UK Government Issues Consultation on New TUPE Regulations

    January 2013

    It’s finally out!  The Department for Business, Innovation & Skills has issued a consultation document on proposed amendments to the Transfer of Undertakings (Protection of Employment) Regulations 2006.  This is not a case of merely tinkering around the edges - the consultation document contains some fairly substantial changes to the current position, not least the removal of the service provision change rules.

    The key proposals are as follows: 

    • Removing service provision changes from the TUPE Regulations.  This does not mean that outsourcing situations will no longer be caught by TUPE, but that the test for determining whether TUPE applies will effectively be the one under the old 1981 Regulations, namely whether there has been a transfer of a business, undertaking or part of a business or undertaking involving the transfer of an economic entity that retains its identity.  In theory this should mean that fewer outsourcing situations will come within the ambit of TUPE, but it will not halt any debate about how far any given service provision change also amounts to the transfer of an economic entity.  There will apparently be a lead-in period prior to any repeal so that employers can plan for the change in the law – the Government is seeking views on how long this period should be.
    • Removing the requirement for transferors to provide Employee Liability Information to transferees at least 14 days before the transfer and allowing the parties to negotiate arrangements for transferring information themselves.  There will, however, be an amendment to Regulation 13 of TUPE (dealing with the obligation to inform and consult) to make it clear that a transferor should give such information to a transferee at such time and in such detail as is necessary to assist the parties in complying with their duties under that regulation.
    • Changing the wording of the provisions restricting changes to terms and conditions to better reflect the wording of the European Directive. TUPE contains restrictions on changes to terms and conditions.  In short, employers can only change an employee’s terms and conditions of employment in the context of a TUPE transfer if the changes are not connected to the transfer or if the variations are due to an “economic, technical or organisational reason (ETO) entailing changes in the workforce”.  The Government wants to give employers more flexibility to make changes, but it is restricted in how far it can go because of its duty to comply with the Directive and European case law, the source of that condition.  It accepts, for example, that employers cannot impose variations of terms and conditions purely for harmonisation purposes, as this does not entail changes in the workforce and so would be incompatible with the Directive.  By mirroring the wording of the Directive it hopes to be able to give employers and maybe also Employment Tribunals a bit more room for manoeuvre.
    • Changing the wording of the provisions giving protection on dismissals to reflect more closely the wording of the Directive.  In the same way that it wants to give employers more flexibility to make changes to terms and conditions, the Government hopes that by mirroring the wording of the Directive it can also widen the scope for employers to effect dismissals in a TUPE context.
    • Replacing Regulations 4(9) and (10) concerning a substantial change to working conditions to the material detriment of an employee with a provision that reflects the wording of the Directive.  Employees currently have a right under Regulation 4(9) to resign (but treat themselves as dismissed) if a transfer involves or would involve a substantial and detrimental change in their working conditions.  This is in addition to their rights to object to the transfer regardless of any adverse impact and to resign and claim constructive dismissal in response to a fundamental breach of their contract.  This provision has caused problems in practice, especially in service provision change scenarios which involve a change in the place of work, where employees have been able to resign and bring claims even if the proposed changes to their terms and conditions were lawful under the employment contract and would have been unchallengeable by the staff had it not been for the TUPE context.  The Government proposes to replace the current wording with a provision which would remove the scope for unfair dismissal claims where the change in working conditions is not a breach of contract or a fundamental change, i.e. not one that would entitle the employee to resign and claim constructive dismissal outside the context of a TUPE transfer.
    • Amending the meaning of “entailing changes in the workforce” so that it can cover changes in the location of the workforce and allowing a transferor to be able to rely upon a transferee’s ETO reason for fairly making an employee redundant during a transfer. Under TUPE, where the sole or principal reason for a dismissal is the transfer or is connected with the transfer, the dismissal is treated as automatically unfair, unless the reason is for an “ETO reason entailing changes in the workforce”.  Because the definition of “entailing changes in the workforce” has been narrowly interpreted by the UK courts (being confined to changes in the number employed or to changes in the functions performed by employees) any dismissal as a result purely of a change in location, for example, would be automatically unfair.  The Government is therefore planning to amend TUPE to make it clear that a change in the location of the workplace is within the meaning of “entailing changes in the workplace” and can therefore be classed as an ETO reason.  Furthermore, it plans to allow a transferor to be able to rely upon a transferee’s ETO reason in respect of pre-transfer dismissals. So if, for example, a transferee would have grounds for making the employees redundant post-transfer (e.g. because it no longer required employees in that location), the transferor would be able to rely upon that reason for making the dismissals pre-transfer.  The question then would be whether the dismissal was fair in all the circumstances judged on ordinary principles, rather than its being automatically unfair.
    • Allowing transferees to engage with transferring employees before a transfer about proposed redundancies.  Again, this change is designed to deal with a practical problem, namely that currently transferees cannot consult collectively pre-transfer with transferring employees about possible post-transfer redundancies (or at least not without risk), as technically they do not yet employ them.  The Government therefore proposes a legislative amendment to ensure that consultation by a will-be transferee with representatives of transferring employees who may be affected by the proposed redundancies counts for the purposes of the requirements to consult on collective redundancies.
    • Exempting micro employers (those with 10 or fewer employees) from the requirement to consult with appropriate representatives, save where there are existing trade union or employee representatives in place.  In other words in small workplaces employers will be able to engage directly with their workforce, thus avoiding the need to elect representatives.   Many do this already anyway.

    The Government has confirmed that it will not be making any changes to the insolvency provisions or the requirement for employers to provide suitable information relating to the use of agency workers.  It has also ruled out making transferors and transferees jointly and severally liable for any pre-transfer obligations - it believes the current arrangements are appropriate, bearing in mind the scope for using indemnities to apportion liability between the parties.

    Will these proposals make business transfers easier for all concerned?  Possibly, although it is clear that a lot of the detail as to how these changes will work in practice has yet to be thrashed out.  We will be considering the implications of these proposals in greater detail at our March Employment Seminars in Birmingham and London

    The consultation closes on 11 April 2013.