As part of its “Red Tape Challenge”, in September 2012, the Coalition Government published the response to their call for views on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).
At first glance, the response was distinctly unimpressive. It identified concerns expressed by employers and business groups, before stating that there were arguments against those concerns, and that the Acquired Rights Directive (“the Directive”) severely restricts the Government’s ability to make changes in any event.
In short, it did not promise much change at all. The Government is now issuing a consultation on its proposals to reform TUPE, which they hope will cut back on certain restrictions, and help to encourage the growth of business.
Unless and until amendments are made to TUPE, we cannot say for certain what the regulations will look like going forward.
However, it is worth looking at some of the areas primed for change, and what it might mean for employers and employees alike.
Harmonising Terms and Conditions of Employment
For employers receiving TUPE transferring employees, the issue of harmonising terms and conditions will be very close to the heart.
Currently there is a broad restriction on changing employee terms and conditions post transfer for any reason “connected with the transfer”.
According to the response to the call for views, the “majority of respondents” felt that some change was needed. In particular, it was felt that the current regulations created significant administrative and costs headaches, and the subsequent “two tier” workforce created resentment, and problems with integration.
Unsurprisingly, employee representatives tended to disagree, but it cannot be denied that a bar on harmonisation of any kind post transfer is problematic.
The Government therefore wants to explore amending the language of TUPE to reflect the wording in the Directive, and to narrow the scope to change of terms “by reason of the transfer”.
The hope is that employers will be able to agree certain variations to terms and conditions of employment in circumstances without offending TUPE, by allowing changes agreed between employer and employee if “they could have agreed such a variation had there not been a transfer”.
The main criticism is that this proposed change does not go far enough. Clarity, it is feared, will only come via case law, and many employers will be put off taking advantage of any change for fear of finding themselves the object of a test case.
Protection against dismissal
Article 4(1) of the Directive provides “the transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the Transferor or the Transferee.
This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce…”.
Regulation 7 of TUPE renders a dismissal unfair if “the sole or principal reason” for that dismissal is “the transfer itself” or “a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce”.
Just as with harmonisation of terms, the bone of contention is that TUPE is more onerous that the Directive requires it to be. The Government seeks to redress the balance by amending Regulation 7 to make it more closely reflect the wording contained in the Directive i.e. by removing reference to “a reason connected to the transfer”.
The perceived benefit to employers is that they will be able to effect dismissals for non-ETO reasons which will not be treated as unfair under the new regulations. In turn, this has the potential to reduce the cost and risk associated with reducing head count in transferring workplaces.
Again, as with harmonisation, the concern is that the change does not of itself add enough clarity. It may simply introduce more uncertainty as to what circumstances Regulation 7 covers. This may in turn lead to either an increase in litigation, or an overall reluctance by employers to take advantage of the benefit or both.
Service Provision Changes
The response also reflected that a substantial number of respondents thought that the inclusion of the service provision change definition introduced in TUPE 2006 was a positive.
However, some respondents from the business sector were concerned about the larger number of transactions now coming under TUPE as a result.
There were also concerns about the ongoing confusion as to when employees are “assigned” to a transferring group, the fragmentation of services post transfer, the complexity of issues generally, and whether or not professional services should continue to be covered by the service provision changes.
The Government is now consulting on whether to remove the service provision change definition from TUPE altogether.
Interestingly, given that the inclusion of the service provision change definition was meant to make matters clearer, only 24% of respondents said that the amendments had reduced the need to take legal advice before bidding for contracts. Many respondents requested further guidance on service provision changes due to uncertainty as to their application. This may yet be forthcoming.
Other proposed changes include:
- removing the requirement to provide employee liability information at least 14 days prior to transfer and leave to the parties the timing of exchange of information, limiting the applicability of terms and conditions derived from pre-transfer collective agreements to one year
- allowing a transferee to engage with the transferor’s employees in order to ensure that those employees are fully consulted – this will help reduce costs when, for example, there is a need to undertake collective redundancy consultation which could in the future be commenced before the transfer.
- allowing transferors with less than 10 employees to inform and consult about TUPE with the individual employees rather than with representatives.
Which of these measures, if any, will eventually be implemented will be known in due course. What is clear that, whilst some proposed changes to TUPE may not be radical, they certainly have the potential to affect the mechanics of a business transfer, and the position of employees post-transfer of employment.
Angela Brumpton, Associate Solicitor, Employment, Hill Dickinson LLP