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Consultation on proposed reform of TUPE 2006

By: Amanda Steadman

Submitted by Firm:
Addleshaw Goddard
Firm Contacts:
Michael Leftley, Sarah Harrop
Article Type:
Legal Update
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As part of its ongoing review of employment law, the Government has issued a Consultation on its proposals to reform TUPE 2006.  The consultation seeks views on a variety of proposals aimed at ending the gold-plating of the Acquired Rights Directive, including a proposal to repeal the service provision change rules which were introduced in 2006.  The Consultation closes on 11 April 2013 and the Government's response is expected by 4 July 2013.  The Government has indicated that if responses support change, it will seek to implement the majority of the reforms in October 2013.

Background

In November 2011, the Government called for evidence on the effectiveness of TUPE 2006 (TUPE), due to concerns that the regulations were overly complex and that they "gold plated" the Acquired Rights Directive (ARD). The Call for Evidence focused on whether TUPE could be improved or whether guidance and best practice examples could better address the issue. The Government issued its Response to the Call for Evidence on 14 September 2012.  Despite the cautious tone of the Response on the prospects for reform of TUPE, the Consultation now proposes a number of material changes to the existing regulations.

Key proposals

The key proposals are as follows:

(i)         Repeal of the service provision change rules (SPC rules):

Have ever felt nostalgic about the operation of  service provisions changes under TUPE 1981?  If you have, you may get the chance to travel back in time as the first, and most significant, proposal in the Consultation is to repeal the service provision change rules introduced in 2006 by the Labour Government.

The SPC rules brought most service provision changes within the scope of TUPE.  In doing so, the UK went further than its obligations under the ARD, with the intention of:

  • affording greater legal certainty;
  • ending exposure to fluctuating case law;
  • creating a level playing field in the tendering process; and
  • reducing costs.

The Government considers that the SPC rules have failed to deliver the benefits originally anticipated and impose an unnecessary burden on business.  In particular, the Consultation highlights that the SPC rules:

  • act as a disincentive to service providers bidding for contracts;
  • are unhelpful to clients who wish to effect a change of personnel working on the contract and are unable to achieve this;
  • do not resolve legal uncertainties to the extent anticipated.  Whilst there is more certainty on the application of TUPE, this is outweighed by new uncertainties (e.g. on issues such as assignment and fragmentation); and
  • the need to obtain legal advice has not gone away

If implemented, the law would revert to the pre-2006 position, meaning that a service provision change would only fall within the scope of TUPE where there was: "a transfer of an economic entity which retains its identity".  What this means is that there must be an organised group of staff who are assigned to a common task which is to be carried out by another employer.  There must also be a significant transfer of assets or a major part of the workforce in terms of numbers or skills.  

Pre-2006, the identification of a TUPE transfer in a service provision change scenario was a complex task, founded upon ever changing European case law.  However, the Government's view is that many of the uncertainties that existed at that time have receded as European case law has become more settled. 

Nevertheless, it seems somewhat optimistic to conclude that the repeal of the SPC rules will reduce the need for legal advice.  It will be less clear whether TUPE applies at all and advice will need to be obtained on the application of TUPE, as well as on existing areas of uncertainty such as whether an employee is assigned to the transferring part of the business.

The Government accepts that there is a need for a lead in period to allow clients and contractors time to plan for the change in the law.  The Consultation seeks views on the appropriate period (ranging from less than a year to five years or more).

(ii)         Employee Liability Information (ELI):

The next major proposal is to repeal the ELI provisions, which require the transferor to provide the transferee with specified information about the transferring employees.

In the Consultation, the Government acknowledges that it is in the interests of: (i) transferees to receive information in good time to help business planning; and (ii) employees in that it facilitates the early provision of information and consultation about the transfer.

Nevertheless, the Government identifies certain problems with the ELI provisions including that:

  • the ELI is often supplied at the very last minute (i.e. 14 days pre-transfer);
  • last minute provision of ELI means that the transferee cannot easily assess costs or communicate what measures it might need to take post-transfer.  This, in turn, has an adverse impact on employees; and
  • the categories of information are very limited.

Given the acknowledgment of the benefits of ELI, one option would be to bolster this provision by requiring earlier disclosure of better quality ELI.  However, the Government has rejected such a move on the basis that this would place a greater burden on business. 

