agreed to ‘shadow’ any changes to the collective agreement or become a signatory to it.)

Changes to terms and conditions: TUPE will be amended to provide that a variation of the employment contract of a transferring employee will be void if the reason for the variation is the ‘transfer itself’ – rather than the current ‘because of the transfer’ or ‘for a reason connected to the transfer’.

The exemption to this provision remains when an economic, technical or organisational reason entailing changes in the workforce (“ETO reason”) exists and is retained in the draft regulations.

Further, a change will now also be permitted if it is because of the transfer, but the terms of the contract permit the employer to make the change.  In other words, a transferee may take advantage of flexible terms in the employment contracts which the transferor might have relied upon to effect changes e.g. mobility clauses.

When?: This amendment will only apply to transfers which take place on or after the commencement date (anticipated to be in January 2014).

Implications:  Practically, it seems to us to be a fine line between whether a change is ‘because of’ or simply ‘in connection with’ the transfer.  This is an amendment which will need to be tested in the courts before solid guidance on its practical implications can be given.

Overall, employers should remain cautious if they wish to harmonise terms and conditions post-transfer or effect other contractual changes in the absence of an ETO reason.

Dismissal:  Similar to changes to terms and conditions, TUPE will be amended to provide that dismissals will be void if the reason for the variation is the ‘transfer itself’ – rather than the current ‘because of the transfer’ or ‘for a reason connected to the transfer’.

The exemption to this provision remains when an ETO reason exists, and the Amending Regulations provide that a dismissal that is for an ETO reason will be regarded as either a dismissal for redundancy (subject to satisfying the statutory definition of redundancy) or a dismissal for “some other substantial reason” justifying dismissal.

When?: this amendment will only apply to cases where the transfer takes place on/after the Amending Regulations come into force (anticipated to be in January 2014) and either notice is given or the employee is summarily dismissed on/after that date.

Implications:   Practically it seems to us to be a fine line between whether a change is ‘because of’ or simply ‘in connection with’ the transfer.  This is an amendment which will need to be tested in the courts before solid guidance on its practical implications can be given.

Overall, employers should remain cautious if they wish to dismiss in the absence of an ETO reason.

ETO reasons – change in location: Currently, an ETO reason means that there must either be a reduction in the workforce or a change to the employees’ duties. As such, a geographical redundancy caused by the transferee being located elsewhere does not qualify as ETO reason because there is no change in the workforce.  The Amending Regulations will change this and ‘changes in the workforce’ will include a change in the location where transferring employees are required to carry out their work.

When?:  This amendment will only apply if the transfer occurs on/after the Amending Regulations come into force (anticipated to be in January 2014) and the employee is given notice or dismissed summarily on/after that date.

Implications:  This amendment should ensure that redundancies due to a change of location where the transferee has a different site to the transferor, will not be automatically unfair.  In particular, this will be very helpful in the context of outsourcing transactions where relocations are almost inevitable.

TUPE and collective redundancy consultation: early consultation undertaken by a transferee employer will now count towards collective redundancy consultation obligations provided: (i) the transferee has provided the transferor with written notice it has elected to do so; and (ii) the transferor agrees to it.

The transferee can cancel its election to carry out a pre-transfer collective redundancy consultation but, if so, it will not receive any credit for any consultation that has occurred.

When?:  there is currently no commencement date for these draft amendments.

Implications:  This is welcome news for transferee employers in terms of saving time and costs on redundancy programmes.  It should also be beneficial for employees and ease the uncertainty they face on transfer when they are aware of the redundancies in the pipeline but consultation has not yet started.  It also sees the law come into line with what some employment lawyers, Menzies Law included, have been advising for some years.

However, the current transferor employers should remain on their guard as they are still ‘the employer’ until the transfer takes place.  They need to make sure they are aware of what consultation is taking place and, in particular, ensure that no representations are being made which could lead to resignations and potential constructive unfair dismissal claims.

Micro-businesses:  businesses with fewer than 10 employees will be permitted to inform and consult directly with employees, rather than the current requirement to inform and consult with union or employee representatives (so long as there are no existing appropriate representatives).

When?:  This amendment will only apply to transfers which take place on or after six months after the commencement date (anticipated to be in January 2014).