Following the call for evidence on the effectiveness of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006), which concluded in September 2012, the Government is consulting on proposed changes to the Regulations. The Government proposes making the changes to TUPE outlined below which it believes will remove unnecessary gold-plating, making TUPE earlier to understand and business transfers easier and less burdensome for employees. The consultation closes on 11 April 2013. Article from law firm  Simons Muirhead & Burton.

Service provision changes
Proposal: Repeal the provisions under Regulation 3(1)(b) which set out the service provision changes that come within the scope of TUPE 2006, i.e. contracting services out, second generation contracting out (switching from one contractor to another) and taking services previously contracted out, back in-house.

Background: This proposed change is the most significant. The consultation document (CD) states that the service provision changes (SPCs) were brought within the scope of TUPE in 2006 to give greater legal certainty in contracting out/in situations, but they go further than the provisions of the EU Acquired Rights Directive (ARD) requires and are considered ‘gold-plating’. According to the CD, many respondents requested further guidance on the SPC provisions because of continued uncertainty in their application and “only” 24% of respondents said the provisions had reduced the need to take legal advice before bidding for contracts. The Government suggests that the provisions may have imposed unnecessary burdens on business and questions whether they have delivered the benefits originally anticipated. The repeal of SPCs is therefore proposed, given, “that the need for legal advice has not gone away” and “it is not clear that the intended benefits are being realised”.

In making this change the Government intends to align the definition of a transfer with that in the Directive. The Government therefore seeks views on “whether any provisions of the earlier case law on TUPE 1981 should be reversed if the repeal of the SPC provisions proceeds”. The Government also asks for views on the length of any lead- in period that would be required before the change comes into effect.

Employee Liability Information
Proposal: Repeal the specific requirements regarding the notification of Employee Liability Information (ELI) which the transferor must provide to the transferee under Regulation 11, but making it clear that the transferor should disclose information to the transferee where it is necessary for the transferee and transferor to perform their duties regarding information and consultation.

Background: The CD states that in most business transfers there is usually co-operation between the parties, so the Government questions the need for prescriptive ELI provisions. The response to the call for evidence (CfE) indicates that the difficulties in practice with the provision of ELI occur largely in the case of SPCs, particularly second generation outsourcing. If the SPCs were also to be repealed, the Government believes “there are likely to be fewer cases where problems occur”.

Restriction on changes to terms and conditions and protection against dismissal
Proposal: Change the wording of the provisions restricting changes to contracts so that they more closely reflect the wording of the ARD and case law of the ECJ.

Background: The CfE response suggested that the restriction in Regulation 4(4) and (5) is broader than the requirements of the Directive. TUPE 2006 restricts changes where the sole or principal reason for the change is not only the transfer itself, but also a reason 'connected with' the transfer. This is argued to be too broad and carry the risk that the reason for any change to terms and conditions could be 'connected' to the transfer, given that the terms and conditions which might be changed are pre-transfer terms and conditions. The Government therefore sees potential merit in amending the wording of regulation 4(4) and 4(5) in order to replicate the language in the ARD and the case law. A ‘general idea’ of the revised wording being considered can be found in Paragraph 7.42 of the CD. However, even with the change, an agreed change to terms and conditions for the purpose of harmonising those terms and conditions would not be permissible on the basis of the existing case law.

Proposal: Change the wording of the provisions giving protection against dismissal so that they more closely reflect the wording of the ARD and the case law of the ECJ.

Background: Regulation 7 of TUPE 2006 treats a dismissal as unfair (for the purposes of unfair dismissal law) 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 (ETO) entailing changes in the workforce.' Respondents to the CfE complained that covering cases where the sole or principal reason for the dismissal is 'connected' to a transfer has wider application than the Directive’s prohibition in Article 4(1) which purely prohibits dismissal because of ‘the transfer itself’ (unless and ETO applies) and makes no mention of ‘a reason connected with’ the transfer.

Proposal: Change the wording of the provisions concerning a substantial change in working conditions to the material detriment of the employee, i.e. Regulations 4(9) and (10), with a provision which essentially copies out article 4(2) of the EU ARD which only makes the employer responsible for the termination of the contract, not a dismissal.

Background: Regulation 4(9) provides that where a relevant transfer involves a substantial change in working conditions to the material detriment of the employee whose contract is (or would be) transferred, the employee can treat the contract as having been terminated and this counts as a ‘dismissal’ by the employer. It has been suggested that Regulation 4(9) is problematic because: (i) it goes further than article 4(2) of the Directive requires because the Directive only makes the employer responsible for the ‘termination’ of the contract, not ‘dismissal’, and ECJ case law has held that Member States are not required to guarantee the same rights as are available for unlawful termination (i.e. unfair dismissal); and (ii) the substantial change in working conditions need not even amount to a breach of contract, meaning that unfair dismissal claims can be founded upon changes which would not otherwise give rise to a constructive dismissal claim. If the proposal is implemented then there would still be a termination of employment if the employee relied upon the provision, but it is likely to remove the scope for unfair dismissal claims where the change in working conditions is either not a breach of contract, or a more minor one.

Economic, Technical or Organisational reasons for dismissal
Proposal: Amend the meaning of 'entailing changes in the workforce' so that it can cover changes in the location of the workforce. This would align the meaning of 'economic, technical or organisational reason entailing changes in the workforce' with the definition of redundancy under the Employment Rights Act 1996, so that some dismissals involving a place of work redundancy are capable of being fair for unfair dismissal purposes.

Background: The courts have interpreted 'entailing changes in the workforce' as confining this to changes in the numbers employed or to changes in the functions performed by employees. This does not align with the definition of redundancy under the Employment Rights Act 1996 which includes situations where there is a redundancy situation in relation to the place of work which does not change the overall numbers of the workforce. This means that if, because of the transfer, the transferee employer intends to carry on the business in a different location, but with the same number of staff overall, then any dismissals as a result of the change of location will be automatically unfair. The Government believes this to be an anomaly which gives rise to potential unfairness for transferee employers, in that they could face claims for automatic unfair dismissal in genuine redundancy situations.

Duty to inform and consult representatives
Proposal: An amendment to ensure consultations by the transferee on collective redundancies with staff who are due to transfer count for the purpose of the obligation to consult on collective redundancies, thus easing the burdens on business.

Background: A transferee may propose redundancies connected to the transfer where there is an ETO reason. Where proposed redundancies affect 20 or more employees at one establishment, the duty to consult employee representatives arises. There is some doubt as to whether any consultation with transferring staff prior to transfer by, or on behalf of, the transferee for collective redundancy purposes can count towards satisfying that obligation. The Government sees advantage in allowing collective redundancy consultation by the transferee with the employees who are likely to transfer to take place before the transfer. This may be beneficial for the transferee, for example, it might make the restructure process more effective with the result that the impact on employees is more limited. It may also enable their representatives to reach agreement with the transferee at an earlier stage and the period of uncertainty caused by the prospect of redundancies may be reduced.

Micro businesses
Proposal: Allow micro businesses, i.e. businesses with 10 or fewer employees, to inform and consult employees directly regarding transfers, rather than through representatives, in cases where there is neither a recognised union nor existing representatives.

Background: The Government saw merit in the CfE response that Regulation 13 does not work well for smaller non-unionised workforces and that transferors in smaller transfer exercises do not understand why they are unable to simply provide information on the transfer to and consult directly with, all the transferring staff without having to wait for representatives to be elected. In view of the penalties for failure to inform and consult, the amendment is being proposed in order to prevent breaches by small employers who have taken a proportionate approach of employees.