Government reforms (1): TUPE changes

government reforms - elizabeth towerAs we let you know in our Newsflash TUPE Changes earlier in September, we now have the Government’s plans for changes to TUPE in the form of its Response to Consultation.

The changes are intended to simplify the TUPE Regulations, remove ‘unfair’ legal risks faced by organisations and (apparently) to reduce the bureaucracy of a transfer.  The changes to TUPE will need to be put before Parliament before they can come into force. Having originally anticipated that the changes might come into force this autumn, the Government has now confirmed that they will not be put before Parliament for approval until December 2013 with a suggested implementation date in January 2014.

No change for ‘service provision change’

The most headline-grabbing aspect of the Response is that the ‘service provision change’ (SPC) provisions of TUPE will remain and will not, contrary to much earlier talk and speculation, be abolished.

What are service provision changes?SPCs generally apply where a service is either being outsourced or being taken back in-house, or where the service provider for an already outsourced service is changed to another.  Common examples are cleaning, payroll, IT and catering/canteens.  Under TUPE, SPC situations would generally be ‘relevant transfers’ to which TUPE applies, and would (generally speaking) result in the automatic transfer of the employment of employees who are wholly or mainly assigned to the delivery of the services.  Hence, if you change your outsourced cleaners, you often get the same cleaners but now employed by a different cleaning business, since it was a SPC and TUPE acted so as to transfer their employment from the out-going to the in-coming cleaning contractor.

What did the Government propose?: The Government proposed removing these provisions.  The Government was concerned that this went above and beyond the requirements of the EU law from which TUPE derives, and also that it put small and medium-sized businesses at a particular disadvantage.  As for the first of these arguments, the SPC rules do indeed go beyond the basic requirements of EU law, but the reason they are there is that it was generally seen as critical to providing some certainty for businesses in what had been (pre-SPC rules) a ridiculously uncertain legal area, leading to regular litigation.  As for the second argument, it is difficult to agree, especially since the SPC rules have allowed everyone to know where they stand in relation to TUPE far better than before.  Who benefits from a return to deep uncertainty and legal disputes? (Don’t all shout “the lawyers!”)

Why has the Government changed its mind?: The above proposed changes were hotly disputed by many businesses and employment lawyers and 67% of respondents to the Government’s Consultation were against SPC removal.  The main concern was that it would lead to great uncertainty as to whether TUPE applied in any given situation, as we’ve indicated.

Is anything changing?The Government will make a slight amendment to the drafting of the SPC provisions.  This is in order to make it expressly clear, and in line with case law, that there will only be a SPC if the services are “fundamentally or essentially the same” before and after transfer.

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, and make an informed assessment on each occasion as to whether TUPE will apply and, if so, whether any employees will transfer.

Employee liability information under TUPE

What are the current rules?At the moment TUPE provides for specified Employee Liability Information (ELI) about the employees transferring under TUPE to be provided to the transferee at least 14 days before the transfer.

Is anything changing?The Government has decided to retain the ELI provisions in TUPE, but instead to require the information to be provided 28 days in advance of the transfer, instead of 14.

What did the Government propose?: The Government had proposed that the provision of ELI would be left to the discretion (and agreement) of the parties.

Why has the Government changed its mind?: Again, there was an overwhelming rejection of this proposal by respondents to the consultation. It is clear from the responses that businesses really believe that the sharing of this information is a significant and vital part of the TUPE process, and is commercially very important. It was also felt that leaving it to the discretion of the parties to the transaction would leave many transferees without the information they require to assess their future liabilities and plan for the successful continuation of their business post-transfer.

ImplicationsTransferor employers must be careful to ensure they are able to comply with this new deadline when it comes into force, and transferee employers should continue to consider whether they also need to contractually require the transferor to provide more information than is required under TUPE.

Dismissals and changes to terms and conditions under TUPE

What are the current rules?One of the most common frustrations of TUPE for employers is that it usually precludes the harmonisation of employment contracts post-transfer.  It prevents the standardisation of terms as between transferring and existing employees – even by agreement. Any such changes to terms are void if they are standardised by reason of the transfer, or for a reason connected to the transfer not involving an “economical, technical or organisational reason entailing changes in the workforce” (an “ETO reason”).

