Government consultations on and changes to employment law have been frequent and wide-ranging in recent years. The government is often accused of implementing proposals regardless of the views expressed by respondents to consultations; it is also generally accepted that so much change gives rise to uncertainty. The government has redressed the balance to some degree during the recent consultation exercise on reform of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE regulations).
TUPE exists to protect the rights of employees in a business transfer and to provide for consultation of employees who are affected by such transfers. It applies to transfers where a new business takes on the economic operations of an old one or where there is a service-provision change: that is, a contracting out, contracting in or re-tendering exercise.
The changes proposed in the draft TUPE regulations by the government will bring certainty to this often intimidating area of law; in addition, the government has demonstrated a willingness to act on the views of respondents.
This article does not cover all of the proposed amendments to TUPE covered by the draft regulations; it seeks to highlight the key changes that will bring benefits to employers and employees alike.
Service provision changes
For some time, the government has been of the strongly held opinion that the extension of TUPE to service provision changes (SPCs) is unnecessary ‘gold-plating’ of the European Directive that TUPE implements. It had been proposed that the application of TUPE to SPCs would be repealed. However, 67% of respondents were opposed to the repeal, largely on the basis that the law as it stands brings certainty; prior to TUPE 2006, when such situations were governed by case law, SPC-type transfers were a minefield for employers and employees, whose rights were far from clear.
Instead of repealing the provisions, the legislation will be amended to provide that the activities carried on after the SPC must be “fundamentally the same as the activities carried out previously,” reflecting case law.
Further, the government has decided against its original proposal to repeal the obligation on a transferor to provide “employee liability information” (e.g. identity and outstanding disciplinary issues) to the new employer. Instead, the government will strengthen the measure so that the transferor must provide the information 28 (rather than 14) days before the transfer.
This can only be good news for transferee companies, who need to know the liabilities they will be taking on with sufficient time to prepare and, if applicable, seek appropriate indemnities from the old employer.
TUPE can act as shackles on a new company that has taken over the operations of another business. The government has sought to reduce TUPE’s restricting effects. One such restriction is Regulation 4, which renders void any amendment to an employment contract where the sole or principal reason for the change is the transfer itself or a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce (an ‘ETO’ reason). This often causes problems for employers seeking to integrate new staff into their business.
Regulation 7 renders any dismissal automatically unfair in the same circumstances.
The new TUPE regulations apply restrictions on amendments and dismissals only where the change or dismissal is because of the transfer, thus rendering it possible to make changes or dismiss employees where the reason is simply “connected with” the transfer. However, guidance is likely to be required for when the reason is the transfer, rather than a reason “connected with” the transfer.
The proposed new regulations permit amendments to terms derived from or incorporating collective agreements after a year has passed from the transfer, as long as any changes “when considered together, are no less favourable to the employee than those which applied immediately before the variation.”
Currently, for an employer to demonstrate a valid ETO defence to a claim for automatic unfair dismissal or in relation to a change of terms, it must show a change in job functions or numbers. The scope of an ETO defence will be widened to cover changes to workplace location. This is hugely beneficial to transferees, as changing employees’ place of work without changing functions or numbers is often a desirable step to take the new business forward and make efficiencies.
Microbusinesses (defined as companies with ten or fewer employees) will be permitted to consult directly with employees regarding a transfer, rather than being required to elect representatives (where there is no recognised union or existing representatives).
Microbusinesses will not be exempt from the changes to TUPE, despite the regulatory moratorium introduced in April 2011; the changes are aimed at reducing the burden on businesses and the government wants all businesses to benefit.
The government intends the new TUPE regulations to come into force on 31 January 2014. As alluded to above, improved guidance on TUPE will also be published.
For more information on TUPE regulations or how the issues in this article may affect your business, contact our Leeds employment team.