Instead, it will be left to the parties to co-operate on the disclosure of information.  Whilst this might be achievable in many standard business transfer scenarios, this will not always be the case where there is a service provision change.  The Government acknowledges this is a problem but their position is that if the SPC rules are repealed, then the impact of losing the ELI provisions will be lessened as fewer service provision changes will be covered by TUPE. 

(iii)        Removal of provisions preventing: (a) variation of terms and conditions; and (b) dismissals, for "a reason connected to the transfer":

Fifty seven percent of respondents to the Call for Evidence thought that the lack of provision for post-transfer harmonisation of terms and conditions was a "significant burden" on business and led to a "two-tier" workforce.  Given ECJ case law on this area, the Government does not consider that permitting harmonisation is compatible with the ARD. 

Instead, it intends to remove the provision which prohibits an employer from making changes which are "connected to the transfer".  As such, varying terms and conditions will only be prevented where they are made by reason of the transfer itself.  The Government, however, sees merit in retaining the ETO exemption, which would mean that even a variation of terms to be made by reason of the transfer could potentially be valid where an ETO reason entailing changes in the workforce could also be identified.

Similarly, in relation to dismissals, the proposal is to remove the prohibition on dismissals if the sole or principal reason is a reason "connected" to the transfer that is not an ETO reason entailing changes in the workforce.  Instead, dismissals will only be prohibited where they are by reason of the transfer itself.  As for variations of terms, however, the ETO exemption would be retained, which would mean that even a dismissal by reason of the transfer could be valid where an ETO reason could be identified.

These changes will offer employers much greater flexibility to vary terms and conditions and make dismissals in a transfer situation.

(iv)        Change of location to be a valid reason for dismissal:

It is proposed that the ambit of "an ETO reason entailing changes in the workforce" be expanded to include a change in location of the workforce, thereby aligning the meaning of an ETO reason with the definition of redundancy in the Employment Rights Act 1996 (which permits place of work redundancies).  This would mean that dismissals by reason of a change in the location of the workforce would no longer be automatically unfair.

The Government considers that such a change would be consistent with the ARD's intention that dismissals for genuine business reasons should be permitted. 

(v)         Permit the transferor to rely on the transferee's ETO reason to justify a pre-transfer dismissal:

Currently, a transferor is unable to rely on a transferee's ETO reason to justify a pre-transfer dismissal.  As a consequence, this means that the employment relationship continues for longer than needed even though there is a valid ETO

The proposal is to allow transferor to rely on the transferee's ETO reason in order to justify a pre-transfer dismissal.  In such circumstances, the liability for the dismissal would remain with the transferor and not be inherited by the transferee.

Other proposals:

The other proposals in the Consultation are:

  • Material detriment dismissals: limiting the scope for claiming unfair dismissal where it is alleged that a transfer would involve a materially detrimental change in the working conditions of the employee.
  • Collective redundancies: allow pre-transfer consultation by the transferee with the transferor's employees to count for the purposes of collective redundancy consultation.
  • Collective agreements: placing a time limit of 1 year for which terms and conditions derived from collective agreements must be observed by the transferee post-transfer.
  • Relaxation of consultation requirements for micro-businesses: employers with 10 of fewer employees would be released from the requirement to elect employee representatives (where this would have been necessary) and may deal with employees directly.
  • Better guidance: better online guidance will be introduced with a focus on problematic areas such as the meaning of assignment.

Comment

The proposed reforms of TUPE are in keeping with the Government's agenda to ease the regulatory burden on businesses and put an end to the gold-plating of EU Directives.  Whilst the Consultation sets out many proposals which will be welcomed by employers, there may also be concern that this deregulatory agenda is trumping at least some valuable law.

For example, the Government acknowledges that disclosure of ELI has positive impacts but does not work as well as it could in its present form.  Rather than change the provision to improve its operation, the proposal is to repeal the rule altogether.   The Government hopes that the repeal of the SPC rules will act as a "spur to competition within the outsourcing market".   However, a return to the pre-2006 position is unlikely to evoke memories of a "golden age" for many.  The complex factual and legal analysis required to assess whether a service provision change will fall under the scope of TUPE will not be relished by clients and contractors.