What is changing?In this respect, the hands of the UK Government are largely tied by EU law. However, in an effort to make life easier for employers, the Government has decided to amend the relevant provisions of TUPE so that they do not go any further than EU law requires.  Although revised wording has yet to be finalised, it appears likely that contractual changes and dismissals will only be prohibited when “by reason of” the transfer. This will most likely mean that contractual changes will be permitted, provided that the transfer is not the sole or principal reason for them and the changes are based upon an ETO reason. Amendments will also be made to clarify that unilateral changes permitted by the employee’s contract which could have been made in the absence of a transfer are allowed, for example a mobility clause.

ImplicationsWe shall have to wait and see the practical effect of these amendments as their meaning will need to be interpreted by the Courts.  Currently little case law exists to help us distinguish between these two alternatives of “by reason of the transfer” as opposed to “connected to the transfer”, and we therefore do not have much to go on at present.

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.

ETO reasons – change in location

What are the current rules?Currently, an “economical, technical or organisational reason entailing changes in the workforce” (an “ETO reason”) is limited to the changes in the numbers or functions of the workforce. It does not include a situation, therefore, where the transferee has to impose a change in location of the workforce and consequently makes dismissals (or changes terms and conditions) at a specific location to achieve this. If the overall number of employees remains the same, currently, such dismissals/variations would not be for an ETO reason. This leads to the difficult situation where such dismissals might constitute potentially fair redundancies under the usual law on dismissal, but would be automatically unfair under TUPE.

The problem is regularly encountered wherever a new employer inherits staff under TUPE but does not operate from the same office/site/depot as the old employer.  Sometimes the new employer will have a site nearby, so the transferring employees don’t experience much difference in getting to work.  However, wherever the change of location causes the employees extra cost and/or hassle, it may create an automatically unfair dismissal under TUPE.  You might well think this is a ridiculous situation!  It was highlighted in a recent Tribunal case from 2012 of Abellio London v Musse and others, where a local authority handed a local bus contract to a new provider and all the bus drivers had to report for work at a depot a long way across Central London from their existing place of work, causing many of them a lot more travel time and travel cost.  They all won their unfair dismissal claims.  It is somewhat surprising that such a regular situation is not already catered for within TUPE.

What is changing?The situation will now be changed, and the definition of ‘entailing changes in the workforce’ within the definition of an ETO reason will now include changes to the location of the workforce, thus avoiding the risk of mass unfair dismissals just because the new employer is based at a different site.

ImplicationsThis is a very welcome amendment and should lead to much greater certainty for employers when carrying out redundancies involving a change in location. In particular, this will be very helpful in the context of outsourcing transactions where relocations are almost inevitable.

Collective agreements and TUPE

What are the current rules?Currently under TUPE, the amending of terms and conditions of employment which are derived from collective agreements (e.g. pay grades and reviews) with unions and similar is treated – and is very much limited – in the same way as with any other amendments of terms and conditions (as set out above).  This makes it very difficult for transferees to harmonise terms and conditions.

What is changing?It is planned that terms and conditions set out in collective agreements can be changed for whatever reason (even if there is no ETO reason or even if it the changes are because of the transfer itself).  But this is only where such a change takes place at least one year after the transfer, and that the new terms are overall no less favourable to the employee.

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.

Another change regarding collective agreements means that transferring employees whose contractual terms derive from collective agreements will transfer only on those terms current at the time of transfer.  Any future changes to the collective agreement post-transfer will not apply to the transferred employees, unless of course the new employer happens to be a signatory to the collective agreement.  In other words, the terms of employment provided by the collective agreement are ‘frozen’ in time as at the date of the transfer.  This 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.)

TUPE and collective redundancy consultation

What are the current rules?: There is a requirement to inform and/or consult workplace representatives in relation to a transfer under both TUPE and the collective redundancy requirements if redundancies are proposed in connection with a TUPE transfer situation.  However, it is not currently clear whether redundancy consultation with transferring staff by the transferee can commence prior to the transfer, given that the transferee (the in-coming employer) is not actually the employer at that point.

What is changing?:  It will now be made clear that pre-transfer consultation by the transferee with representatives of transferring employees does count for the purposes of collective redundancy consultation. However, this change will be voluntary, so there will be no new obligation requiring a transferee who intends to make post-transfer redundancies to have to start the redundancy consultation process pre-transfer. The transferee and transferor will need to agree that the transferee should consult, and for example, the transferor will need to permit access to transferring employees and the consultation should be “meaningful”. This reflects Government concerns that this change should not provide a vehicle for consultation to be short-circuited.

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

The Government has decided that micro-businesses (those with 10 or fewer employees) will be exempt from the obligation to consult elected representatives on TUPE proposals. Such businesses will instead be able to consult with the employees directly, provided there are no suitable representatives already in place.