TUPE reform - final proposals announced

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The Government has announced details of its package of TUPE reforms. We take a first look.

The headlines

The Government intends to amend the TUPE Regulations in early 2014. Under the final proposals (which differ from the original proposals in some respects), the law will be reformed:

  • to bring the restrictions on contract change and dismissals more closely into line with EU law (although the exact drafting and scope remains unclear – see below),
  • to allow the renegotiation of terms derived from collective agreements one year after the transfer, even where the reason for the desired change is the transfer itself, provided that overall any change is no less favourable to the employee
  • to provide for a “static” approach to the transfer of terms derived from collective agreements, meaning that only those terms which were in existence at the date of the transfer will be binding on the incoming employer, and not subsequent ones where the incoming employer is neither a party to the subsequent collective agreements nor to the bargaining process for them
  • so that changes in the location of the workforce following a transfer can be within the scope of “the ETO defence”, thereby permitting the incoming employer to change the location of the workplace without this being an automatically unfair dismissal
  • to allow pre-transfer collective consultation over redundancies proposed after the transfer
  • to allow micro businesses to inform and consult employees directly when there is no recognised independent union, nor any existing appropriate representatives
  • to retain the rules about employee liability information and extend the time before the transfer when it must be given to the incoming employer to 28 days

In a major policy change, the Government has decided not to take service provision changes (SPCs) out of the scope of TUPE. Instead, the Government will clarify the law to provide that the SPC provisions will apply if the services remain fundamentally or essentially the same after the transfer.

The Government has also committed to provide better guidance – which will be crucial in relation to the question of how far incoming employers will be able to change terms.

We understand that the Government intends to lay the new TUPE regulations before Parliament in December and that they will come into force by April 2014 at the latest.

The Government have not indicated when the (all-important) guidance will be published. In our experience, BIS tends to publish guidance on new regulations only shortly before the regulations are due to come into effect. If the TUPE guidance is similarly held up, employers will have little time to adjust to the full impact of the changes before they are upon us.

More advice for EEF members

We will be running half day seminars in the first quarter of 2014 to look in more detail at the practical effect of new TUPE. We will confirm the dates when we have a clearer picture from the Government of when the new guidance will be published. In the meantime, we can organise in-company training for any employers who wish to explore the possible impact on their own business at an early stage – call our events team on 0845 293 9850.

Members who have a keen interest in TUPE can also read more detail about the various final proposals below.

Service provision changes to stay

The Government had originally proposed removing SPCs from TUPE because they “gold-plate” the EU Acquired Rights Directive. There are no equivalent provisions in the Directive and the UK seemingly stands alone in bringing service provision changes within the scope of TUPE.

However, the majority of respondents to the consultation were against the scrapping of SPCs, mainly on the basis that they provide legal certainty and a level playing field for contractors. EEF was in favour of scrapping SPCs but we (and other respondents) were concerned about the impact of removing them from TUPE (principally the unexpected redundancy costs and possible pension liabilities for the incumbent contractor) and were arguing for transitional arrangements.

Faced with this opposition and caution, the Government has drawn back from its original proposal and now proposes that the SPC provisions will remain.

However, the new law will clarify that TUPE will only apply to SPCs where the activities remain “fundamentally or essentially the same” after the transfer. This wording comes from one of the key Employment Appeal Tribunal cases on SPCs and essentially ensures that new TUPE reflects current case law.

The result is that outsourcing, in-sourcing and changes of contractor will still be potentially subject to TUPE. Whether any particular service provision change is caught by TUPE, and the question of which employees transfer, will continue to be an uncertain area. There has been much case law on this topic in recent years, with a noticeable trend in the Employment Appeal Tribunal towards ruling transactions to be out of the scope of the SPC provisions.

Employee Liability Information to stay

In another change of heart, the Government proposes to retain the requirement upon an outgoing employer to provide Employee Liability Information to an incoming employer in advance of the transfer.

However, the timeframe will be extended so that information must be supplied at least 28 days before the transfer (as opposed to 14 days under the current law).

The Government will not extend the categories of information which employers must provide.

Contractual changes, redundancies and ETO situations – watch this space

Now that SPCs are not being repealed, these reforms have taken centre stage as being the key area of reform.

At the moment contract changes and dismissals are only allowed in respect of a TUPEd workforce if:

  • those changes/dismissals are for reasons unconnected with the transfer; or
  • there is an ETO situation – i.e. economic, technical or organisational circumstances entailing a change in the numbers or functions of the workforce (essentially a narrow category of redundancy situation);

The Government had originally proposed permitting contract changes and dismissals which are for reasons “connected with” the transfer, as long as the reason isn’t the transfer itself.

This is an area fraught with legal difficulty. The consultation process highlighted the legal problems and also revealed confusion over the current scope for changing terms, both under EU and UK law. What is the difference between a change/dismissal “connected with” the transfer and a change/dismissal “by reason of” the transfer? Can the UK safely allow change/dismissals “connected with” the transfer without falling foul of EU law?

Unfortunately, no clear final proposal has emerged.

In the final proposal, the Government re-states its commitment to amend the law so that it “more closely reflects the EU Directive and EU case law.” Yet if one thing has become clear throughout the debate on TUPE, it is the lack of consensus over what EU law means. However, instead of adopting clear wording and a clear decision over what will and will not be permitted, the Government has arguably become more tentative than it was in the original consultation document. This is frustrating for employers.

The Government now states that “the exact drafting of the provision has yet to be finalised”, acknowledging that there is still some work to do on this topic. The Government still appears to be pressing ahead with the decision to allow transfer-connected dismissals/change, as long as the reason is not the transfer itself, saying that this will be the “likely” wording. But the Government goes on to acknowledge the confusion, and adds that changes which might once have been regarded as “connected” to a transfer could in future be regarded as “by reason of the transfer”.

The Government has promised guidance on this important topic. It seems likely that employers will need to wait until that guidance is published before being able to assess the full impact of the new law.

However, what the Government does make clear is that:

  • The incoming employer will be able to invoke any flexibility clause in the employee’s contracts (e.g. a mobility clause) after the transfer in the same way as the previous employer could have done;
  • Contract changes and dismissals will be allowed in any circumstances where the employer has an “ETO” situation;
  • The definition of an ETO situation will be widened to cover changes in location. This is particularly welcome, because the old law did not permit any change in location after the transfer, even in situations where the incoming employer was completely unable to operate out of the old location. The new wider ETO situation will allow employers to change an employee’s place of work after a transfer without inevitably falling foul of TUPE.

Collective consultation over redundancies – can start sooner

In cases where the incoming employer intends to make collective redundancies following a transfer, the Government will allow (but not require) collective consultation to start before the transfer has taken place.

However, both the outgoing and the incoming employer need to agree on this approach and the incoming employer needs to ensure that consultation is “meaningful”.

This proposal means that incoming employers no longer need to wait until after the transfer to commence a 30/45 day consultation process over collective redundancies.

Collective agreements – scope reduced

The Government will amend TUPE so that, after one year, the restriction on contract changes will no longer apply in respect of terms derived from a collective agreement as long as any change which is “by reason of” the transfer is “no less favourable overall”.

This simply gives employers the right to try to negotiate new terms after one year, whatever the reason for the desired change. It will not give employers the power to impose new terms. Most terms derived from collective agreements are incorporated into the employees’ contracts of employment and have the same status as any other contractual terms, i.e. cannot be varied against the employees’ wishes without a breach of contract.

In addition, the Government will amend TUPE so that only those terms which were in existence at the date of the transfer will be binding on the incoming employer, and not subsequent ones where the incoming employer is neither a party to the subsequent collective agreements nor to the bargaining process for them. This will help employers in the private sector who inherit a workforce subject to public sector national bargaining arrangements (e.g. teachers or healthcare workers). Those employers will inherit the workforce on the terms existing at the point of transfer but will not be bound by subsequent changes agreed at national level if they are not involved in the national bargaining arrangements.

Micro-businesses can inform and consult employees directly

Micro businesses with 10 or fewer employees will be allowed to inform and consult employees directly regarding transfers, rather than through elected representatives, in cases where there is neither a recognised union nor existing representatives.

However, this exemption will not be extended to micro-transfers, i.e. transfers where 10 or fewer employees are to be transferred. Employee representatives will still need to be elected for those transfers, if there is no union or existing representatives.

There will be no wider exemptions for micro-businesses.

Other TUPE reforms not going ahead

The Government will not reform the existing provisions allowing employees to resign and claim unfair/constructive dismissal over post-transfer working conditions.

The Government is also not going ahead with the suggestion that the outgoing employer could be allowed to make redundancies before the transfer, relying on the incoming employer’s ETO situation. Instead, the Government intends to retain the current law that redundancies can only be made by the incoming employer after the transfer has taken place.

EEF reaction

Commenting on yesterday’s announcement on TUPE regulations, Tim Thomas, Head of Employment Policy at EEF, said:

Yesterday's announcement will remove some of the TUPE gold-plating which covered dismissals and changes contracts, and help ease the burden of TUPE – reforms which businesses need and have been waiting for.

‘But, TUPE will remain, even after these changes, a significant impediment for many businesses. Many of the changes announced today will not provide the legal certainty employers and workers both need. Employee liability information remains too little, too late, and smaller businesses in particular need greater flexibility to reform terms and conditions after a transfer.’

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