TUPE reforms "eliminate unnecessary gold plating", says expert, but service provision change rules remain

Out-Law News | 06 Sep 2013 | 8:30 am | 4 min. read

Changes to the regime governing protections for employees whose contracts are transferred to a new employer "go a long way towards eliminating the unnecessary gold plating" that has made the rules such a headache for employers, an expert has said.

However the Government will not proceed with plans to remove the service provision change (SPC) rule from the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations, as proposed in its January consultation on the changes. This means that where work is outsourced, brought back in-house or the service provider is changed, employees will continue to benefit from the TUPE regime.

"Service providers will be massively relieved that the planned abolition of these rules will not proceed, as that threatened to take us back to the pre-2006 position where conflicting case law decisions made it almost impossible to predict when TUPE would apply," said employment law expert Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com.

"In theory, leaving this test unchanged means that TUPE is very likely to apply and that incumbents and bidders start from the same level playing field when pricing their bids, and that the incumbent is protected against unbudgeted redundancy liabilities. However, case law has tended to interpret the SPC rule more narrowly, so contractors may welcome the retention of this test but cannot be guaranteed that TUPE will in fact always apply," he said.

An SPC occurs when a client outsources activities to a contractor for performance on its behalf, re-tenders for provision of such activities or brings those activities back in house. In each case, for TUPE to apply, the change must affect an "organised grouping" of employees which has the "principal purpose" of carrying out those activities on behalf of the client, and those activities must remain "fundamentally or essentially the same" after the transfer. These tests, established by case law, will be "expressly set out" in the new regulations, the Government has said.

The Government will also proceed with the majority of its proposed changes, according to a response to the consultation (62-page / 362KB PDF) by the Department for Business, Innovation and Skills (BIS). These include giving new employers more freedom to change the terms and conditions of transferred employees after the transfer has taken place, including changes in location within the scope of 'economic, technical or organisational' reasons for changes in the workplace and allowing 'micro-businesses' to consult with affected employees directly, rather than through representatives.

The TUPE Regulations protect 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.

In November 2011, BIS began a call for evidence on the effectiveness of the regulations and how they could be improved. It concluded from this evidence 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.

According to the consultation response, employers will be given more freedom to change the terms and conditions of transferred employees who consent to the change. The Government will amend the regulations in line with the EU Directive, which states that only those consensual variations made by reason of the transfer itself are not permitted unless there is an economic, technical or operational reason for the change. Changes connected with the transfer made with the consent of the employees will therefore be allowed.

Transferees will also have additional flexibility under the new rules which will even allow scope to make changes by reason of the transfer to contractual terms and conditions stemming from a pre-transfer collective bargaining agreement. They will be able to do so provided that 12 months have elapsed since the transfer and the changes are "no less favourable overall" to the employee, according to the consultation response.

The Government will also simplify the relationship between TUPE and unfair dismissal, so that only dismissals by reason of the transfer can be 'automatically unfair'. It will be a defence for an employer to show that there was an economic, technical or operational reason requiring a change in the workforce; which can include a change of work location. Dismissals for reasons connected with the transfer, rather than as a result of the transfer, will not be automatically unfair and instead must be dealt with under general unfair dismissal law.

"Removing these domestic quirks gives us a much simpler and certain legal framework, under which the focus is rightly on protecting employment rights at the point when the business transfers, rather than for months or years after the transfer," employment law expert Christopher Mordue said. "Once the affected employees transfer to the new employer on their existing terms and conditions and with continuity of service intact, the new employer will largely have the same freedom of action as was available to the old employer. While TUPE will never be a simple piece of legislation, these proposals make great strides in reducing complexity and risk."

"One of the biggest problems for employers under the current TUPE regime is that it can be almost impossible to lawfully change employment contracts after a transfer, even where the employee agrees to the change. The proposal to relax this legal straightjacket is probably the most welcome news for employers in this whole reform package. This reflects the narrow focus of the Directive: it doesn't set the transferred terms and conditions in stone but only seeks to prevent variations at the point of transfer," he said.

However, Mordue said that the extent to which employers would benefit from the changes would depend on the detail of the new regulations and their interpretation by the tribunals. The Government intends to publish the new regulations in December, according to the consultation response, and has informally suggested that the new regime will come into force next year. There will also be transitional and savings provisions, according to the response.