Just a few carats less "Gold plating" of EU employment legislation
Following a lengthy consultation process, the eagerly awaited final version of the legislation amending the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) has been laid before Parliament. They have the catchy title of the Collective Redundancies & Transfer of Undertakings (Protection of Employment) Regulations 2014 (TUPE 2014). TUPE 2014 will, essentially, take effect on 31 January 2014 in Great Britain.
The government has also published guidance to the changes.
Those hoping for a wholesale liberalisation of this employment protection legislation and an end to UK “gold plating” of EU legislation (that is, going further than is strictly required) will be disappointed. To be fair, the government has been managing expectations for a while in this regard.
In short, TUPE 2006 & 2014 is EU driven and seeks to protect the jobs and terms & conditions of employees at a time of business/organisational change such as a sale of a business or many outsourcings. Therefore, employers’ freedom to act with impunity and without additional cost is restricted.
Here is a brief summary of the key changes:
TUPE 2006 introduced under the last government had, on the whole, helpfully clarified that TUPE would apply scenarios to many outsourcing/insourcing (e.g. of IT, catering, facilities management etc.). This was done through a new concept known as a service provision change (“SPC”). In 2013 the government had proposed that this concept would be removed. In our view, this would have made a relatively level playing field in the outsourcing world very bumpy and muddy indeed.
TUPE 2014 confirms (following an indication of a change of mind at the end of 2013) that SPC is here to stay after all.
However an amendment (taking effect in relation to any TUPE transfers on or after 31 January 2014) to the definition of SPC will mean that TUPE will only apply in this context where the new activities being carried out are “fundamentally the same as the activities carried out previously”. This change reflects the trend of most recent case law – in other words, codification.
With these words now enshrined in the legislation itself, rather than left to judicial interpretation, it will be more open for incoming contractors to argue cogently that TUPE is not applicable. We have already seen a greater propensity for new providers (e.g. on a change of outsourcing) to argue that their approach to service delivery will be so radically different that TUPE does not apply.
Well, existing contractors will potentially be left with irrecoverable costs if they are less able to “flow through” their staff to their replacement/s. Ideally, they will be able to rely on an existing commercial contract with their customer to absorb or at least share some of the redundancy/severance costs. If not, what was a profitable contract may well prove less so.
From a customer’s perspective, it will also need to review the terms of any existing commercial agreements – has it agreed to reimburse or share any redundancy/commercial exit costs?
Future outsourcings or re-tenders of existing services will need to be more carefully planned: what is the size risk/cost; what opportunity is available to establish that TUPE does or (as the case may be) does not apply; what adjustments to the procurement process or the service delivery model can assist those opportunities; are there business continuity or service quality/overall added value reasons which should take precedence?
Ultimately, many scenarios will be worked out in commercial, pragmatic negotiation – but against a slightly nuanced background than has been the case.
A note of caution here. Courts and Tribunals can be very nimble in their approach to interpretation. Of late, the trend has been to a more restrictive application of TUPE (i.e. it applies less frequently). However, it would not be a huge shock if a different more (ostensibly) employee favourable application of TUPE 2014 were taken by Courts as they seek to constrain what are perceived as exploitative employers. This makes it doubly important to ensure, as far as possible, that whatever the law may be now or in the future, your cost and risk profile is as you had budgeted.
Overlapping TUPE and redundancy consultation
One of the frustrations in TUPE projects, can be the risk of not being able to count pre–transfer consultation for collective (i.e. 20 or more) redundancy timelines (i.e. 30 or 45 days). This leads to increased cost and business disruption. With the consent and cooperation of current and prospective employers, the pre-transfer consultation can count, which would avoid having to reset the consultation “clock” at the point of transfer. This is a helpful change, although it does rely on the employers cooperating, which may not be the case where a rival contractor is replacing another.
This change will be effective on 31 January 2014.
The requirement on current employers to provide employee liability information on the staff also remains, with the deadline for compliance changing from 14 days to 28 days before the transfer. In most transactions, this will be too little too late and the parties are left to commercially deal with matters, but the additional 14 days are a helpful back up to that. This change will be effective for a TUPE transfer from 1 May 2014.
The recent decision in Parkwood Leisure Limited v Alemo-Herron is now enshrined in TUPE 2014. This confirms the static approach applied to collective agreements with third parties (such as national public sector agreements) – i.e. that the new employer is bound by the terms as “frozen” at the point of transfer, rather than any future changes.
However transferees will be able to change terms derived from collective (i.e. with trade unions) agreements one year after the transfer, provided that the overall change is no less favourable to employees. The “overall change” language represents “gold plating” by the UK of the EU legislation as no such restriction exists in the EU Directive from which TUPE is derived.
These changes will be effective for all TUPE transfers from 31 January 2014 and, in relation to the change of the employment contract, the change is agreed or effective on or after that date.
Dismissals and changes to terms and TUPE
Dismissal of an employee under Regulation 7 of TUPE 2006 will now only be automatically unfair if the reason for the dismissal is the transfer itself. The removal of “a reason connected with the transfer” attempts to limit the scope in which dismissals under Regulation 7 will be automatically unfair.
An amendment to TUPE 2006 confirms that a variation in contract will not be automatically void even if the reason for the variation is the transfer itself if “the terms of that contract permit the employer to make such variation”.
Whilst these changes reduce (but not eliminate) the amount of gold plating by the UK, it is difficult to think of many practical examples of how they will provide greater employer flexibility.
These changes will be effective for all TUPE transfers from 31 January 2014 and the variation to the employment contract is agreed or effective on or after that date.
Location based redundancies in a TUPE context lawful
A change in the place of employment will now be a justifiable reason for dismissal, even where TUPE has led to the dismissal (a so called “ETO” reason). One of the apparent oddities of TUPE 2006 is that a redundancy based on a change of workplace may not, on the basis of an NHS reorganisation case be a fair dismissal (for which the downside can be up to a year’s salary). This anomaly will be addressed when this aspect of TUPE 2014 is effective in relation to a TUPE transfer from 31 January 2014 and where a notice of dismissal (or, if no notice is given, the effective date of termination) is on or after that date.
Consultation & micro-employers
Employers will be permitted to consult directly with employees in relation to a relevant transfer where there is no recognised independent union, nor any existing representatives and fewer than 10 employees. This change will be effective for all TUPE transfers from 31 July 2014
The “gold plating” is reduced from, say, 20 carats to 16. The accusation of gold plating is perhaps a rather simplistic one and we would argue the SPC “gold” provides overall greater certainty to business in an outsourcing context.
The addition to TUPE of the language of a service being “fundamentally the same” will introduce greater scope to argue, however, that TUPE is not applicable due to a change in the service delivery.
Overall, the Government has made a respectable attempt at using what modest “wriggle room” it has under EU law to clarify TUPE in a number of respects. Those hoping for a more radical, free market overhaul will be frustrated (but were always likely to be so) and will have to hope, it would seem for a more fundamental reworking of the EU/UK relationship.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.