Legal Masterclass: TUPE and Pensions

Transcription

1 Legal Masterclass: TUPE and Pensions February 2014 Rhian Brace Partner, Employment

2 What we are going to cover Introduction and Context TUPE Overview Contractual Issues and Due Diligence Pensions

3 Transforming Rehabilitation MoJ publication Transforming Rehabilitation: A Strategy for Reform

4 TUPE Overview Provides employment rights to employees when their employer changes Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) 31 January 2014 Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 came into force which amend TUPE 2006

5 TUPE overview Why such an important issue? Legal mechanism to move staff Legal mechanism to avoid termination payment liability on transfer Legal mechanism to preserve continuity for statutory employment protection purposes Employment protection and cost avoidance measures

6 When does TUPE apply? When there is a relevant transfer When a business or undertaking, or part, is transferred to a new employer ( Business Transfer ) When a service provision change takes place e.g. a service is outsourced, insourced or there is a change of service provider ( Service Provision Change )

7 Business Transfers Defined Where a business or part of an undertaking or business situated immediately before the transfer in the UK transfers to another and there is a transfer of an economic entity which retains its identity

8 Business Transfers Defined Economic entity An organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary

9 Business Transfers Defined Economic entity which retains its identity Examine all the characteristics of the transaction: - The type of operation - Are tangible and intangible assets transferred? - Is majority of the workforce transferred? - To what extent are activities carried out pretransfer the same as those afterwards?

10 Transfers of part of a business What will qualify as part of an undertaking? - An organised (pre-existing) grouping of employees brought together to carry out the activities concerned - Forensic auditing to verify the autonomy of the part - Questions over assignment Multi-party public sector transfers

11 Service Provision Change Client Client Client Service Service Service Service

12 SPC issues SPC can arise - where just some of activities in original service contract are re-tendered/awarded to new contractor; or - where the original service contract is split into two or more components (each assigned to different contractor)

13 SPC issues Must consider if - activities are fundamentally the same; and - whether organised grouping BUT - activities may be so divided that no SPC fragmentation

14 Conditions for a Service Provision Change (SPC) The post-transfer activities must be fundamentally the same as the activities carried out previously There must be an organised grouping of employees situated in Great Britain which has, as its principal purpose, the carrying out of the activities concerned on behalf of the client i.e. employees must be assigned

15 Conditions for a Service Provision Change (SPC) The client intends that following the SPC, relevant activities will be carried out by the transferee, other than in connection with a single specific event or task of short term duration

16 When does TUPE not apply? Transfers of shares or membership Administrative reorganisation within public administrative authorities In certain insolvency situations If the employee objects to the transfer

17 Potential TUPE on Transforming Rehabilitation Transfer of staff from Probation Trusts to CRC Transfer of staff from CRC to Tier 2 by Any subsequent service transformation within Tier 1 which includes: - Business Transfer - Service Provision Change Current suppliers of Tier 2 type services

18 Main practical effects of TUPE The employment of employees assigned to the undertaking transfers automatically Rights and liabilities arising out of or in connection with the contract of employment transfer automatically (except for core pension entitlements and criminal liability) Continuity of employment is preserved

19 Protection from Dismissal If the reason for the dismissal is the transfer, the dismissal is automatically unfair But... a dismissal which takes place for an economic, technical or organisational reason entailing changes in the workforce (ETO reason) will be potentially fair

20 Protection from Dismissal Employees under 2 years service (or 1 year if commenced employment before 6 th April 2012) cannot claim unfair dismissal so not protected

21 Restrictions on changes to terms Variations to terms and conditions are void if the reason for the variation is the transfer BUT permitted if - Reason for the variation is for an ETO reason provided the parties agree; or - Reason for variation is the transfer but the terms of the contract permit the employer to make such a variation

22 Collective Agreements Do transfer but TUPE amendments 2014 Allow renegotiation of terms derived from collective agreements if - Variation takes effect more than one year after the date of the transfer; - Provided the varied terms are no less favourable when considered together than those applied immediately before the variation Provide for a static approach