Consultation on proposed changes to TUPE 2006

 

 

As part of its ongoing review of employment law, the Government has issued a Consultation on its proposals to reform TUPE 2006.  The consultation seeks views on a variety of proposals aimed at ending the gold-plating of the Acquired Rights Directive, including a proposal to repeal the service provision change rules which were introduced in 2006.  The Consultation closes on 11 April 2013 and the Government's response is expected by 4 July 2013.  The Government has indicated that if responses support change, it will seek to implement the majority of the reforms in October 2013.

Background

In November 2011, the Government called for evidence on the effectiveness of TUPE 2006 (TUPE), due to concerns that the regulations were overly complex and that they "gold plated" the Acquired Rights Directive (ARD). The Call for Evidence focused on whether TUPE could be improved or whether guidance and best practice examples could better address the issue. The Government issued its Response to the Call for Evidence on 14 September 2012.  You can read our report on the Response here.  Despite the cautious tone of the Response on the prospects for reform of TUPE, the Consultation now proposes a number of material changes to the existing regulations.

Key proposals

Please click [here] [Debs: please can you insert a link to summary table Word doc] to view our quick reference table which summarises: (i) the areas of TUPE which are in scope for reform; (ii) the existing position and; (iii) the proposed change in each area.

The key proposals are as follows:

(i)         Repeal of the service provision change rules (SPC rules):

Have ever felt nostalgic about the operation of  service provisions changes under TUPE 1981?  If you have, you may get the chance to travel back in time as the first, and most significant, proposal in the Consultation is to repeal the service provision change rules introduced in 2006 by the Labour Government.

The SPC rules brought most service provision changes within the scope of TUPE.  In doing so, the UK went further than its obligations under the ARD, with the intention of:

  • affording greater legal certainty;
  • ending exposure to fluctuating case law;
  • creating a level playing field in the tendering process; and
  • reducing costs.

The Government considers that the SPC rules have failed to deliver the benefits originally anticipated and impose an unnecessary burden on business.  In particular, the Consultation highlights that the SPC rules:

  • act as a disincentive to service providers bidding for contracts;
  • are unhelpful to clients who wish to effect a change of personnel working on the contract and are unable to achieve this;
  • do not resolve legal uncertainties to the extent anticipated.  Whilst there is more certainty on the application of TUPE, this is outweighed by new uncertainties (e.g. on issues such as assignment and fragmentation); and
  • the need to obtain legal advice has not gone away

If implemented, the law would revert to the pre-2006 position, meaning that a service provision change would only fall within the scope of TUPE where there was: "a transfer of an economic entity which retains its identity".  What this means is that there must be an organised group of staff who are assigned to a common task which is to be carried out by another employer.  There must also be a significant transfer of assets or a major part of the workforce in terms of numbers or skills.  

Pre-2006, the identification of a TUPE transfer in a service provision change scenario was a complex task, founded upon ever changing European case law.  However, the Government's view is that many of the uncertainties that existed at that time have receded as European case law has become more settled. 

Nevertheless, it seems somewhat optimistic to conclude that the repeal of the SPC rules will reduce the need for legal advice.  It will be less clear whether TUPE applies at all and advice will need to be obtained on the application of TUPE, as well as on existing areas of uncertainty such as whether an employee is assigned to the transferring part of the business.

The Government accepts that there is a need for a lead in period to allow clients and contractors time to plan for the change in the law.  The Consultation seeks views on the appropriate period (ranging from less than a year to five years or more).

(ii)         Employee Liability Information (ELI):

The next major proposal is to repeal the ELI provisions, which require the transferor to provide the transferee with specified information about the transferring employees.

In the Consultation, the Government acknowledges that it is in the interests of: (i) transferees to receive information in good time to help business planning; and (ii) employees in that it facilitates the early provision of information and consultation about the transfer.

Nevertheless, the Government identifies certain problems with the ELI provisions including that:

  • the ELI is often supplied at the very last minute (i.e. 14 days pre-transfer);
  • last minute provision of ELI means that the transferee cannot easily assess costs or communicate what measures it might need to take post-transfer.  This, in turn, has an adverse impact on employees; and
  • the categories of information are very limited.

Given the acknowledgment of the benefits of ELI, one option would be to bolster this provision by requiring earlier disclosure of better quality ELI.  However, the Government has rejected such a move on the basis that this would place a greater burden on business. 

