Final TUPE amendment regulations provide "welcome clarification", but uncertainties remain, says expert

Out-Law News | 15 Jan 2014 | 4:47 pm | 4 min. read

Companies can now start "looking in earnest" at how to make changes to the regime governing protections for employees transferring to a new employer after the publication of final regulations clarified some outstanding questions about the new regime, an expert has said.

However Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, said that although the final version of the regulations amending the Transfer of Undertakings (Protection of Employment) (TUPE) regime was a "significant improvement" on the original draft, some issues regarding whether changes to contracts had been made "by reason of the transfer" would have to be settled through case law.

"The changes made in the final version of the regulations are important – not because they change policy or approach, but because they give welcome clarification on some of the key areas of TUPE reform," he said.

"The original draft regulations contained a number of ambiguities and omissions which would have had to have been sorted out by case law; and drafting flaws which created unintended practical and legal complications. Those could have deterred employers from taking advantage of the new flexibilities opened up by the reforms or left them exposed to challenge or risk. So while the changes are very much about tightening up the details of the drafting, they are still significant," he said.

TUPE protects employees if the business in which they are employed changes hands, by moving them and any liabilities associated with them from the old employer to the new employer by operation of law. They were first passed in 1981 in order to implement the EU's Acquired Rights Directive, and were significantly overhauled in 2006. A call for evidence on the effectiveness of the 2006 regulations, which began in November 2011, concluded that there was scope to remove a number of provisions that went further than required by the Directive from the UK regime, as well as making some general clarifications and improvements.

The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations will take effect on 31 January. Among the changes they will make to the 2006 regulations are more freedom for new employers to change the terms and conditions of transferred employees after the transfer has taken place, and the ability to include pre-transfer consultation for the purposes of collective redundancy consultation requirements in some circumstances. Although service provision changes (SPCs) will remain within the scope of TUPE, the regulations will be tightened to apply only where the new activities to be carried out are "fundamentally the same as the activities carried out previously".

"Under the current rules, the transferee cannot technically start collective consultation on proposed redundancies affecting the transferring employees before it becomes the employer at the time of the transfer," Mordue said. "Allowing such consultation to start ahead of the transfer enables faster organisational change, increasing flexibility and saving cost for the transferee."

"This pre-transfer consultation can only take place with the transferor's consent. However, the original regulations had one huge drafting flaw – if the transferor did not consent that would have prevented the transferee from carrying out collective redundancy consultation not just in relation to redundancies affecting the transferring staff but for any redundancies in its wider business as well until the transfer had taken place. This was clearly not what is intended and the new regulations have corrected that error," he said.

The original draft also failed to make clear whether it was acceptable to consult with a trade union  which was recognised by the transferee, but not for the transferor, for the purposes of collective redundancy rules, he said.

"This is a critical point since a failure to consult the correct representatives would leave the transferee exposed to protective awards of up to 90 days' pay per employee, a liability that could run into six or seven figures on large transfers," he said. "The final draft of the regulations clarifies that you look at who the transferor would consult with if it was proposing the redundancies for the transferring staff: if the transferor recognises a trade union, the transferee must consult those union representatives; if there is no recognised union, the transferee will need to consult representatives elected by the staff who are due to transfer. That clarification is logical and helpful," he said.

The final draft of the regulations also confirms that transferees will only have greater freedom to agree changes to terms and conditions of employment following a transfer if the affected employees transferred after 31 January. Contractors that regularly inherit staff under TUPE would experience "practical and legal difficulties in the short to medium term" as a result of the "continuing two tier protection" for those that transferred below this date, Mordue said. Those employees would "still have the benefit of the current rules which 'gold-plate' EU law and very much restrict employers from reaching lawful and effective agreements with employees to change their terms and conditions", he said.

"The main focus of the reforms in this area of TUPE is to make it clear that the key question is whether the changes to employment contracts are made by reason of the transfer - the amended regulations state that if that is the 'sole or principal reason' for the change, then it is unlawful and void even if the employee agrees to the change," he said.

"This is a helpful tightening of the drafting, as it narrows the scope of the prohibited changes – the question is no longer whether the transfer is to any extent the reason for the change but whether it is the sole or main reason. However, there is still no clarity in the regulations themselves on when a change will be regarded as being 'solely or principally by reason of the transfer', and this important issue will have to be clarified through case law," he said.