Providing a service? The new TUPE Regulations.

Stephen Cavalier

Richard Arthur

Thompsons Solicitors

Controversy, Confusion and Litigation• When is there a TUPE transfer?

• Can employers change terms and conditions?

• Which employees transfer?

• Which employer is liable for a failure to inform or consult?

• Do collective agreements transfer?

• Can employees object to transferring?

When is there a TUPE transfer?• “Standard transfers”;• New definition of “service provision

changes”;• TUPE applies to public and private

sectors; • Exclusion of “administrative

reorganisations of public administrative authorities”; and

• Share transfers still excluded.

“Standard Transfers”

• Transfer of an undertaking (or part) situated immediately before the transfer in the United Kingdom;

• Where there is “a transfer of an economic entity which retains its identity”;

• Encapsulates existing case law.

“Economic Entity”

• “An organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is ancillary or central”;

• Needs to be stable;

• Doesn’t need to be separate from the rest of the old employer’s undertaking.

“Retains its identity”

• Type of operation;

• Whether assets transfer;

• Whether or not a majority of the workforce is transferred; and

• The extent to which activities carried out before the transfer are the same as those carried out after.

Contracting-out

• ECJ rulings that the Directive applied to the transfer of ancillary services, and contracting-out;

• Similar cases won by the unions in the UK – eg Dines;

• Uncertainty from Ayse Suzen case;• Distinction drawn in the ECJ between

asset-reliant and labour-intensive undertakings.

“Service Provision Changes”

“Activities cease to be carried out by”:

• The client and are instead carried out by a contractor (contracting-out);

• A contractor and are instead carried out by a new contractor (second generation contracting); or

• A contractor and are instead carried out by the client (contracting-in).

Condition 1: Organised Grouping of Employees

• “..Organised grouping of employees…which has as its principal purpose the carrying out of the activities…”;

• “Organised grouping of employees” does not need to retain its identity;

• No exemption for “innovative bids”; and

• Includes a single employee.

Condition 2: Exclusion of “One-off Events or Tasks”

• The client must intend that the activities will be carried out “other than in connection with a single specific event or task of short term duration”.

• DTI example-contracts for security for the Olympic games.

Condition 3: Exclusion of Contracts for Supply of

Goods or Services• The activities must not “consist wholly or

mainly of the supply of goods or services”.

• DTI example – staff canteen/contract to provide sandwiches and drinks.

• No exclusion of “professional business services”.

Public Sector: Government Policy

• TUPE will usually apply;• Cabinet Office Statement of Practice:

“Staff Transfers in the Public Sector”;• Case-specific legislation;• “Staff Transfers from Central Government:

a Fair Deal for Staff Pensions”;• NHS Retention of Employment Model; and• Code of Practice on Workforce Matters in

Local Authority Service Contracts 2003.

Public Administrative Authorities

• TUPE does not apply to “an administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities”.

• Exclusion to be interpreted narrowly.

What Happens When TUPE Applies? (1)

• “Assigned” employees transfer automatically;

• Rights and liabilities under or in connection with the contract transfer;

• Continuity of employment is preserved;• Relaxation of automatic transfer provisions

in the event of insolvency;• Dismissals: automatically unfair (ETO

reasons).

What Happens When TUPE Applies? (2)• Variations to terms and conditions (ETO

reasons);

• Information and consultation;

• Recognition and collective agreements transfer; and

• Notification of “employee liability information”.

Who Transfers (and When)?

• Employees “assigned” to organised grouping of employees or resources;

• “Assigned” “other than on a temporary basis”;• Includes those who would have been employed

if they had not been unfairly dismissed for a reason connected with the transfer;

• Date on which “responsibility as employer” transfers.

The Right to Object to Transfer• If the employee refuses to transfer, without

more, she is treated as having resigned;• Where the transfer “…involves a substantial

change in working conditions to the material detriment…” the employee can treat herself as dismissed;

• DTI examples: major relocation of workplace;• No need for fundamental breach of contract;• No right to pay in lieu of notice.

Transferring rights and obligations

• Continuity of employment;

• Rights and liabilities under or in connection with the contract;

• Personal injury claims;

• Collective agreements;

• Not pensions.

The Werhof case

• Unions’ success in arguing for transfer of entitlements to pay awards;

• Werhof: “static” interpretation. Only applies to collective agreements in force at the date of transfer;

• Werhof not conclusive.

Changes to Terms and Conditions: New Mechanism (1)

Where the reason for the variation is:

• The transfer itself; or• A reason connected with the transfer that is not

an “ETO” reason

the variation is void.

Changes to terms and conditions: new mechanism (2)

Variations are permitted where the “sole or principal reason for the variation” is:

• A reason connected with the transfer that is an “ETO” reason; or

• A reason that is not connected with the transfer.

“ETOs”

“Economic, technical or organisational reason entailing changes in the workforce”;

• Change in job description or headcount;

• Harmonisation itself not permitted;

• Query whether variations for ETO reasons permitted by the Directive.

Transfer-Connected Dismissals: New Mechanism

• Mirrors scheme for permitted variations to terms and conditions;

• When is the reason for a dismissal or variation “the transfer itself” as opposed to “connected with the transfer”?

Insolvency (1)

Where the employer is subject to insolvency or bankruptcy proceedings “instituted with a view to the liquidation of the assets..”

• Rights in connection with the contract do not transfer; and

• There is no protection from dismissal.

Insolvency (2)

Where the employer is subject to “relevant insolvency proceedings”:

• The new employer is exempted from inheriting debts up to the limits which would have been payable under the statutory schemes if the employee had been dismissed; and

• An employer can agree “permitted variations” to terms and conditions.

Pensions

• Not transferred by TUPE (but see Cabinet office Statement of Practice);

• Limited protection in Pensions Act 2004;

• Employees can not resign and claim constructive dismissal; and

• The Beckmann and Martin cases: enhanced redundancy payments.

Information and Consultation (1)

Information to be provided:• The fact of the transfer, when and why;• The legal, economic and social implications for

affected employees;• The measures the transferor envisages it will

take in relation to affected employees; and• The measures which the transferor envisages

the transferee will take in relation to affected employees.

Information and Consultation (2)

Two further changes:

• Liability rests with the employer in default; and

• Joint and several liability for transferor’s default.

Employee Liability Information

The transferor must provide “employee liability information” to the transferee.

No right for the union to receive that information.

Interface with Other Employment Legislation and the Future

• Equalities Legislation;

• Industrial action;

• Statutory recognition;

• Territorial scope;

• Beware: the Government will attempt to amend the Directive to permit harmonisation.