23 Information and Consultation The transferor is required to inform affected employees or their representatives about the transfer and any measures it and the new employer will be taking The employer is required to consult employees on the measures to be taken employees may claim up to 13 weeks pay for failure to do so

24 Obligation to Inform Information to be provided: - Fact of the transfer - Proposed transfer date - Reasons for the transfer - Legal, economic & social implications - Any measures to be taken in relation to affected employees - Information relating to the use of agency workers

25 Obligation to Consult The employer is required to consult employees on the measures to be taken (actions, steps or arrangements) to seek agreement Consultation must be long enough before a relevant transfer to enable the employer of any affected employees to consult the appropriate representatives

26 Obligation to Consult Appropriate representatives will be union representatives where TU recognised Elect employee representatives where none specified Joint and several liability!

27 Collective redundancies Common for redundancies to take place after TUPE transfer May be overlapping obligations to collectively consult under TULRCA 1992

28 Collective redundancies TUPE amendments 2014 make it clear that consultation by transferee before transfer can count for statutory collective consultation if - transferee has notified transferor in writing; and - transferee agrees

29 Contractual Issues and Due Diligence

30 Risk & Liability in the Contract Commercial objectives Negotiating position Key risk areas Legal position (liabilities, obligations to inform and consult and provide information) Due diligence (Buyer beware!)

31 Due Diligence Transferor Must provide supporting information Transferee Acquired liabilities (Categorise risks: major/minor, imminent potential, high/low impact)

32 Industry Standard Partnering Agreement Discussion Draft Version 2 issued 10 January 2014 No draft provisions on Employees or Pensions

33 Industry Standard Partnering Agreement Explanatory Guide - Highlights that necessary to get legal/professional advice and specialist advice on employment and pensions (if transfer of staff) - Acknowledges that issue of sub contract may result in transfer of staff (by way of TUPE or statutory transfer order) - Provides some limited draft wording Guidance Notes 17 (Employee Transfers)

34 Industry Standard Partnering Agreement Parties need to consider what pension arrangements are in place for transferring employees Relevant issues: - Whether staff covered by Fair Deal for staff pensions: staff transfer from central government

35 Industry Standard Partnering Agreement Relevant issues: - Whether Cabinet Office Statement of Practice on Staff transfers in Public Sector applies - Whether minimum level of TUPE pension provision applies - Whether there is an obligation to auto-enrol workers in a qualifying pension arrangement Guidance note 18

36 Use Clear Definitions in Partnering Agreement Transferring Employees list in schedule Retained Employees list in schedule Liabilities: claims, damages, rights of action, fines, penalties, awards, interest, legal costs, expenses and all other liabilities whatsoever

37 Use Clear Definitions in Partnering Agreement Transfer Date date of transfer for Transferring Employees

38 Employee Liability Information (ELI) Duty on the Transferor to provide ELI Notified in writing or readily accessible form Provided at least 28 days before the transfer (if transfer takes place on or after 30 April)

39 Employee Liability Information (ELI) If transfer takes place before 30 April, time limit remains at 14 days Any subsequent changes to be notified to the Transferee by the Transferor

40 Employee Liability Information (ELI) Identity and age of each employee Particulars of Employment (s1, ERA 96) Recent disciplinary or grievance matters (2yrs) Recent court or tribunal cases brought by employee (2yrs) Foreseeable claims by employee Information about collective agreements

41 Employee Liability Information (ELI) Transferee may make claim if ELI not provided To be made within 3 months (or a reasonable period) Tribunal may make award of compensation, minimum 500 per employee

42 Employee Liability Information (ELI) Compensation should be just and equitable : - Loss sustained by Transferee - Terms of contract between Transferor and Transferee

43 Additional Information As part of due diligence transferee will generally want more than ELI e.g.: Contract of employment and policies Pension details Any other benefits Details of absent employees e.g. maternity, paternity, sickness absence

44 Additional Information Identify key personnel Profile of employees e.g. sex, race, disability Non-employee information And often much more!