Instead, it will be left to the parties to co-operate on the disclosure of information.  Whilst this might be achievable in many standard business transfer scenarios, this will not always be the case where there is a service provision change.  The Government acknowledges this is a problem but their position is that if the SPC rules are repealed, then the impact of losing the ELI provisions will be lessened as fewer service provision changes will be covered by TUPE. 

(iii)        Removal of provisions preventing: (a) variation of terms and conditions; and (b) dismissals, for "a reason connected to the transfer":

Fifty seven percent of respondents to the Call for Evidence thought that the lack of provision for post-transfer harmonisation of terms and conditions was a "significant burden" on business and led to a "two-tier" workforce.  Given ECJ case law on this area, the Government does not consider that permitting harmonisation is compatible with the ARD. 

Instead, it intends to remove the provision which prohibits an employer from making changes which are "connected to the transfer".  As such, varying terms and conditions will only be prevented where they are made by reason of the transfer itself.  The Government, however, sees merit in retaining the ETO exemption, which would mean that even a variation of terms to be made by reason of the transfer could potentially be valid where an ETO reason entailing changes in the workforce could also be identified.

Similarly, in relation to dismissals, the proposal is to remove the prohibition on dismissals if the sole or principal reason is a reason "connected" to the transfer that is not an ETO reason entailing changes in the workforce.  Instead, dismissals will only be prohibited where they are by reason of the transfer itself.  As for variations of terms, however, the ETO exemption would be retained, which would mean that even a dismissal by reason of the transfer could be valid where an ETO reason could be identified.

These changes will offer employers much greater flexibility to vary terms and conditions and make dismissals in a transfer situation.

(iv)        Change of location to be a valid reason for dismissal:

It is proposed that the ambit of "an ETO reason entailing changes in the workforce" be expanded to include a change in location of the workforce, thereby aligning the meaning of an ETO reason with the definition of redundancy in the Employment Rights Act 1996 (which permits place of work redundancies).  This would mean that dismissals by reason of a change in the location of the workforce would no longer be automatically unfair.

The Government considers that such a change would be consistent with the ARD's intention that dismissals for genuine business reasons should be permitted. 

(v)         Permit the transferor to rely on the transferee's ETO reason to justify a pre-transfer dismissal:

Currently, a transferor is unable to rely on a transferee's ETO reason to justify a pre-transfer dismissal.  As a consequence, this means that the employment relationship continues for longer than needed even though there is a valid ETO

The proposal is to allow transferor to rely on the transferee's ETO reason in order to justify a pre-transfer dismissal.  In such circumstances, the liability for the dismissal would remain with the transferor and not be inherited by the transferee.

Other proposals:

The other proposals in the Consultation are:

  • Material detriment dismissals: limiting the scope for claiming unfair dismissal where it is alleged that a transfer would involve a materially detrimental change in the working conditions of the employee.
  • Collective redundancies: allow pre-transfer consultation by the transferee with the transferor's employees to count for the purposes of collective redundancy consultation.
  • Collective agreements: placing a time limit of 1 year for which terms and conditions derived from collective agreements must be observed by the transferee post-transfer.
  • Relaxation of consultation requirements for micro-businesses: employers with 10 of fewer employees would be released from the requirement to elect employee representatives (where this would have been necessary) and may deal with employees directly.
  • Better guidance: better online guidance will be introduced with a focus on problematic areas such as the meaning of assignment.

Comment

The proposed reforms of TUPE are in keeping with the Government's agenda to ease the regulatory burden on businesses and put an end to the gold-plating of EU Directives.  Whilst the Consultation sets out many proposals which will be welcomed by employers, there may also be concern that this deregulatory agenda is trumping at least some valuable law.

For example, the Government acknowledges that disclosure of ELI has positive impacts but does not work as well as it could in its present form.  Rather than change the provision to improve its operation, the proposal is to repeal the rule altogether.   The Government hopes that the repeal of the SPC rules will act as a "spur to competition within the outsourcing market".   However, a return to the pre-2006 position is unlikely to evoke memories of a "golden age" for many.  The complex factual and legal analysis required to assess whether a service provision change will fall under the scope of TUPE will not be relished by clients and contractors.

Consultation on proposed changes to TUPE 2006