TUPE Reform at a glance – the key pointsPrint publication
This update is intended to be an ‘at a glance’ summary of the key changes that will be made to TUPE following the Government’s consultation response. At present, we expect the new regulations to be brought into force in January 2014.
For a more detailed analysis please see our recent Business Insight.
Overview of TUPE
TUPE provides that on a business sale or transfer (including outsourcings), the employment contracts of employees, assigned to the part of the business being transferred automatically, transfer to the new employer (the transferee). Such employees transfer with their continuity of employment intact and are entitled to retain their existing terms and conditions of employment. TUPE provides significant employment protection to such employees in relation to any dismissal or change to terms of employment which is because of or connected with the transfer. TUPE applies as a matter of law and cannot be contracted out of by commercial agreement. As such, parties to a transaction will agree allocation of employment liabilities in the commercial agreement supported by appropriate warranties and indemnities.
Overview of TUPE reforms – key points – “what do I need to know?”
Service Provision Change rule
- The once threatened service provision change (SPC) rule will not be repealed. This is widely considered to be a good thing as the rule provides certainty that TUPE will apply in most outsourcing situations as long as there is “an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client”. The key message is “business as usual” on this point
- The new Regulations will, helpfully, clarify the law to confirm that the outsourced activities must be “fundamentally and essentially the same” as before the transfer in order to fall within the SPC.
Employee liability information
Currently, employee liability information (i.e. certain details about the employees transferring) must be provided by the transferor to the transferee at least 14 days pre-transfer. This timescale will be extended to 28 days. This is still likely to be too short for those transferees who are in a position to specify a longer period. The information required under TUPE is not comprehensive so, ideally, the transferee should seek additional employee information during due diligence.
Post-transfer harmonisation of terms
- TUPE currently renders void any changes to terms and conditions of employment because of or in connection with the transfer except in limited circumstances. The Government proposes to relax these rules although changes will continue to be void where the reason for the change is the transfer itself. Government guidance is awaited on this point and it is expected to be something of a minefield for employers to navigate
- Unilateral changes to contracts will be permissible where they are pursuant to a contractual term (e.g. an existing mobility clause) but only where such a change would have been lawful had there not been a transfer.
Place of work changes
TUPE will be reformed so that redundancies due to workplace relocation post-transfer will no longer be automatically unfair (although a fair dismissal procedure must still be followed). If the employee wants to relocate then the contract can be varied by agreement to provide for the new location to be the new place of work. Previously, any such agreement was at risk of being void.
Protection against dismissal
Currently, an employee will be deemed automatically unfairly dismissed if the reason for the dismissal is the transfer itself or a reason ‘connected with the dismissal’. TUPE will be reformed to effectively relax this rule. This will create a new test for whether a dismissal is automatically unfair which is likely to lead to initial uncertainty and the need for further clarification.
Collective agreements – ‘static’ approach to apply
- TUPE will be amended to clarify that transferees will be bound by the terms of a collective agreement applying at date of transfer but will not be bound by any future terms and conditions negotiated via collective bargaining to which they are not a party
- Terms derived from a collective agreement can be renegotiated one year from the transfer as long as the overall changes are ‘no less favourable’. Disputes over this point seem likely.
Collective redundancy consultation
Pre-transfer redundancy consultation will count for the purposes of collective redundancy requirements as long as the transferor and transferee agree and the consultation is ‘meaningful’. The employees must still transfer to the transferee before the dismissal can be effected.
Employers of 10 or less employees will be able to inform and consult directly with staff prior to a transfer.
Walker Morris comment
The reforms are generally positive and provide some welcome clarification so, overall, the message is “don’t panic”. Those involved in TUPE transactions are likely to find that business goes on very much as before. Some of the changes, however, are finely tuned and will require careful thought, for example in relation to post-transfer harmonisation of terms and transfer-related dismissals. These aspects of the reforms are likely to take time to bed in. We would always recommend that specialist legal advice is sought in good time to enable early risk analysis and, importantly, to obtain as much advantage as possible from the commercial agreement. If you wish to read in more detail about the changes, take a look at our Business Insight.