45 Transferor s Warranties No TUPE related dismissals by Transferor No changes in T&Cs connected with TUPE Transfer No future commitments/assurances except as disclosed No strike or other industrial action occurring, suspended or threatened Funding position of pension scheme as at transfer date Caps and collars e.g. No transferring or accrued liability in excess of [x] Sufficient consultation and compliance with TUPE obligations

46 Transferee s Warranties No proposals to change T&Cs Continuance of union recognition and collective bargaining No changes to T&Cs for a fixed period ( TUPE plus ) Continuing membership of LGPS (possibly broadly comparable pension scheme) Sufficient consultation and compliance with TUPE obligations

47 Indemnities Overview Promise to pay no causation and remoteness Apportionment of risk as between Transferor and Transferee

48 Indemnities Overview Options: - limit by percentage e.g. 100%, 50% - up to aggregate/individual cash limit - time limitation e.g. 6 months after transfer date - claim limitation e.g. certain claims only Potential losses damages, awards, costs, interest

49 Indemnities: Risk Allocation Transferor Both Transferee Pre transfer acts and omissions Failure to inform and consult Post transfer acts and omissions Additional unforeseen pension costs?

50 Issues to Watch for Mechanics of replacing service provider: - new provider needs benefit of warranties and indemnities to offer keen price Employees transfer back to Tier 1 - Tier 1 likely to want protections - if no transfer on = redundancy payments: indemnity may be required?

51 Operational Clauses Service provider s liability for acts & omissions of employees and contractors in respect of: - third parties - Tier 1 own employees

52 Operational Clauses Service provider s compliance with Tier 1 procedures on: security, data protection, confidentiality, health & safety - Tier 1 right to demand withdrawal of employees costs?

53 Operational Clauses Tier 1 involvement in filling key vacancies? Staff competence and skill sets Compliance with equal opportunities Security vetting compliance and maintenance Cooperation of key staff in audits etc

54 Public Sector Response to TUPE Cabinet Office Statement of Practice 2013 TUPE Plus Two Tier Workforce Code - England - Wales Fair Deal for Staff Pensions

55 Cabinet Office Statement of Practice Introduced in 2000 and revised in 2007 following TUPE 2006 amendments Updated in December 2013 Applies to transfers within public sector and from public sector to private and back again!

56 Cabinet Office Statement of Practice.. Where TUPE does not apply in strict legal terms, the principles of TUPE should be followed (wherever possible using legislation to effect transfers)

57 Cabinet Office Statement of Practice Requires appropriate arrangements for protection of redundancy and severance arrangements Small number of exceptions but expect to justify to Ministers Technically requires legislation without it cannot confer statutory benefits of TUPE (e.g. continuity of employment)

58 TUPE Plus Also known as TUPE GOLD Entrenchment of TUPE terms in transfer agreements - No change to terms and conditions for 10 years - Highest common denominator terms apply Feature of some early PFI schemes Difficult to justify when many public bodies are looking at ways of reducing cost

59 Two Tier Codes Today Abolished in England in December 2010, replaced by a flexible Principles of Good Employment Practice Welsh Ministers committed to reissuing and extending scope of Code - Consultation Paper issued 1 October 2013 (closed 20 December 2013) - Could result in two very different approaches within UK for service providers

60 Pensions

61 TUPE does not apply to occupational pensions Reg 10 - The rights of an Occupational Pension Scheme (OPS) do not transfer Reg 10(2) - Benefits that do not relate to benefits for old age, invalidity or survivors do transfer

62 TUPE does not apply to occupational pensions Note that any contractual obligation to contribute to a personal pension scheme (including stakeholder schemes and GPPS) will transfer to the buyer

63 Occupational Pension Schemes Transfer of Employment (Pension Protection) Regulations 2005 Final Salary Scheme Must: Satisfy the minimum contracting out reference scheme test OR Provide benefits of overall equivalent value with employer's contributions of at least 6% of pensionable pay and employee contributions of maximum 6% of pensionable pay Money Purchase or Stakeholder Scheme Must: Match employees contributions up to 6% of basic pay

64 Auto enrolment the basics Pensions Act Requires employers to automatically enrol eligible employees into a qualifying pension scheme Only eligible job holders automatically entitled - 22 up to state pension age - Earnings of 9,440

65 Auto enrolment the basics Regime in force July Series of staging dates from 1 October 2012 Opt out

66 Auto enrolment staging dates More than 250 employees: staging dates between 1 October 2012 and 1 February Between 50 and 249 employees: staging dates between 1 April 2014 and 1 April 2015.

67 Auto enrolment staging dates Fewer than 50 employees: staging dates between 1 June 2015 and 1 April New employers set up between 1 April 2012 and 30 September 2017: staging dates between 1 May 2017 and 1 February 2018.

68 Auto enrolment and TUPE Transferee employer that has passed its staging date must comply with: - Pension Protection Regulations Pension Act 2008 assess employees to establish autoenrolment status choose to operate a waiting period of up to three months before a jobholder becomes entitled to be auto-enrolled

69 Public Sector Pensions: Fair Deal 2013 Non-statutory policy Guidance came into effect in October 2013 Sets out how pension issues dealt with when staff compulsorily transferred from public sector

70 Public Sector Pensions: Fair Deal 2013 Standard practice which government will follow when staff transferred to non-public sector employers Staff to be offered continued access to Local Government Pension Scheme (LGPS) irrespective of whether TUPE applies

71 Public Sector Pensions: Fair Deal 2013 Fair Deal does not apply to other staff of contractor i.e. - Staff employed to deliver the outsourced service (but not compulsorily transferred) Transferred staff continue to be eligible following subsequent compulsory transfer - This includes any transfer to a sub-contractor

72 Public Sector Pensions: Fair Deal 2013 Fair Deal provides that Partnering Agreement - should specifically oblige Tier 2 contractors to provide continued access to LGPS whilst still employed in the public contract - Ensure contractor complies with Participation (Admission Agreement - Breach will give rise to entitlement to terminate Partnership Agreement

73 Public Sector Pensions: Fair Deal 2013 Contractors as Scheme Employers will be subject to LGPS regulations and jurisdiction of Pensions Regulator and Ombudsmen

74 Broadly Comparable If, due to exceptional circumstances, continued access not appropriate - Must be consultation and agreement with recognised trade union or if none, staff - Broadly comparable must be offered as an alternative

75 Broadly Comparable Determined by the GAD (Government Actuary s Department) Must be no material detriment overall Consideration of compensation if neither possible (actual advice required on calculation of compensation)

76 Local Government Pension Scheme Governed by the Local Government Pension Scheme Regulations Final salary OPS (Occupational Pension Scheme) but changing to CARE (Career Average Revalued Earnings) scheme in April 2014 Retirement age 65 but increasing in line with state pension age from 2014

77 How to gain access to LGPS To become employing authority of LGPS Reg 4, 5 or 6 must apply Reg 4(2) must be employed by a Scheme Employer ( i.e. most public sector organisations) Reg 5 a community admission body

78 How to gain access to LGPS Reg 6 any transferee admission body other than a community admission body that s providing or will provide a service or assets in connection with the exercise of a function of a scheme employer as a result of the transfer of the service or assets by means of a contract or other arrangement.

79 Admission Agreements Agreement for the period that the external provider is employed in connection with the delivery of the outsourced function Executed by the transferor employer, the transferee employer and the administering authority (if different from transferor)

80 Admission Agreements Reg 6 requires that only those employees of the transferee admission body who are employed in connection with the provision of the services/assets are eligible

81 Admission Agreements Admission body must take advice on risk of premature termination due to insolvency of the transferee Usually dealt with by way of Bond The level of risk must be kept under assessment

82 Admission Agreements Regulations provide that: - the admission agreement terminates if the admission body ceases to be such - the admission body must pay contributions due of it - give an undertaking to notify the administering authority of changes that may affect members entitlement

83 Admission Agreements At the end of the Admission Agreement a demand for contributions to bring the fund to a fully funded level could arise following actuaries valuation No description of the basis of the valuation No statement that it has to be a one off contribution

84 Admission Agreements The contractor will want to cap contributions by: - ring fencing part of the LGPS fund in respect of eligible transferring employees and requiring that the fund will be fully funded - bid to pay % of pensionable salary during the life of the contract

85 Thank you Any questions?

86 Contact Details Rhian Brace Partner, Employment T: E: Owen Willcox Senior Associate, Public Services T: E: